Financial shares were heavy fallers, with Royal Bank of Scotland down 3.8% and BNP Paribas 3.1% lower.
In early trading the FTSE 100 index fell 0.9%, France's Cac 40 shed 1.4%, and Germany's Dax was 1.3% down.
On Friday, eight European banks failed a stress test on their finances, while another 16 were said to be near the danger zone.
The European Banking Authority published the results of the stress tests after European stock markets had closed on Friday.
Meanwhile, the price of gold topped $1,600 an ounce for the first time as investors put money into the haven commodity. The spot gold price hit $1,600.40, before pulling back slightly to $1,598.76.
Concerns among investors have also been fuelled by the Obama administration's failure to agree a debt-ceiling deal.
The US risks defaulting on its debts unless Congress can agree new rules that will allow Washington to borrow more money.
On Thursday eurozone leaders are due to attend a summit to put together a second bail-out package for debt-laden Greece.
“Investor concern will remain over the credibility of the tests given that the tests did not include an assessment of the impact of sovereign defaults”
Lee Hardman Bank of Tokyo analyst
German Chancellor Angela Merkel has said she wants clear commitments from private investors that they would contribute to the bail-out.
On Sunday she described the summit as "urgently necessary" and said she wanted "a result", 'Pull together'
The head of the European Central Bank (ECB) Jean-Claude Trichet called on governments to speak with one voice, saying they can overcome the debt crisis if they stick together.
He said: "It is a question of will and determination. The countries of Europe have always demonstrated that they pull together when the challenges are very high."
But he repeated that the ECB will not accept Greek bonds as collateral for loans if the country defaults on its debts.
However, some economists believe an orderly default is the only way Athens can resolve its debt crisis.
The results of the stress tests failed to ease markets' worries because they did not take into account the impact of any country defaulting.
"On the face of it, the tests highlight that the European banking sector is in better health than expected, although crucially investor concern will remain over the credibility of the tests given that the tests did not include an assessment of the impact of sovereign defaults,"
said Lee Hardman, an analyst at the Bank of Tokyo.
In a further sign of scepticism in the financial markets, yields on Italian and Spanish bonds rose.
The rate on ten-year Italian bonds spiked up 0.19 percentage points to 5.88%, while the Spanish equivalent rose 0.18 percentage points to 6.26%.
The euro also fell as dealers bought up Swiss francs and yen. In trading in Asia the euro fell at one point to a record low against the Swiss franc of 1.1365.
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