Part of the current problem is that the billions governments have been pumping into banks to keep them afloat is being hoarded and not loaned out, as the banks do not trust each other any more, and are wary to lend in the teeth of a possible economic collapse.
Unlocking the money markets is a key measure, but there is no clear sign from EU governments they will guarantee all interbank lending.
“The idea is that if bank A lends to bank B, and bank B can’t pay the money back, then the government will cover bank A’s loan. This would mean no more risks in interbank relations, which should allow money to flow again,” says one economist.
Governments can also force change by buying banks, or taking shares in them, but the leaders stipulated taxpayer’s money could only be used this way if it does not distort competition.
Finally the EU leaders’ Wednesday summit may seek ways of collectively regulating banks, until now largely a national affair.