There has been a rapid deterioration of the Spanish economy but still the country collects taxes reasonably well and successive national governments have achieved respectable performance in conduction economic policy.

The solvency of the Spanish government has been deteriorating with the spreads on the country sovereign bonds moreover reaching alarming levels since June.  But excessively drastic austerity in terms of the impact on severely weakened domestic demand will not resolve the Spanish crisis.

The public sector has inherited tow closely tied burdens: The deteriorating of the quality of bank assets and the over indebtedness of private actors with companies and households.  Corporate and household debt has become a major problem for the banks.  Hence it is urgent a banking reform.  A loss of depositor confidence has a devastating effect on the entire financial system and economy.  European aid is clearly welcome and it may be supplemented, and perhaps one of the most intelligent ways to spend this aid is through the creation of the so called bad bank.

What means a solution as the creation of a bad bank with a restructuring of private debt?

This will allow breaking the disastrous spiral of demand contraction and economic deflation but will entail a socialization of the losses with the cost borne by the entire European community.  It would at least make it possible to halt the downward spiral currently gripping the monetary union´s fourth largest economy.

Are the rest of European economies willing to pay their part in the Spanish losses?