Spain’s nationalisation plan won’t work as the banking system is insolvent

The Spanish banking system is insolvent and the Spanish government simply does not have the wherewithal to clean it up. This is the problem in Spain that has come to a head, particularly now after the rescue of Bankia, Spain's fourth largest bank. Unless the European Union come to Spain's rescue, there will be runs on Spanish banks, with contagion rippling outward.

In this essay I will outline the key issues starting with the history and working through to the present concerns and then speak briefly to the best temporary resolution.

Property bubble and bust

Last month I covered the Spanish fiscal situation in the post "Spain is in big trouble". While the fiscal situation is worrying, it is only a problem for Spain because of Spain's banking system.

Spain had a terri...


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