The Netherlands led an increase in the cost of insuring against default on European sovereign debt to the highest in four weeks as the government offered to resign after lawmakers split over austerity plans.

Credit-default swaps on Dutch bonds jumped 11.5 basis points to 130 at 3:20 p.m. in London, according to data compiled by Bloomberg, the highest in five months. Corporate credit risk also rose as reports showed manufacturing contracted in the euro area and China.

Dutch Prime Minister Mark Rutte offered his cabinet's resignation after losing support of Geert Wilders's Freedom Party in his coalition following disagreement over deficit reduction plans. His government's fall could stifle policy making as euro-region debt rose last year to the highest since the start of the single currency, European Union figures showed.

"There is a danger that we will see a move to more radical, less Europe-friendly policies in the Netherlands," said Elisabeth Afseth, an analyst at Investec Bank Plc in London. "A change in the Dutch government raises concern as to whether they will get the budget through and whether they lose their triple A rating which is causing the widening at the moment."

David Fuller's view In the 'be careful what you wish for' department, it is hard to remember when we last had a comfortingly dull day in European politics. Political antagonism over austerity measures has spread from the Southern European and Ireland periphery to France and now the Netherlands.

Needless to say this has roiled markets today with declines of over 3% for several European stock markets. Obviously there is an ongoing crisis here but I am less pessimistic because austerity alone with not work.

The debate in Europe is now shifting towards some pro growth policies as well. This is sensible provided that they are genuine pro growth policies rather than more government jobs and earlier pensions for retiring public sector workers. I have no idea how any of this will play out in Euroland but it should be interesting.

Meanwhile, it is improving equity valuations by hastening the global stock market corrective process following mostly strong gains from the October 2011 lows.