So, Europe's banks still have no access to money because they won't lend to one another. They won't lend to one another because the risk of unquantified, hidden liabilities is unknown. Unquantified, hidden liabilities include a share of the world's $500 trillion in the Russian-doll's nest of derivatives that fuelled the boom. In addition, the Open Market Value of the property against which Spanish banks have secured their loans is about half the value the banks are using. Best estimates of the UK banks' share of the residue of worthless derivatives, once all the trades have been collapsed back, is about $10 trillion. As the Mail reports today, the aggregate value of all the privately owned residential property in the UK is only $8.6 trillion; in other words, if every single penny of our own equity in our homes were assigned to the banks, they would still all be bust.
The reaction of European governments has not been to let the banks fall, but to convert bank debt to public debt, by socialising the banks' losses. Except that many governments, being completely broke, need to borrow the money to buy the banks' debts and the markets will only lend to them at prohibitive rates of interest. In the Eurozone, the answer being proposed is to pool all government debt, allowing Germany to strengthen the weak periphery - but this requires fiscal union, which needs, erm, political union.