Spain's euro woes: Crisis deepens
Spain is heading for a general bailout. It may not happen immediately, but that is what the figures suggest - that sometime in the autumn, maybe sooner, the country will need a full-blown rescue.
It is fiercely denied, of course. The Spanish Economy Minister, Luis de Guindos, said "Spain is a solvent country, there will be no bailout... I believe that Spain is a competitive country. We have a trade surplus with the eurozone, we have a very competitive tourism sector".
Then there are the facts on the ground. The bailout of the Spanish banks - sealed last Friday - lacks conviction. House prices are still falling. Indeed in the second quarter they were declining at the fastest rate since the start of the crisis. The real estate bubble, stoked by the eurozone's low interest rates, continues to take its toll.
Growth is elusive. Not this year. Not next, we are now told. Even 2014 is uncertain. Investors suspect that, like Greece, Spain is trapped in a spiral of decline with 25% unemployed.
The regions are now raising their bankrupt hands. First Valencia, the home of so many vanity projects, needs state financing. It has debts of around 20bn euros (£15.5bn; $24bn) and needs 2bn urgently, otherwise groups like healthcare suppliers won't be paid.
Murcia is the next in line. It has debts of 2.8bn and says it will ask Madrid for 300m by September. Catalonia is said to be in difficulty, with the largest debts of all the regional governments: 42bn euros.
No wonder that the markets turned negative on Friday, just hours after the eurozone's finance ministers agreed on an interim bailout of the banks. The reaction caught the Spanish government by surprise. They expected their borrowing costs would ease as a result of what they described as a "prompt and well-defined clean-up operation".
The mood in the country has changed. There are daily "flash demos". The people are weary of austerity and are increasingly rebellious. It was under-reported at the time but the crowds on the streets last Thursday night in Madrid may have reached 100,000. The rubber bullets flew. There were protests in 80 other towns and cities. Even off-duty police and firefighters joined the protests. What is significant is that it is no longer just the unions on the streets.
During the rest of the year Spain must raise 26bn euros in long-term debt. With the regions pleading for help it may need significantly more, but Spain is effectively shut out of the markets. The borrowing costs for 10-year bonds at 7.2% are clearly not sustainable.
As the IMF said last week, "the viability of the monetary union is at stake".
Yet it is not just Spain. Greece has not been settled. There are questions over how it will make a 3bn-euro bond payment next month. Its prime minister says the country is living through the equivalent of the American Great Depression.
Italy's weak spots
And Italy remains vulnerable. It has some first-rate companies and under Mario Monti it has embraced reforms, but they do not go far enough.
Like elsewhere there is resistance to change. Some of its regions - like Sicily - face bankruptcy.
All of this brings us back to where we have been many times before. The crisis in Spain and Italy is deepening. Neither the current eurozone bailout fund or its permanent replacement have enough funds to save those countries.
The mood in Germany is souring against further bailouts. It was interesting last week to hear Frank-Walter Steinmeier, the parliamentary floor leader of the Social Democrats (SPD) in the Bundestag, tell MPs before agreeing to more funding for the Spanish banks that "if the majority of us still vote in favour, this is only because in our view too the damage would be catastrophic if Germany denied aid to Spain... That also means however that it cannot go on like this."
We are not there yet, but the most dangerous moment for the eurozone is when Germany and perhaps other northern countries conclude that bailouts do not just fail to solve the crisis, but that taking on further liabilities will threaten their own economies in the long term. Then all bets will be off.