The Frankfurt, Madrid, Milan and Paris stock markets suffered losses of more than 2.0 percent in afternoon trade, and the euro slid to $1.3456 from $1.3519 on Friday in New York.
Wall Street also opened down after Congress failed to reach a deal to cut the country's massive budget deficit and to extend stimulus measures into next year.
Spanish government borrowing costs meanwhile rose as the financial markets found no reason for confidence from a sweeping election win for a right-wing government committed to radical budget cuts so as to balance the public finances.
The yield or rate of return earned by holders of benchmark Spanish 10-year government bonds rose to 6.500 percent in late morning trading from 6.345 percent at the close on Friday.
"Equities are not a happy place to be right now with so many uncertainties shrouding the market," said Simon Denham, head of Capital Spreads trading group.
He added that the sell-off was being driven "by the wider concerns of the overall debt situation affecting not just Europe but the US as well.
"The foreign exchange traders are also in no mood for taking risks, so we have seen a hike in the safe havens that are the dollar and then yen," Denham added.
In European afternoon trade, Frankfurt's DAX 30 tumbled 2.55 percent, the Paris CAC 40 shed 2.77 percent and London's FTSE 100 dropped 1.95 percent. Madrid retreated 2.31 percent and Milan slumped 3.47 percent.
On Wall Street, the Dow Jones Industrial Average fell 1.25 percent in early trade, with the broad-based S&P 500 index down 1.39 percent and the tech-heavy Nasdaq Composite sliding 1.37 percent.
Asian shares closed mostly lower on Monday as markets awaited the outcome of key China-US trade talks amid simmering tensions between the economic superpowers.
Markets also reacted to news Japan logged an unexpected trade deficit in October, while business hub Singapore predicted sharply lower economic growth next year.
In Europe, Spain's right stormed to its biggest election victory ever on Sunday, winning over voters desperate for an end to soaring unemployment and the eurozone debt storm.
Spain's government was the latest to fall among the eurozone's so-called periphery nations this year after Ireland, Portugal, Greece and Italy all succumbed to a collapse of confidence in their sovereign debt.
Mariano Rajoy, leader of the conservative Popular Party, won support from voters lured by his promise to fix the economy and create jobs, even if it means more austerity.
European stocks fell sharply last week as Spain, Italy and France faced a sharp spike in borrowing costs.
A rise in the borrowing rate on French debt bonds and possibly slowing growth could meanwhile have a negative effect on France's top AAA credit rating but not immediately, Moody's warned on Monday.
France successfully placed 7.0 billion euros in short-term debt on Monday, with yields mixed amid strong demand by investors.
Poland's finance minister said meanwhile that the European Central Bank must intervene "massively" to buy the bonds of debt-wracked eurozone countries otherwise, Europe faces a catastrophe that could lead to war.
Jacek Rostowski, whose country holds the rotating EU president, told German daily Frankfurter Allgemeine Zeitung: "We have a hideous choice ... either a massive intervention from the ECB or a catastrophe."
If the eurozone were to break up, "we would lose a huge part of our economic output. There is a danger of a historic economic disaster -- like the Great Depression in the 1930s -- that would lead to war in Europe," he added.
The ECB has come under increasing pressure to act as the so-called "lender of last resort" to bolster indebted countries and prevent the crisis spreading throughout the eurozone.
The Frankfurt-based bank has refused, arguing that its sole responsibility is to protect against inflation, and has won the powerful backing of German Chancellor Angela Merkel whose spokesman bluntly reiterated the position Monday.
Germany also repeated its opposition to pooling of debts or issuing so-called eurobondsFor the latest updates on the stock market, visit Stock Market Today For the latest updates PRESS CTR + D or visit Stock Market news Today
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