A deepening tariff row and the Italian political crisis knocked investor confidence in the Eurozone's largest economy to its worst since 2012.
The closely followed Zew indicator of economic sentiment for Germany slumped by 7.9 points in June to hit a negative reading of 16.1 – the most bearish since September 2012 and well below the long-term average of 23.3.
British investor appetite for Italian assets also plummeted, according to Lloyds Bank. The balance of investors with a positive outlook on the country's stock indices fell to a negative reading of 18.9 per cent – far below the low of negative six for the year so far.
The darkened mood reflects a stormy start to the summer for Europe, in spite of fundamental economic conditions which appear to still be fairly strong.
Italy's political deadlock caused investors across the world to flee Italian assets and raised fears of a new election with euro membership a key issue. However, the populist coalition since formed has appointed a new finance minister who has firmly committed to staying in the euro.
Yet conditions could still worsen if tariffs on US imports introduced by the EU provoke a retaliation from President Donald Trump. At the weekend Trump alarmed allies with the threat of tariffs on car imports, a major export from Germany.
British investors' views on the financial outlook are "decidely mixed", according to Markus Stadlmann, chief investment officer at Lloyds Bank Private Banking.
He said: "Whilst optimists cite a softer US dollar and lower long-term bond yields in several major markets, making the case for resilience in equities, more pessimistic investors could be influenced by risks from Italian and Spanish politics and are worried about the rising trade tensions between the US and the EU."