Greece sent markets tumbling overnight after announcing plans to hold a referendum on the European debt deal designed to save the country.
London's FTSE 100 opened almost 100 points lower at 5,448 on Tuesday, while both the German Dax and French Cac fell by more than 3%.
Greek Prime Minister George Papandreou said yesterday that the deal - which will see Greece granted a €100bn-euro loan, with bond holders taking a 50% haircut on their holdings - had to be passed by the people of Greece.
According to the Telegraph, Papandreou told reporters: "The command of the Greek people will bind us. Do they want to adopt the new deal, or reject it? If the Greek people do not want it, it will not be adopted."
There have been large-scale protests in Greece against austerity measures demanded by the EU, and markets are now concerned the Greek situation could escalate the wider eurozone crisis.
The Greek rescue package is a key part of the agreement reached last week after marathon talks between eurozone leaders.
Overnight markets around the globe sold off as news of the proposed referendum emerged.
In the US the Dow closed down 2.26% at 11,955 points, while the S&P 500 was off 2.5% at 1,253.
In Asia, shares were also lower, with investors also fretting over weak Chinese factory data.
The Nikkei closed down 1.7% at 8,835.52 points, while in Hong Kong, the Hang Seng was off 2.4% at 19,396.
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