By Marcus Walker and Charles Forelle

BERLIN–Greece and other struggling eurozone countries suffered a sharp selloff in financial markets on Thursday,
as investors recoiled at Europe’s mix of deteriorating economic data and political gridlock.

An investor scramble with echoes of the eurozone’s debt crisis of 2010-12 pushed the yield on Greece’s 10-year
government bonds to nearly 9%, a level at which the country probably wouldn’t be able to finance itself on bond markets
as Greek politicians hope to next year.

Yields also rose in every major eurozone country except Germany. Italy, Spain, Portugal and Ireland were the worst
hit after Greece. Spain attracted unusually weak demand for long-term bonds it sold on Thursday. European stock markets
also tanked.

Behind the market moves is a growing fear that Europe’s economic recovery, never strong, has stalled, putting the
continent at risk of prolonged stagnation and potentially a damaging deflation that could revive doubts about the
sustainability of debt burdens in countries such as Italy.

“Relaunching growth is the best way to stabilize the market,” French President François Hollande told
reporters on Thursday. He said European Union leaders need to address “the weak state of the European economy” at their
planned summit next week.

Entrenched disagreements between Germany, France, and European Central Bank and other actors about how to revive
growth are holding the eurozone back from a coherent policy response, many policy makers say. A German-led camp wants
more fiscal austerity and economic deregulation in France and Italy, while others view more expansionary fiscal and
monetary policies as essential.

Italy’s Prime Minister Matteo Renzi called on European policy makers to unite around a coordinated policy effort to
revive European growth. “Either we all emerge united or the crisis that is returning dramatically to the international
markets will have no winners,” Mr. Renzi told a meeting of European and Asian leaders in Milan.

“For the past year, investors have lost sight of the eurozone, but now they’re having a look because of what’s
happening between France and Germany, and the noise from Greece. And they don’t like what they see,” said Nicolas Veron,
fellow at Brussels think tank Bruegel and the Washington-based Peterson Institute for International Economics.

Greece is once again leading a eurozone market rout because of doubts about its ability to secure stable financing,
thanks to the government’s determination to end its bailout program early and the rising chance of early elections in
early 2015.

Greek Prime Minister Antonis Samaras, in a bid to win support from antiausterity voters, has said Greece should
exit its tough bailout program from the eurozone and International Monetary Fundat the end of 2014 and fund itself from
private investors.

“This is the market saying ‘no thanks,'” said Gareth Colesmith, a portfolio manager at Insight Investment. “There
are no bids in Greece.”

Rising Greek yields are a sign that demand for Greek bonds is fast drying up–raising serious doubts about whether
Athens can borrow the roughly EUR9 billion ($11.49 billion) it would need next year from the markets at an affordable
interest rate.

In addition, “the market seem to have woken up to the fact that this government might not last beyond February or
March,” said Nick Malkoutzis, editor of Greek economics and politics analysis site MacroPolis.gr. The government is
struggling to find enough support in parliament to elect a new head of state in early 2015, and failure would trigger
snap elections.

Opinion polls suggest the left-wing anti-bailout party Syriza could well lead the next government. “Syriza is an
unknown quantity and it lacks experience. That worries European and IMF officials and the markets,” said Mr. Malkoutzis.

To help Greece’s fragile banking sector, the ECB decided on Thursday to boost available funding for Greek lenders
that depend on the ECB for their cash needs. The measure allows Greek banks to borrow more cash in return for the
collateral they can offer the ECB.

The eurozone selloff isn’t, so far, comparable with the financial panics that nearly broke the eurozone apart in
2010-2012. But it carries echoes of the early signs of the eurozone crisis in late 2009, when the unraveling of Greece’s
budget led investors to begin to question the sustainability of the finances of other countries around the eurozone
periphery.

European government officials have been “deluding” themselves that the crisis was over and the eurozone would
recover, said Charles Wyplosz, professor of international economics at the Graduate Institute Geneva.

But with austerity dominating budget policies and monetary policy “impotent,” the region’s tepid recovery relied on
exports, Mr. Wyplosz said. Now, global growth is weakening and exports aren’t enough to pull Europe out of trouble, he
said.

“What we see now is the revelation that the situation in the eurozone is very precarious,” said Mr. Wyplosz. “We
are sitting on a powder keg.”

Tommy Stubbington in London, Emese Bartha in Frankfurt and Alkman Granitsas in Athens contributed to this article.

Write to Marcus Walker at marcus.walker@wsj.com and Charles Forelle at charles.forelle@wsj.com

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