Sovereign debt rather than bank liquidity due to exposure to toxic debt is fuelling worries over a second and more dangerous credit crunch.
This time indebted governments will be unable to access capital to again refinance failing banks, restore market confidence and ease the funding squeeze.
Banks have raised less than 60% of the $650 billion they need to refinance maturing debt this year.
The wholesale money market is drying up. Banks have also stopped lending to each other, with many banks using the ECB for money.
At the same time deposits are being withdrawn creating a slow motion run on European banks.
New bank regulations are also restricting banks ability to make loans as they need the funds as reserves to meet the new capital requirements.
