Leaders warned of danger of new crisis

EUROPEAN finance ministers have been warned confidentially of the danger of a renewed credit crunch as a “systemic” crisis in eurozone sovereign debt spills over to banks.

In a report prepared for ministers meeting in Poland on Friday and Saturday, senior EU officials said the 17-nation eurozone faces a “risk of a vicious circle between sovereign debt, bank funding and negative growth”.

“While tensions in sovereign debt markets have intensified and bank funding risks have increased over the summer, contagion has spread across markets and countries and the crisis has become systemic,” the Economic and Financial Committee said.