Banking shares led a plunge of German stocks at the start of trading on Tuesday after the shock announcement of a Greek referendum on last week's EU debt rescue package.
The German blue-chip DAX 30 stocks index opened 3.37 percent lower and quickly fell 4.4 percent to an intraday low of 5,872.17.
At 9:45 am (0745 GMT), the DAX was showing a loss of 3.71 percent at 5,913.19 points.
Stock markets around the world took a hit after embattled Greek Prime Minister George Papandreou called on Monday for a confidence vote and a referendum on last week's EU deal to resolve the debilitating debt crisis.
If Greeks were to vote "No", it would scupper a designed to cut Greece's debt load of more than 350 billion euros ($495 billion) by around 100 billion euros.
Last week's plan also agreed to recapitalise banks to withstand the impact of a 50-percent loss on their Greek bonds as well as boost the European Financial Stability Facility rescue fund and provide Athens a fresh bailout.
"What will happen if people say 'No'? The risk is that the international community will turn off the supply of financing for Greece and the country will quit the euro," said Commerzbank analyst Christoph Weil. "Such prospects are unnerving investors."
Holger Schmieding, chief economist at Berenberg Bank, said there was "some residual risk that Greece may leave the eurozone if it rejected the offer of orderly debt relief in exchange for harsh new spending cuts and reforms."
This would be "negative for markets for equities and other risk assets. It could exacerbate potential financial turbulence and the eurozone recession," the analyst said.
The Greek move made it all the more important that Italian and eurozone policymakers, including the European Central Bank, build a reliable firewall around Greece to prevent more serious contagion to Italy, he said.
Financial stocks were among the hardest hit, with Commerzbank shedding 9.4 percent to 1.62 euros and Deutsche Bank down 8.3 percent at 27.84 euros
Insurer Allianz plunged 7.5 percent to 75.16 euros.