Spain succumbs

As much as he tried to avoid it, Spain's Prime Minister Rajoy had to ask for a rescue package. While the symptoms of Spain's woes -- high funding costs, contraction and soaring unemployment -- are similar to those of Greece, their causes are different. Greece shows the "sovereign" face of the European crisis. Spain reveals the "financial" visage.

Spain's rescue will be channeled through its banking rescue fund to confront the consequences of a real estate bubble. Although the Spanish government's debt to GDP ratio is high now, it wasn't before the crisis. The Spanish central government's finances were in order. Recession and soaring borrowing costs were the culprits for the sudden deterioration of the central government's finances.

Of course, the pre-crisis housing and construction boom contributed to the health of Spain's finances. We now see -- as we did in the US -- how the extension of loans that couldn't be repaid contributed to the boom. How much the bursting of the real estate bubble will cost Spanish taxpayers remains to be seen. How much of the up to €125 billion in funding will be extended will depend on the conclusions of the two audits due out June 21.