US stock futures point to a sharply lower open Tuesday following the long weekend as conditions continue to deteriorate in Europe. The German DAX has been the weakest index over the last month, dropping another 5% to make it a 40% correction in 5 weeks. This morning, though, European markets are trying to stabilize, and they will look to the US market for potential calming influence.

Perhaps one of the driving factors was the weekend loss by German Chancellor Angela Merkel’s Christian Democratic Union in regional elections in her home state. The Euro-Zone has so far been able to maintain solidarity amid the relentless sovereign debt crisis, but such political results seem like they could wipe out supportive governments, leaving in their wake leaders who are opposed to providing financial assistance to at-risk nations.

Italy played its part in the weekend panic as the country braced for a general strike in response to possible austerity measures. Bond yields have been surging in both Italy and Spain, as the crisis looks to be accelerating. Investors continued to flee risk assets and pile into the safe-haven gold, which hit new all-time highs. Gold bugs continued to be rewarded, but gold continues to become extended, and could see a quick snap-back at some stage (although it doesn’t seem imminent).

The Swiss National Bank also took the surprising step of putting a floor on the Swiss franc, saying they would “enforce this minimum rate (1.20 francs) with the utmost determination and is prepared to buy foreign currency in unlimited quantities.” The strong currency has made exports for Swiss companies more expensive and hurt those companies. The US dollar rallied 8% against the franc, and the Euro jumped 9%.

The banking sector continues to be the ugly duckling of the market, as fears persist that we could see another major failure. UBS has been in the cross-hairs, and the stock is down more than 10% pre-market. Goldman Sachs (GS) is also close to opening through lows. The 3X Financial Bear ETF (FAZ) gained 11% on Friday, and is up another 9% this morning.

Right now, bearishness is reaching a fever pitch with several firms recommending a move out of global equities. Many are beginning to talk about the implications of the break-up of the Euro Zone after Merkel’s party’s political losses in Germany, and the result of a disbanded EU would seem to be catastrophic. Keep an eye on Europe, and be very careful trading in this panic environment.

*DISCLOSURE: No relevant positions