That's the supposition being made by the Daily Mail today, that Spain is going to require a €300 billion (near $400 billion) bailout to prevent complete economic meltdown.
British taxpayers could be forced to stump up another £5billion to rescue Spain as the crisis in the eurozone spirals out of control.
Fears are mounting that Madrid will have to ask for an emergency bailout of up to £300billion as it struggles to prop up its basket-case banks.
There's really only one problem with this supposition: that's not enough money.
Now it is true that the Spanish banking system is tottering. No, it isn't the big commercial banks either, not any of the investment banks or because of CDOs or toxic derivatives. It is a straight old hangover from a property boom and the excessive issuance of mortgages. And the pain and problems are concentrated in the mutually owned and politically directed cajas, not the commercial banks.
This problem does indeed need sorting, it requires the injection of capital into those banks and yes, we are talking, at the top end at least, of around those sorts of sums such as €300 billion. Other estimates are lower, €100 to €150 billion but the one thing we've learned through this last couple of years of eurocrises is that they are always, but always, more expensive than they at first seem.
However, that is not the end of the problem. The various Spanish regions are also deeply in debt and require bailing out. Currently the muttering is that they've €35 billion or so of debt that needs to be rolled over this year, debt that they cannot afford to so refinance. But that again isn't the whole story. Most of the regions have simply not been paying their bills to their suppliers for a year or more. There is huge hidden debt in this part of the system too.
It's also true that the classic Keynesian stimulus style policies will not work here either. Spain has hundreds of thousands of fully built yet empty houses. They have airports with no flights, museums with no pictures let alone visitors, hospitals with no patients or staff. What they are, at least in part, suffering from is an excess of built infrastructure, not something that can really be cured by building more.
Finally, the unemployment rate is well above 20% and for the young, over 50%. There really is no solution to this other than one of the following two: a general reflation through monetary issuance across the entire eurozone or Spain leaves said eurozone. The first should have been done two years ago but wasn't: we're getting very close indeed to the point where even if it does it still won't help. Which leaves Spain leaving the euro: at which point, all the banks we've just recapitalised go bust again.
All of which goes to show quite how serious the problem is. Even €300 billion wouldn't sort Spain out, not given the position it's currently in. At which point it really does start to look more sensible for Spain to leave the euro then get the €300 billion, rather than getting it now, still needing to leave and needing more money afterwards.
