Banking stocks have taken a battering today over fears that France may be the next sovereign to face a ratings cut.
French president Nicolas Sarkozy has ordered new budget cuts to reduce France’s public spending deficit, a response to market concerns over its indebtedness.
Shares in French banks, which are among the most exposed to Italian and other peripheral eurozone government debt, have slumped as investors fretted over the continuing sovereign debt crisis.
Societe Generale fell more than 20 per cent while BNP Paribas lost more than ten per cent.
The fear that France and its banks hold too much European debt also shook US markets, leaving them about 2.5 per cent shortly after opening.
Again banks led the fallers as the KBW bank index slid 6.2 percent. Large financial institutions fell sharply.
Bank of America is down 7.4 per cent and Citigroup down 7.9 per cent.
JPMorgan Chase is off 4.5 per cent while Goldman Sachs is down 6.3 per cent.
In London, Barclays and RBS have been most affected, down 6.1 per cent and 5.9 per cent respectively.
Sarkozy, who played a leading role in frantic diplomacy over the weekend aimed at halting two weeks of market turmoil, has summoned his top ministers and central bank chief to emergency talks, interrupting the summer recess.
Budget Minister Valerie Pecresse said after the talks she would target tax loopholes in the 2012 budget. "We will not deviate one inch from our deficit-cutting targets," she told BFM television.
France - the most indebted of the euro zone's six AAA-rated states - has vowed to cut its deficit to 4.6 per cent of GDP next year and 3 per cent in 2013, down from 7.1 per cent in 2010 and an expected 5.7 per cent this year.
Yet public debt is way above the euro zone's recommended 60 per cent of GDP ceiling at around 85 per cent this year, and the market turmoil deals a blow to hopes investment will pick up after a bleak second-quarter.