Ratings agency Moody's warned on Monday that the chances of a default by Greece was "virtually 100%" and could undermine confidence in other countries in the eurozone.

The warning came as the cost of borrowing for Italy and Spain rose amid fears that Slovakia could lead a revolt against the EU's Greek bailout agreement.

All eurozone parliaments must offer their support for the deal, which includes a measure to reduce Greece's debts using a "voluntary" writedown of loans to European banks.

Markets jumped last week after the deal was agreed by European leaders, but criticism of the measures as insufficient and concerns over the need for each parliament to offer support has made investors increasingly nervous.

The 10-year Italian/German government bond yield spread widened 20 basis points to 280 basis points while the 10-year Spanish/German yield spread was 18 basis points wider on the day at 314.

Italy's main stock market index was down 2.1%, while the Stoxx Europe 600 Banks index was 2.9% weaker and the Thomson Reuters peripheral eurozone index fell 4.4%.

Moody's decision to cut Greece's debt rating by three notches to CA, just one notch above what is considered default, added to concerns that peripheral members of the eurozone are weaker than European leaders are prepared to admit.

The ratings agency warned that the bailout package will make it easier for Greece to reduce its debt, but said the country still faced medium-term solvency challenges and there were significant risks in implementing the required reforms.

"The EU programme implies that the probability of a distressed exchange, and hence a default, on Greek government bonds is virtually 100%," Moody's said.

Moreover, the ratings agency is concerned the package will undermine confidence in other countries because it expects a debt write-off could hit investments in Spain and Italy.

"The support package sets a precedent for future restructurings should the finances of another euro area sovereign become as problematic as those of Greece," Moody's said.

Stuart Thomson, chief economist at Ignis Asset Management, warned the bailout was insufficient to provide a safety net and warned Spain, Italy and Belgium will be downgraded by the end of the summer.

"The plan provides a great deal of sound and fury, but falls significantly short of delivering a solution. We believe that adding more debt on top of debt is ultimately unsustainable," he said.