Fears of a eurozone credit crunch intensify following the release of data showing a sharp slowdown in bank lending to the private sector.
The data released by the European Central Bank (ECB) indicates that loans to the private sector fell by 1.0 percent in December in comparison with 1.7 percent in the previous month.
"Signs of a modest credit crunch in the eurozone are amplifying," Christian Schulz, a senior economist at Berenberg Bank says.
The slowdown comes despite recent liquidity injections by the ECB into banks at very low rates, aimed at averting a credit crunch in the bloc.
The slowdown in lending has raised concerns that banks have been storing the cash rather than lending it to businesses.
"The data will reinforce concern that credit conditions are now increasingly tightening and posing a mounting risk to already struggling eurozone economic activity," IHS Global Insights' Howard Archer said.
The ECB has calculated a decrease in the growth of the eurozone money supply in December as well. This is thought to represent a growth in the demand of the economy.
There are fears that more delays in resolving the eurozone debt crisis, which began in Greece in late 2009 and infected Italy, Spain and France last year, could push not only Europe but also much of the rest of the developed world back into recession
Insolvency now also threatens heavily-debt-crippled countries such as Portugal, Italy, Ireland, and Spain.
