As the European markets were braced for another turbulent day, one analyst at Citi warned that a decade of economic slowdown could follow if Italy and Spain default on their debt repayments.
"If you let Italy and Spain default, you will have 10 years of depression in Europe," Matt King, global head of credit strategy at Citi , told CNBC Friday.
The euro zone once again seems endangered by market turbulence this week after France, the region's second-largest economy, became the latest country to face speculation about its credit rating and mass sell-offs in its major banking stocks.
Disappointing economic data released on Friday showing that French economic growth was zero in the second quarter of 2011 increased the pressure on President Nicolas Sarkozy.
This followed a 0.9 percent increase in growth in the first quarter. Declining household consumption was cited as the main factor in the lack of growth.
"Rumours are still swirling around France," John Wraith, fixed income strategist, BofA Merrill Lynch Global Research , told CNBC Friday.
"All of the countries in the euro zone are getting dragged into this vortex as the situation gets worse in the periphery."
This week, French banking stocks have suffered huge declines as panic about their exposure to peripheral euro zone economies spreads.
The mass sell-off has led to a ban on short-selling in France, Italy, Spain and Belgium for at least 15 days, starting Friday.
French banks have $450 billion of exposure to Italy, according to King, who doesn't think Italy will end up defaulting.
Moorad Choudhry, head of business treasury at Royal Bank of Scotland , who "doesn't really want" to be in French banks, told CNBC: "We've got governments that are spending beyond their means and banning short-selling is irrelevant and pointless.
"There's a lot of money in the world and it has to find a home."
The price of gold has scaled new highs this week as panicked investors look for safe havens.
"Right now people are shying away from what they previously thought were safe holdings, like euro holdings, and moving into safe havens territory," said Wraith.
"Investors have gone well beyond the point where they believe a solution is just around the corner."
He thinks that the reputation of sovereign bonds as an investment has been severely damaged by the financial crisis.
Markets are now awaiting a key meeting between Sarkozy and German Chancellor Angela Merkel next week.
Germany, the euro zone's biggest economy, is viewed as one of its most stable at the moment because of its relatively strong exports. However, much of this strength depends on the rest of the euro zone being able to buy German goods, according to King.
"When Merkel stares into the abyss of what default would mean for Europe, Germany will step back and look for a solution," he said. "The market just doesn't see this yet."