Debt fears again ravage Europe’s markets -- and drag Wall Street down

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After a one-day respite, European markets have crumbled again on Tuesday on fears that the European Union’s $146-billion bailout plan for Greece won’t be enough to stem a broader government debt crisis on the continent.

‘Markets have given a clear ‘thumbs down’ to the Greek aid package,’ said Win Thin, a currency strategist at Brown Bros. Harriman & Co. in New York.

Europe’s mess, and fresh worries about an economic slowdown in China, have sent Wall Street reeling as well, with the Dow Jones industrials down about 221 points, or 2%, to 10,930 at about 9:10 a.m. PDT.

The market yield on two-year Greek government bonds soared above 14% after falling to 10.28% on Monday. Worse, yields also resurged on Portuguese and Spanish government bonds, signaling investors’ doubts about those countries’ ability to handle their debts without help from the rest of Europe.

The euro currency has plummeted to a new one-year low of $1.303 from $1.321 on Monday.

Spanish Prime Minister Jose Luis Rodriguez Zapatero said speculation about a bailout for Spain was “complete madness” but that didn’t do much to change the mood. Spanish stocks dived 5.4%, leading a broad-based retreat in battered European equity markets.

For Greece, ‘The markets are telling us that the aid package has not lessened default risk by any significant amount,’ Thin said.

-- Tom Petruno