Discussion of the economic crisis in Europe has been largely confined to Greece and how it effects the Euro. All that changed this week.
It all started with the Spanish banks at the start of the week.
CajaMurcia, Caja Granada, Sa Nostra, and Caixa are joining together in a SIP (System of Integrated Protection), which will combine bank reserves and result in a firm worth €100 billion, according to Cotizalia.
This comes after yesterday's announcement that four banks, Cajastur, Caja de Ahorros del Mediterráneo, Caja Extremadura, and Caja Cantabria were merging under a similar agreement.
All of this started with the weekend's €530 million bailout of CajaSur, and is sure to continue as Spain tries to sure up its banking sector under IMF pressure.
Sudden mergers of major banks, following a major bank bailout, is very suspicious. The markets noticed, and two days later the Spain's central bank was forced to act.
The Bank of Spain has ordered the country's lenders to face up to bad debts and set aside reserves of up to 30pc on property holdings in a bid to restore global confidence in the Spanish financial system after weeks of investor flight.
The authorities acted after severe strains in the inter-bank market had begun to raise questions about the ability of Spanish lenders to access routine funds from global peers. Deutsche Bank said Spanish lenders need to refinance €125bn by late 2011. "Liquidity is our main area of concern. Savings banks are in a very weak and risky position," it said.
Like banks in America, Spain's banks have been very reluctant to acknowledge the losses incurred from 60 billion Euros of foreclosed real estate. This is creating a crisis in confidence in Spain's financial system.
If all this wasn't enough of a kick in the teeth, the Fitch rating firm downgraded Spain's debt on Friday, leaving people to wonder how the markets will react on Monday.
Nowhere, not even in Greece, has the recession struck harder than in Spain. With unemployment over 20%, Spain has downgraded its economic growth forecasts, and even those forecasts are not taken seriously.
The Spanish government expects gross domestic product to grow 0.3% in 2010 and 1.3% 2011, which is more optimistic than the European Commission's forecasts of -0.6% this year and 1.1% next year.
"The [Spanish] official growth forecasts for 2011-2013 appear to be too optimistic, with the government continuing to believe that a large chunk of the deficit reduction required by 2013 will arise from a cyclical return to strong economic growth," Raj Badiani, an economist at Global Insight said.
The lack of market confidence in Spain is forcing the government there to take unpopular austerity measures. The recent budget cuts passed by just a single vote, leaving the socialist government especially vulnerable. Conservatives voted against the measure. Spain's budget deficit was 11.2% of GDP in 2009.
The austerity was a pre-condition from the IMF and European government before they could have access to the massive bailout fund set up just a few weeks ago. The IMF is targeting the union contracts themselves.
Unions have called for a general strike on June 8.
Greece is a problem for the Euro that is tough to solve. Spain, if it should be allowed to follow Greece into the abyss, is a problem for the Euro that is impossible to solve. Spain's economy is four times the size of Greece's. A default by Spain would mean the end of the Euro as we know it.
Meanwhile, Spain's government is unstable at this point and likely to collapse unless the economy can bounce back soon.
The good news is that Spain is starting out from a much stronger economic foundation than Greece, with much lower overall debt and a more productive workforce. It is likely that the fears for Spain are overblown, and the past week was just an exception.
But one thing is for certain, Spain can't afford another week like it just had.