Spain’s situation is not yet critical. But as the NYT piece sets out very clearly, there are some extremely worrying signs. The gap between Spanish and German gilt yields is now at the biggest point it has been since the introduction of the euro. Spanish banks are also heavily exposed to Portuguese debt. Compounding these problems is that the majority of public spending in Spain is at a regional and local level, meaning that it is far harder than it is in this country for the national government to take decisive fiscal action.
Now, I suspect some people are saying why should this worry us here in Britain. Well, the problem is that Santander, which has swallowed up a whole slew of British banks, is a Spanish bank with significant exposure, 24bn euros worth back in April, to Spanish government debt.