European stock markets fell and the euro slid sharply Tuesday on news that Greece faces new elections after last-ditch talks failed, just as Francois Hollande became France's new president.
Socialist Hollande, 57, was sworn in nine days after defeating right-winger Nicolas Sarkozy, and later headed to Berlin to meet German Chancellor Angela Merkel for talks dominated by the eurozone crisis.
Ahead of Hollande's first foreign visit as president, official data showed that Germany avoided entering recession in the first quarter, while France also side-stepped a contraction to register zero growth for the same period.
The 17-nation eurozone also logged zero growth in the first quarter of the year, confounding gloomy predictions of recession.
At the close, London's benchmark FTSE 100 index of top companies lost 0.51 percent to 5,437.62 points while in Frankfurt, the DAX 30 dropped 0.79 percent to 6,401.06 points and in Paris the CAC 40 fell 0.61 percent to 3,039.27 points.
Milan's FTSE Mib slumped 2.56 percent to 13,311 points, on news that Moody's has downgraded the ratings of 26 Italian lenders amid fears over their exposure to the debt crisis.
Madrid's IBEX 35 index slid 1.6 percent to 6,700.70 points, as the nation's troubled banking sector remained under intense pressure.
In foreign exchange trade, the European single currency dived below $1.28 to $1.2771 -- the lowest point since January 18. That compared with $1.2842 shortly before 1315 GMT on Tuesday.
"Investors are pricing in a Greek exit from monetary union with a risk that it could turn out to be disorderly," said VTB Capital analyst Neil MacKinnon.
"In addition, the problems facing eurozone banks, especially those in Spain, are a significant worry.
"Add a changing political landscape in Europe, you end up with a very unattractive and volatile situation."
Investor sentiment was hit hard, and morning gains erased, after socialist Pasok party leader Evangelos Venizelos said Greece will have to hold fresh elections after talks on forming a new government broke up.
Trade had been boosted earlier by data that showed export-driven Germany grew 0.5 percent in the first quarter, beating expectations for slender expansion of 0.1 percent.
That followed a 0.2-percent contraction in the final three months of last year, dodging a recession defined as two consecutive quarters of negative growth.
France's economy meanwhile showed zero growth in the first quarter of 2012, official statistics agency INSEE said. It also revised downward fourth-quarter growth to 0.1 percent from 0.2 percent.
And the eurozone itself also registered zero growth, narrowly avoiding recession after a 0.3-percent contraction in the last quarter of 2011, according to statistics agency Eurostat.
"Despite German GDP data coming in ahead of expectations, storm clouds still hang over the eurozone," warned analyst Mike McCudden at online brokerage Interactive Investor.
"With the ongoing Greek saga raising deeper contagion concerns throughout the eurozone amidst a general backlash against austerity measures, Hollande and Merkel have around 24 hours to announce a plan which will offer some hope to the markets."
Merkel was a Sarkozy ally and the architect of the European Union's fiscal austerity drive. Hollande opposed the speed and depth of the cutbacks demanded by Berlin, and wants to renegotiate the eurozone fiscal pact.
Germany is committed to budgetary discipline, and Merkel has repeatedly insisted since Hollande's election that the pact, signed by 25 of the 27 EU countries and already ratified in some, is not open to renegotiation.
Asian shares mostly fell on Tuesday, but on Wall Street US shares rose from fresh data for April showing inflation well under control and energy prices receding for the first time this year.
At around 1600 GMT, the Dow Jones Industrial Average added 0.35 percent and the S&P 500 rose 0.46 percent. The tech-heavy Nasdaq was up 0.73 percent as fever built for Facebook's looming IPO.