Investors around the world appeared skeptical over the prospects of a deal.
"Clearly markets are taking fright from the messy and chaotic Italian election result," said Louise Cooper, financial analyst at CooperCity.
In Europe, Germany's DAX was down 176 points, or 2.3 percent, to 7,597 while the CAC-40 in France fell 99 points, or 2.67 percent, to 3,621. The FTSE 100 index of leading British shares slipped 84 points, or 1.3 percent, to 6,270.
Italy is hugely important for the future of the euro, and its apparent stability over the past six months has been one of the reasons that concerns over the currency have eased. Of the 17 European Union countries that use the euro, Italy has the second-highest debt burden as a proportion of its gross domestic product, at 127 percent. Only Greece's is higher. Italy has to spend around â¿¬80 billion a year just to service its debt.
The worry across in financial markets is that Italy's appetite for reform may wane and its debt situation may deteriorate. Though Italy's annual borrowing â¿¿ its budget deficit â¿¿ is relatively small compared with other euro countries at 3 percent of its annual gross domestic product, its overall debt stands at a colossal â¿¬2 trillion.
The Monti government enacted wide-ranging reforms to the budget and the economy. Though its borrowing rates have fallen in financial markets, the cost to Italians has been high, with the country mired in recession and unemployment on the rise.
Monti was a big loser in the election and Berlusconi ruled out an alliance with his predecessor, whom he blamed for driving Italy deeper into recession.
On Tuesday, Monti huddled with his ministers for the economy and European affairs, as well as Italy's central bank governor over the market developments, his office said.
Last July, concerns over the country's ability to pay down its debt â¿¿ despite the Monti reforms â¿¿ and the stability of the wider eurozone sent the interest rate on its 10-year bonds back up to a near-unsustainable 6.36 percent. This prompted European Central Bank chief Mario Draghi to offer to buy up unlimited quantities of short-term debt in countries struggling with high borrowing costs.