: The reasons for the renewed crisis, which refuses to go away, are not too hard to discern: investors are spooked by the sheer confusion surrounding the June 9 deal. Who exactly is going to pay what and when? Critically, no-one is yet sure whether it will be the European Financial Stability Facility or the European Stability Mechanism that will dish out the money to Spain. If the latter, scheduled to replace the EFSF next month, then that has disturbing implications for the markets. Firstly, ESM rules prescribe - and Berlin is very keen on all euro member-states obeying the rules - that the “credit line” will take primary position in the event of default, therefore forcing those bondholders who thought they were first in line into a secondary and much more riskier position. Then, as sure as night follows day, the value of those holdings will immediately start to decline when it dawns upon the investors - who always check the small print - that Spain has done little if anything to improve its overall financial situation. Suspicion is also growing that Rajoy, maybe even the EU officials, were not aware of such an outcome when they agreed the deal - hardly inspiring market confidence.
Secondly, and much more obviously, is the brutal fact this new line of credit - no matter what the conditions turn out to be - is simply going to be added to the Spanish government’s debt: the country’s debt-to-GDP ratio has substantially increased overnight. In that sense, Spain’s ‘bailout lite’ has just acted to hasten the day when another - and larger - bailout will be needed by Madrid.