The only reason markets are really worried about sovereign debt is because what it does to bank balance sheets.

They couldn't care less whether Italy or Greece can or cannot pay their debts. Or even if the Euro collapses.

They worry most about whether the banks that hold the sovereign debt will go under if Greece defaults (a relatively minor matter) or if Italy defaults (a relatively major matter).

Because the banks are part of the markets themselves. And part of the global capital set-up which got us into this mess in the first place.

The banks that hold this debt could absorb the losses on sovereign debts, if it wasn't for the fact that these banks actually still have all the pre-collapse dodgy debts on the rest of their books.

This zombie debt is what creates the continuing crisis, not the sovereign debt. That just creates a tipping point.

The Wall Street Journal this week enlightened us as to how much overhanging zombie debt there still is in the system. And how it dwarfs the sovereign debt problem.

RBS, for example, still has €79.6 billion of assets overhanging, when its sovereign debt positions in struggling Eurozone countries are 'only' €10.4 billion.

Of course, you and I own 84 per cent of this bank. We helpfully nationalised that private debt and guarantee it every morning on the markets. The bailout happens every day.

HSBC still has €54.3 billion in credit market pre-2008 assets on its books, and 'only' £14.6 billion in eurozone dodgy sovereign debt.

Deutsche Bank has €51.9 billion in 2008 dodgy debt and just €12.8 billion in current sovereign euro-debt.

Indeed, according to Credit Suisse analysts, half a trillion dollars-worth of 2008 overhanging debt is held by 16 top European banks.

That is more than all of the sovereign debt held by banks in Greece, Ireland, Italy, Portugal and Spain put together.

And that's what we're all supposed to be worried about, is it?

I would assert that it is the failure to address this original issue that is causing the continuing crisis.

The markets would like us all to think that it is all about sovereign governments and their dodgy public sector debt.

It's actually still all about private sector debt and decisions by private sector people.

And it's still about all those last decade derivatives and Credit Default Swaps and Collateralised Debt Obligations and Special Purpose Investment Vehicles and Sub-primes of 2008. They are still there.

The unsustainable spreads between the Bund and Greek and Italian sovereign debt did not begin with public debt. Any graph shows that it actually started the day after Lehman's collapsed.

The ridiculous, headlong dive into European sovereign and bank debt by European banks over the last three years has just made an already bad situation worse.

The teetering house of cards simply gained another set of storeys.

Like a magician aims to do, our attention is diverted elsewhere so we don't notice the main action.

Magicians call this misdirection and distraction, and it works.

The markets would like us to be deceived that the sovereign debt is the real problem, because they would like politicians to do something, so they don't have to.

Let me repeat: the mess we were in, the mess we are in, and the mess we will continue to be in is a private sector, banking and global capital-led mess up. We are all supposed instead to point the finger at the public sector.

In addition, the Americans are taking an utterly hypocritical holier-than-thou approach at the moment. It's just a European problem, they assert, that Europe needs to sort out.

The overhanging zombie dodgy debt which still cripples global capital was very much a USA-initiated and USA-led global capital transmitted problem.

The American banks have just been better at getting this debt off their books and onto Europe's.

One of the reasons all of this austerity isn't working is that it is not addressing the real debt issue. Or is addressing the wrong debt issue.

The zombie banks are simply the vessels of the private zombie debt.

If, as a result of the failure of governments to see the real problem, and we are misdirected into action simply on public debt, we will dip back into another recession (and, let's face it, the UK and Europe is effectively in recession already). The real double whammy is that the return to recession will actually make the overhanging half a trillion dollars of private dodgy debt even dodgier.