European shares fall sharply as policymakers seek to tame hot inflation

European shares dropped sharply on Monday while bond yields surged as comments from central bank policymakers heightened fears of aggressive measures to stamp out inflation amid rising risks of a recession.

The pan-European STOXX 600fell 0.8% to a more than one-month low, with rate-sensitive tech stocks falling the most, down 1.4%. Germany's ten-year yield jumped 10 basis points (bps) to a two-month high.

European Central Bank (ECB) board member Isabel Schnabel warned over the weekend that central banks must act forcefully to combat inflation, even if that dragged economies into recession.

That followed Federal Reserve Chair Jerome Powell's warning on Friday that the Fed would raise rates as high as needed to restrict growth. 

Joining the chorus, ECB governing council member Francois Villeroy de Galhau said on Saturday the bank needed another "significant" hike in September, while ECB policymaker Martins Kazaks said a euro zone recession was very likely but that alone would not bring down inflation, and the bank should opt for a big rate hike next month.

Markets now price in two-thirds risk the ECB could hike rates by 75 bps at its September meeting, up from 24% last week. 

Markets in the United Kingdom were closed for a summer bank holiday.