It is not voluntarily that European banks are abandoning the private sector in order to take refuge in the government.

Sir, I refer to John Dizard’s “Risk of a European break-up has not marginally disappeared”, December 7.

In it Dizard writes about “the collapse of private sector lending, which in the euro area as a whole has declined for more than a year and a half. That money had to go somewhere… ‘risk-free’ government paper has been a perfect place for the banking system to stuff the cash they are not lending to companies”. Dizzard makes it sound like this was a voluntary normal market based rational decision by the banks. It was not!

It is only the result of extremely distorting bank regulations which require banks to have a lot more of that capital they are currently so lacking of, when lending to the “risky” private sector, than when lending to the “infallible sovereign”.

Dizzard argues the European banking system is being “renationalized” but the sad reality is that banks are de facto being turned into statist government agents… and unfortunately we all know what happens to economies when their financing goes down that line.