Fears that France and Holland will undermine a Europe-wide treaty to tackle the debt crisis plunged world markets into fresh turmoil yesterday.
Nicolas Sarkozy was beaten in the first round of the French presidential elections by socialist rival Francois Hollande, who plans to renegotiate a eurozone-wide agreement on limiting government spending to tackle the debt crisis.
And in Holland, the government is expected to call an election after a minority party refused to support plans for its austerity measures.
The political uncertainty saw the FTSE 100 Index fall more than 100 points, or nearly 2%, while markets in Europe suffered even sharper falls. To add to the gloom, Spain has slipped back into recession, Germany's manufacturing sector shrank at its fastest rate for nearly three years, and China's manufacturing sector also continued to decline, albeit at a slower pace than previously.
Meanwhile, a survey of the eurozone's manufacturing and services sectors showed further contraction in April, fuelling fears about the eurozone's economy.