LONDON — The brewing economic crisis in Europe appeared to be sharply escalating Monday amid fears that near-bankrupt Greece may not be able to avoid a default with its creditors, threatening major European banks sitting on massive stockpiles of troubled country debt.

Stock markets plunged across Europe, fueled by the worsening data out of Greece and rumors that France’s three largest banks, which hold tens of billions of euros worth of Greek debt, may see their ratings cut by a top credit agency this week.

Some European banks were trading at bottoms not seen since the worst of the 2008 financial crisis. Investors seem concerned that bad European debt could spread through the global financial system in much the same way that bad U.S. subprime mortgages did three years ago.

In New York, the Dow Jones Industrial Average, the S&P 500 and Nasdaq fell sharply after the markets opened. By midafternoon, the Dow and S&P hovered down about 1 percent, while the Nasdaq was down 0.44 percent.

European shares were at two-year lows. London’s Stoxx 50 index regained some early losses, but still closed down 3.8 percent; German’s DAX fell 2.8 percent, recovering some from a 3.5 drop. But fears over France’s banking problems pushed the CAC 40 down to 4 percent at closing, after a nearly 5 percent dive earlier in the day.

Asian markets also fell Monday, with the Nikkei closing more than two percent lower, and the Hang Seng down more than 4 percent.

Investors seemed to be responding to in part to the tipping point being reached in Greece, the nation at the core of Europe’s debt crisis. Under intense pressure from other members of the 17-nation euro zone — mighty Germany in particular — the Greek government announced new austerity measures this weekend even as its recession appeared to be sharply worsening.

At the same time, reports in Germany indicated that the government, weary of bailing out Athens with taxpayers’ cash, was preparing for the worst, and warning investors they may be facing steep losses on Greek bonds.

Philipp Roesler, Germany’s economy minister, broke an unspoken taboo and conceded that Greece’s burdens are so great that it may need to default.

“To stabilize the euro, we must not take anything off the table in the short run,” Roesler told Germany’s Die Welt newspaper. “That includes as a worst-case scenario an orderly default for Greece if the necessary instruments for it are available.”

Der Spiegel magazine reported the German finance ministry was working through a number of scenarios for a Greek default, including one in which the troubled Mediterranean nation could be kicked out of the euro club and forced to reinstate its old currency, the drachma.

Increasingly, investors are troubled by the fast evolution of the crisis — from one that centered on troubled country debt, into one pivoting on the big European banks that hold massive amounts of that debt on their balance sheets.

Concern on Monday focused in particular on fears of an imminent credit downgrade on France’s three largest banks: BNP Paribas SA, Societe Generale SA and Credit Agricole SA.

“The main French newspapers are warning about a difficult week for France's biggest banks, with sources highlighting the possibility of a credit rating downgrade from Moody's Investors Service,” Citibank analysts wrote in a Monday note to investors. “Three banks were placed on review for possible downgrade last June 15, with a conclusion to be reached three months later.”

Investors were also still absorbing the resignation of Jurgen Stark, a German conservative economist, from the board of the European Central Bank on Friday, reportedly over his opposition to the bank’s program to aid troubled Italy and Spain by buying up vast amounts of their debt.

Stark’s departure highlighted the deep divisions in Europe over how to cure the region’s debt crisis. The debt purchase is meant to drive down borrowing costs for Italy and Spain — which have soared as panicked investors increasingly see the countries as risky investments — and prevent them from failing into a full-blown debt crisis.

Also on Monday, a major government-sponsored report in Britain recommended that British banks be required to take major steps to shield their consumer retail operations from their riskier investment arms, potentially costing British banks more than $11 billion. The move sent an array of British banking stocks sharply down in London trading.