The term made a resurgence after America was forced to intervene to stop the eurozone crisis leading to a global financial collapse.
The US Federal Reserve has spearheaded a move, followed by central banks around the world, to lend money to ailing European banks that were struggling to borrow.
The Federal Reserve fears the euro crisis could derail markets in America and Asia, and panic started to spread through the German bond markets, which threatened to result in a credit freeze for European banks. The total collapse of the Euro has not been ruled out.
A spokesman for Prime Minister, David Cameron said: “Clearly there is a very serious situation in the financial markets at this time.
“We are experiencing a credit crunch and that central bank action is about trying to mitigate the effects of that credit crunch. They are ensuring they have the capacity to take action.”
Investors, particularly US money-market funds, are increasingly worried that the European banks are exposed to huge losses on loans they have made in Greece, Italy and other indebted eurozone countries.
The intervention by central banks led to a sharp increase in stock markets around the world. The FTSE-100 closed up 3.2 per cent, and the American Dow Jones index rose by 400 points. On Wednesday, before the New York stock market opened, regulators invoked special powers that would have enabled them to suspend trading if share prices were to begin swinging wildly.
In a statement, the Bank of England said: “The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank are today announcing co-ordinated actions to enhance their capacity to provide liquidity support to the global financial system.
“The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity.”
In another day of turmoil in Brussels, European finance ministers also admitted that they had failed to raise enough funds for a rescue fund to prop up the single currency.
As Olli Rehn, the European Commission vice-president responsible for economic affairs, warned that a summit of Europe’s leaders on Friday Dec 9 was now crucial, a senior European official warned that there were just 10 days to save the euro.
Alain Juppe, the French foreign minister, raised the stark prospect of a return to violent conflict in Europe. “It is an existential crisis for Europe,” he said.
“We have flattered ourselves for decades that we have eradicated the danger of conflict inside our continent, but let’s not be too sure.”
