FRANKFURT (Bloomberg) - Europe's banks are facing déjà vu. Less than two years after the collapse of Lehman Brothers Holdings Inc., fresh tremors in the debt markets are threatening to shake the financial system.

This time the concern is not about sub-prime mortgages or exotic derivatives, it's about banks' holdings of bonds sold by European Union (EU) governments including Greece, Portugal and Spain. Pledges of $1 trillion in EU aid have failed to shore up the euro or dispel doubts about the region's finances.

Investors have punished the shares of European financial firms and driven up the cost of insuring against default by banks and insurers on concern measures aimed at reducing the region's budget deficits will choke economic growth. In a worst- case scenario, government debt restructurings could erode capital and spark another credit crunch, analysts say.

"There's a concern this may be Lehman II," said Konrad Becker, a Munich-based banking analyst at Merck Finck & Co. "The direct risks of writedowns and loan defaults combined with indirect ones such as mistrust between banks could lead to a systemic crisis."

The rate banks say they charge each other for three-month loans in dollars rose today to a nine-month high. The three- month London interbank offered rate in dollars, or Libor, reached 0.465 percent, the highest since August 5, according to the British Bankers' Association. The euro fell yesterday to its weakest against the dollar since 2006.

Banks in Greece, Portugal and Spain, which mostly dodged losses from the financial crisis of 2008, have suffered the biggest share declines. National Bank of Greece SA, the country's largest bank, dropped 42 percent in Athens trading this year through yesterday. Spain's Bankinter SA and Banco Bilbao Vizcaya Argentaria SA, Portugal's Banco Espirito Santo SA and Italy's Intesa Sanpaolo SpA each fell more than 30 percent.

The latest debt concerns spread across Europe just as EU economies were returning to growth and banks were emerging from the worst financial crisis since the Great Depression.

The credit crunch that began with the collapse of the US sub-prime mortgage market and swept away New York-based Lehman in September of 2008 led to $542 billion of writedowns and credit losses for European financial companies, data compiled by Bloomberg show. UBS AG of Zurich and Edinburgh-based Royal Bank of Scotland Group plc. were among financial firms that needed government help to survive.

Greece's public finances began rattling investors late last year, when the country more than tripled its budget deficit forecast for 2009 to 12.7 percent of gross domestic product. The shortfall prompted European Monetary Affairs Commissioner Joaquin Almunia to say Greece's finances had become a "concern for the whole euro area".

On April 22, the EU made an even higher estimate of Greece's budget deficit for last year: 13.6 percent of GDP.

Matters worsened when Standard & Poor's cut Greece's credit rating to junk on April 27, and also lowered Portugal to A-. It trimmed Spain one step to AA the following day.

The EU and International Monetary Fund cobbled together a 110 billion-euro ($136.4 billion) rescue package for Greece on May 2 to prevent contagion. About a week later, European leaders drew up an unprecedented emergency fund of as much as 750 billion euros to back countries facing instability and a programme of bond purchases by the European Central Bank.