The fact remains that the EU will break up in time. And it will likely be Spain that brings this about.
The reasons? Among other things:
So Spain will suffer a collapse, most likely of its banking system resulting in a sovereign default (barring a bailout). When this happens, some €1 trillion+ worth of collateral (still rated AAA by EU banks) will be sucked out of the system.
- Spain's private Debt to GDP is above 300%.
- A huge portion of Spain's banking system (representing over 50% of mortgage loans AND deposits) was totally unregulated up until just a few years ago.
- Spanish banks are drawing over €400 billion from the ECB on a monthly basis (up from €377 in June) to fund their liquidity needs.
- Spanish banks are now net sellers of Spanish sovereign bonds (leaving the ECB as the only buyer in the market)
- Spain's banking system has lost 18% of its deposits in the last 10 months due to a staggering bank run.
- The economy of Spain is a disaster with total unemployment over 25% and youth unemployment above 50%.
- Spain is now facing a constitutional crisis with various regions looking to secede if they don't receive bailouts from the Federal Government "without conditions."
- Spanish banks need to roll over (meaning renew terms on) more than 20% of their bonds this year.
Spain Default Probability at 100% — To Take the Whole European Financial System Down
Graham Summers from Phoenix Capital provides the nice summary of how deep in trouble Spain is, and how the default of Spain — a 100% probable event — will bring the whole Europe and its banking system to its long overdue collapse: