Indeed, it is now imperative that the troika -- made up of the European Commission, the European Central Bank and the International Monetary Fund -- take over control of banking reform efforts in Spain. Rajoy's fear of outside influence notwithstanding, oversight of Spain must be strengthened. Troika experts must make sure that the bailout money is used wisely and that the banking sector is made more efficient. Such an effort might include closing bank branches and shedding jobs, a task that the government would like to avoid at all costs.
Even if the effort to stabilize Spain's banks is successful, the country and the euro zone are still not out of the woods. The crisis, after all, has long since become much more than a banking crisis, even in Spain.
Both companies and consumers are heavily indebted and are now seeking to pay down that debt -- which reduces both consumption and investment. The tough austerity measures that Madrid introduced under pressure from its euro-zone partners serve to magnify the trend. The result is an economy that has been stuck in recession for months and a catastrophically high unemployment rate of close to 25 percent. And rising.
Tightening Its Grip
Furthermore, industrial production is at its lowest level since 1994. Such a deeply rooted crisis cannot be solved by merely pumping €100 billion into the banks.
In the short term, the decisive question will be whether financial market investors are willing to lend money to Spain at affordable interest rates. If Monday is any indication, there is plenty of room for doubt. On Monday morning, with the euphoria of the weekend bailout announcement still fresh, yields on 10-year Spanish bonds fell to 6 percent. By the time the trading day came to an end, however, rates had shot back up to 6.47 percent, a rate that is alarmingly close to the 7 percent widely deemed to be unsustainable. Spain is currently planning two bond auctions in the near future, one on June 19 and a second on June 21.
The primary strategy being pursued to prevent a further worsening of the situation is that of hope. And it is a strategy also being applied to the danger of further contagion. Greece, Ireland, Portugal, Spain: So far, European leaders have been unable to stop the chain of falling dominoes. Cyprus could come next. More ominously, though, are increasing fears that Italy might soon need help. It is unclear whether the euro bailout fund would be big enough to prop up Rome in addition to Madrid.
On Monday, Italian Minister of Industry Corrado Passera insisted that his country is not the next bailout candidate. In past cases, such declarations have proven a sure sign that the opposite is true.
Indeed, it is very possible that the euro crisis is now beginning to tighten its grip. And Europe is not prepared.
Intellpuke: You can read this commentary by Spiegel journalists Stefan Kaiser in context here: http://www.spiegel.de/international/europe/europe-prepares-for-the-worst-despite-spain-bailout-a-838370.html