Stocks in both Paris and Frankfurt were down by more than 2% on Wednesday morning, following the downgrading of Greece's debt to "junk" status.

Spain's leading index is down 3.3%, while in Portugal - which also had its credit rating cut - shares fell 4%.

Meanwhile the euro fell to a fresh one-year low against the dollar before recovering slightly.

Overnight Japan's leading share index, the Nikkei 225, closed down more than 2.5% after steep falls in European stocks on Tuesday.

Greece's stock market regulators have also been forced to impose a ban on short-selling, amid concerns that Greek bank shares are being undermined by speculators.