The only difference between a bull fight and Spain's current battle with the bond markets is that, at a Corrida, the bull enjoys a sporting chance of trampling the matador. By contrast, there is only going to be one winner from the current stand-off between the bond market vigilantes and the Spanish government.
Lenders are demanding more than 7.6 per cent interest to hold Spanish ten-year debt, the highest the country has had to pay in more than a decade. The 7 per cent threshold is significant because if rates stayed at that level for any length of time, then a country with Spain's level of indebtedness would see at least a quarter of its income consumed by debt interest payments with the dependence on the markets unbroken. Europe's fourth and biggest sovereign bail-out looks imminent.
Bailing out Spain's banks directly was supposed to prevent this scenario. But it hasn't, partly because of further evidence of deterioration in the Spanish economy, and partly because Spain's regional governments are now also seeking aid.
The central government has kept its overall interest-rate bill down over the past few months by selling shorter-dated bills at lower rates. But this source of funding is also being cut off; yields on two-year debt rose above 7 per cent by the middle of the week. It seems unlikely that Spain can find the remaining 40 per cent of the funding it needs this year.
What has happened illustrates the basic injustice of the credit crunch - the country's banks got themselves into trouble by lending recklessly to property developers. Profits flowed during the boom years, but the ensuing losses have been 'socialised'.
And the fundamental problem - a property bust - remains. By some estimates, Spain has more than a million unsold houses. Many may never be occupied. Until this overhang is cleared, Europe's creditor nations will be very wary of throwing good money after bad - even the bank bail-out, accompanied by yet more austerity measures, ran into opposition in German and Finnish parliaments. Ireland this week began demolishing unwanted housing. Spain may yet have to do likewise.
