Spain's conservative prime minister, Mariano Rajoy, is not known as a gambling man. But as Europe's debt crisis stretches on, he is playing a tense game of chicken with the financial markets, betting Spain can balance its books with homegrown austerity while putting off - maybe forever - a humiliating bailout from the European Union.

The stakes are high, for Spain and beyond. After Greece, which is undergoing the financial equivalent of open-heart surgery, Spain has become the focus of doubts about the health of over-indebted European economies. Despite repeated rounds of politically difficult budget cutbacks and tax rises, it is struggling to reduce a deficit that stood at 8.9 per cent of gross domestic product for 2011 and to finance at bearable interest rates a debt estimated at $900 billion, 70 perc ent of its GDP.

Should it follow Greece into bankruptcy, Spain, with a $1.3 trillion economy that is the fourth largest in the European Union, would generate distinctly greater shock waves than the failure in Athens, according to European economists. A collapse here, they say, would shake the foundations of the euro, the EU currency adopted by 17 of the union's 27 members, sending ripples across the Atlantic and undercutting economic recovery in the United States.

Against that background, the volume is rising uncomfortably on appeals to Rajoy to turn swiftly to the EU for a rescue package to reassure skeptical markets and prevent a flare-up of interest rates for Spain's repeated trips to the bank. The Spanish leader could face pressure to make up his mind at a meeting Monday of EU finance ministers to inaugurate the European Stability Mechanism.

The mechanism, a mutual backstopping fund potentially reaching $650 billion, was conceived precisely for cases like Spain's. The country's situation is likely to be discussed by the finance ministers, but Rajoy has gone to great pains to discourage speculation he might ask for help.

Eugenio Nuñez Cobás stormed into a bank branch in this coastal town one morning in August with three dozen fellow customers yelling "Thieves! Thieves! Thieves!" Then they returned to the street and pelted the facade with eggs, forcing the branch to close for the day.

Mr. Nuñez had been coming to the Novagalicia Banco SA branch for eight months with a placard that reads: "I have all my savings trapped in Novagalicia Banco until the year 2999." The 70-year-old retiree said: "I really should be at home playing with my grandchildren. Instead, I'm here every week, fighting for my savings."

Mr. Nuñez was one of more than 700,000 Spanish depositors who poured money--in some cases their life savings--into high-yielding preferred shares and subordinated bonds issued by their banks. When the economic crisis erupted in Spain, the securities plunged in value, making it effectively impossible to resell them.

Many customers now say they were swindled, that branch bankers assured them that the complex securities were just as safe as deposits. Some banks offered clients the option to swap preferred shares for deposits or common shares, but the European Union, which is lending money to Spain to prop up its banks, nixed any such deals by lenders bailed out by the government, including Novagalicia. That bank has issued a public apology and agreed to arbitrate thousands of claims brought by customers.

Spanish Finance Minister Luis de Guindos described the securities last Wednesday in Parliament as "complex instruments for institutional investors. The problem isn't the product itself. If people understand it, there's no problem. The problem is that the securities were placed among people that didn't understand them."

"Unfortunately, this situation makes us pretty unique--the only place in the civilized world where these preferred shares were sold to depositors," he said. The Spanish government, he added, is working with the European Union "to try to find the best possible solution for these depositors."

[...] Spain, like other countries, has not saved enough and instead has relied on credit from other countries.

Is this true? Stricly? Figuratively?

If it is true, couldn't you equally say that morons have been lending to Spanish banks (not to 'Spain') without considering the risks of default?

Jürgen Donges, a member of Germany's 5 strong Council of Economic experts, said clearly that when Germany is rescuing Greece or Spain, it is thinking of rescuing German banks with exposure to in these countries.

His words caused a stir in the twittersphere and in Spanish papers and add to the already tense relations between Berlin and Madrid, as the discussions about a Spanish bailout request heat up.

Nice with confirmation.

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