The euro fell to $1.2831 against the dollar and was at an 11-year low versus the yen.
Markets were unsettled after France's cost of borrowing rose and a Spanish minister suggested its banks may face a higher bad loan bill.
Bank stocks dropped, with shares in Italy's UniCredit at a 19-year low.
Luis de Guindos, Spain's economy minister, told the Financial Times that its banks may face up to 50bn euros ($64.2bn, £41.3bn) in new bad loans - higher than previous public estimates by the government.
Later on Thursday, Spain will unveil more austerity measures.
French bank stocks fell, with Societe Generale down 4.8% and BNP Paribas down 4.1%.
Germany's Commerzbank and Deutsche Bank both fell more than 4%.
Spain's Santander dropped 3.3%. UniCredit fell 10% and its shares were suspended for the second day in a row. Read More