Markets in Europe were down on Monday following the announcement of Italian Prime Minister Matteo Renzi that he intends to resign after a defeat in a key referendum.
The pan-European Stoxx 600 began Monday 0.05 percentage lower with bank stocks leading the losses, falling more than 1.2 percent.
The Italian MIB was 2 percent lower, but political concerns were spreading to other bourses.
The euro has fallen during Asia trading to a 20-month low.
Nearly 60 percent of Italian voters rejected the government's proposal on constitutional reform. Renzi had said he would resign if the reform wasn't approved by voters.
Investors are worried over the possibility of new elections in the third-largest euro economy and with the impact that the ongoing political instability will have for the fragile banking system.
The troubled Italian bank Monte dei Paschi di Siena is meeting advisers Monday morning to discuss whether to pull a recapitalization plan of 5 billion euros (USD 5.29 billion), the Financial Times reported.
Unicredit is trying to sell its asset manager, Pioneer, to Amundi for about 3 billion euros. The deal would help the Italian bank to boost its capital ratios, the Financial Times reported.
Claus Vistesen, chief euro zone economist at Pantheon Macro, said in a note: "The economy could easily grind to a halt due to political uncertainty. It could also prevent urgent action on the country's ailing banks. A deal with the EU on recapitalization can't be postponed for much longer if Italian politicians want to avoid a sudden failure of one or more of the country's mid-size banks."
European finance ministers are gathering in Brussels on Monday, but the Italian representative Pier Carlo Padoan has cancelled his attendance.
Meanwhile in France, Prime Minister Manuel Valls is set to announce his bid for the presidency later Monday, according to Reuters.
