When the Lira Was Fun
European shares have fallen further on concerns that the debt crisis in the eurozone may spread to Italy and Spain.
Italy's main index was down 4%, while Spain's was 2% lower. German's Dax had lost 2.3% and the UK's FTSE 100 had shed 1.6%.
The yields on Italian and Spanish bonds also continued to rise as worries over the two countries grew.
On Monday, eurozone finance ministers said they were ready to pass new measures to stop the crisis spreading.
The euro was also lower, falling in early Tuesday trading to a four-month low against the dollar at $1.3958.
The concern is that Italy and Spain may have to follow Greece, Portugal and the Republic of Ireland and seek a European Union and International Monetary Fund (IMF) bail-out.
Eurozone finance ministers said increased efforts to "improve the euro area's systemic capacity to resist contagion risk" would include "enhancing the flexibility and the scope" of the European Financial Stability Facility (EFSF).
This is the bail-out fund to which eurozone member states contribute.
Finance ministers also agreed to look at lowering the interest rates that Greece, Portugal and the Irish Republic have to pay, plus lengthening the maturities of their loans.
Eurozone finance ministers are now due to meet later in Brussels with their colleagues from European Union nations that do not use the euro.
Concern that Italy could be the next country to require a financial bail-out comes as Italy's Finance Minister, Giulio Tremonti, announced that he would leave Tuesday's talks early so he could continue to work on an austerity budget to reduce Italy's public deficit.
He has proposed 48bn euros ($67bn; £42bn) in budget cuts over three years and aims to cut the deficit to zero by 2014 from this year's 3.9% of gross domestic product.
However, financial markets were unsettled by remarks from Prime Minister Silvio Berlusconi, who indicated in a newspaper interview that the austerity plan might not have full cabinet support.
Shares in Italian banks continued to fall, with Intesa SanPaolo down 6.6% and UniCredit 7.1% lower.
Spanish banks also declined further, as did lenders in other countries.
Santander's stock was down 5.4%, Germany's Deutsche Bank was 5.6% lower, and in the UK Lloyds Banking Group dropped 4.7%.
In a sign that investors are growing more risk averse, the yield on Italian 10-year bonds on Tuesday increased to 5.9% from 5.6% on Monday.
Meanwhile, yields on 10-year bonds issued by the Spanish government rose to 6.3%, from 6.1%.
Analysts say both these yields are now close to levels at which the two countries will have problems servicing their debts.
Asian shares had earlier closed lower, with the situation in the eurozone being closely monitored around the world.
Japan's Nikkei index lost 1.4%, while Hong Kong's Hang Seng declined 1.4%. US shares also declined overnight, with the Dow Jones down 1.2%.
Jean-Francois Robin of French investment bank Natixis said: "We find ourselves at one of the worst moments of the European monetary crisis.
"The idea of a contagion from the Greek crisis to other eurozone countries like Italy and Spain is gaining ground."
Eurozone finance ministers also discussed on Monday how, and by how much, banks and other financial institutions could contribute to a new rescue package for Greece.
However, no final decision was reached on this, as it also has to be agreed with the IMF.
Speaking from Washington, IMF managing director Christine Lagarde said it was not yet ready to discuss terms for a second Greek bail-out.
"Nothing should be taken for granted," she said.
Meanwhile, Greece's Prime Minister, George Papandreou, called for a comprehensive solution to his country's debt problems.
"I thus believe it is time now to address our fundamental problems head on and produce a comprehensive package of solutions that clearly signals our determination not to see the European project further damaged or destroyed," Mr Papandreou said in a letter to Jean-Claude Juncker, chairman of the eurogroup of finance ministers.