Spain is heading inexorably towards a bailout, probably quite soon. It was always a case of smoke and mirrors to imagine that the promised €100bn (£78bn) package of support for Spanish banks would be enough and so it has proved.
This is a country with a collapsing economy, an imploding property market, banks nursing colossal losses, and 10-year bond yields at 7.5%. The question is not whether there will be a bailout, but how big it will be. At least €300bn in all probability.
The second conclusion is that the trapdoor is opening up under Greece. German patience with Athens has run out, and the IMF was forced to deny reports on Monday it was preparing to cut off financial support. The Greek government is now faced with the choice of agreeing to a new range of demand-reducing measures it knows will be both counter-productive and politically toxic in order to be able to pay its bills inside the euro zone, or to devalue and default outside monetary union. A voluntary Greek exit would be ideal for Angela Merkel.If Greece exits, Spain and Italy will be next; and they are too big to bail out. Meanwhile the European Commission, the European Central Bank and the German Government are fiddling while the euro collapses:
Germany insists the new system of rigorous European supervision of banks has to be operating before common eurozone funds can go to a country's banks. Critics suspect Berlin is playing for time, to delay the creeping mutualisation of liability in what one of the senior officials describes as the developing "mechanism to run a continental economy".
The aim, likely to prove over-ambitious, is to have the new regime up and running by the new year. British and European officials believe it will be an improvement on the way things are currently supervised. Yet they doubt if it would be fit to handle a full-blown banking crisis, and would instead be a fairweather regime that would struggle to cope with a storm.But will it ever get the chance? Will the euro survive until the new year?