Business confidence fell sharply in Germany in May, according to the closely-watched Ifo report.
The Ifo business climate index, which is based on a survey of 7,000 executives, fell to 106.9 in May, down from 109.9 in April.
In response, the euro fell to $1.2515 against the dollar - a 22-month low.
Separately, activity at French factories fell to the lowest level in three years, according to the latest survey by Markit.
Markit's purchasing managers' index (PMI) for France fell to 44.7 points in May from 45.9 points in April. A reading below 50 indicates shrinking activity.
In Germany, Markit's latest report also showed manufacturing activity hitting a three-year low, with the PMI dropping to 45.0 in May from April's 46.2.
"The flash PMI figures for May look horrible and provide a clear warning that eurozone GDP will almost certainly show a contraction in the second quarter after stagnating in the first quarter," said Martin Van Vliet, from the bank ING.
"It's not good," said Peter Dixon, from Commerzbank.
"The German ones were particularly disappointing as we had been expecting some more buoyancy."
"It clearly indicates that the evaporating sentiment that we have seen in recent weeks as the Greece crisis has intensified is having a big impact on the economy," he said.
Investors have been seeking the safety of German and UK government bonds. Prices of these bonds rose, driving yields on 10-year UK and German government debt to a record lows.
Meanwhile, a summit of European leaders on Wednesday evening failed to do much to boost confidence.
EU leaders want Greece to remain in the eurozone but to "respect its commitments", European Council President Herman Van Rompuy said.
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