Economic sentiment in the euro zone fell to near a three year low in July as its economy deepened its slump and businesses became more pessimistic.
The two and a half year debt crisis that spread from Athens - now struggling to stay in the euro zone - has continued to spread across Europe.
Spain's recession deepened in the second quarter and economic sentiment in both Germany and France took a hit data showed today.
Only non-euro zone member Sweden has upbeat news, reporting accelerating output in the quarter.
Eating away at fragile confidence that was badly damaged by the 2008/2009 financial crisis, Spain's economy shrank 0.4%from the previous quarter as it fought to overcome a burst housing bubble and to cut its budget deficit dramatically.
Investor concerns about Spain have pushed its funding costs to euro-era highs and the world's number 12 economy risks being pushed towards a full bailout unless it can regain market confidence, in turn hurting business confidence.
The mood in businesses across the euro zone fell to a 34-month low in July, near levels last seen after the collapse of US investment bank Lehman Brothers, the European Commission's sentiment index showed, with morale falling across all sectors.
The index fell to 87.9 points in July from 89.9 in June, worse than economists' expectations of 88.7 points. Business sentiment fell for the fifth month in a row.
European Central Bank President Mario Draghi vowed in London last week to do "whatever it takes to preserve the euro" and this Thursday's policy meeting will be closely watched.
Draghi's comments have raised hopes high, leading some economists say confidence could take a further hit if the ECB fails to convince markets it is taking effective action.
In a sign that the impact of the debt crisis is being felt across the euro zone and not just in the indebted south, morale posted its sharpest decline in a year in Germany, the bloc's biggest economy and largest contributor to the region's financial bailout funds.
Confidence in the euro zone's manufacturing sector, crucial to the euro zone's still relatively healthy export industry, continued its downward trend that started in March as production expectations fell and managers worried about their order books.
The mood also soured in France, the euro zone's second largest economy. President Francois Hollande is caught between trying to revive growth with major infrastructure projects and European Union rules requiring Paris to bring the budget deficit to below 3% of economic output next year.
A lack of consumer confidence in France and across Europe was highlighted earlier this month by French car maker Peugeot Citroen's decision to cut 8,000 jobs as it struggles with weak demand for its vehicles.
European Union leaders signed a pact in June to inject €120 billion into the economy, including a plan to increase the European Investment Bank's capital by €10 billion so it can raise its lending capacity by €60 billion.
While a weaker euro, record low euro zone interest rates and signs of stabilisation in China's economy could also help revive growth, the lack of confidence remains a ma
