Spain's banking crisis did not come out of the blue.

 In the 1990s, the Spanish suffered a bout of collective madness. Interest rates fell from 14 per cent (with the peseta) to 4 per cent (with the euro) in a matter of weeks. In 1998, the centre-right government passed a law that increased the amount of land for development. Developers got rich, selling the idea that property would always go up in value. You could buy a flat on the Mediterranean for $156,000 and sell it the next day for $234,000; by the end of the month it would be worth $390,000. And the flat, purchased off-plan, was still being built. Advertisement: Story continues below German banks financed Spain's banks, which needed funds for high-risk mortgages. Greed made the people rich for a while - but then it made them poor, and jeopardised their future. Spain is a country with a million unsold properties and an unemployment rate of 24.5 per cent. The situation of ''extreme difficulty'' described last week by the Prime Minister, Mariano Rajoy, has at its root the flats that banks accumulated when people started defaulting on mortgages. The total assets of Spain's banking system amount to about €3 trillion ($3.78 trillion). Net toxic assets - unsold real estate - are not known for certain. We do know that, bar the country's three largest banks (BBVA, Santander and CaixaBank) and a handful of medium-sized commercial banks, the system needs to be recapitalised. Delinquency rates are increasing, to 9.5 per cent on average and as high as 19 per cent at some banks. The banks need to increase their tangible capital to €100 billion, and the government does not have enough funds for a tough restructuring or a bailout (of the kind applied swiftly by Gordon Brown in Britain four years ago). At a recent press conference, the European Central Bank chief, Mario Draghi, insisted the ECB would not force any country - a reference to Spain, no doubt - to request a bailout or a full intervention. He also pointed out - in an oblique reference to calls for the ECB to intervene in the sovereign debt market by buying Spanish government bonds to drive up prices and bring down the risk premium relative to 10-year German bonds - that it was not the ECB's place to take on roles best played by others. A less drastic 11th-hour proposal now appears feasible: the European Stability Mechanism could support Spanish banks that require recapitalisation, but the Spanish Treasury would be responsible for measures to guarantee these bailout funds. As this would be only a partial bailout, Spain would not have to meet the stringent obligations imposed on the three countries bailed out to date: Ireland, Greece and Portugal. Just days after the Spanish finance minister declared that the markets were closed to Spain, he managed to raise more than €2 billion from the bond markets - though at a higher interest rate, not a good sign. The main problem right now is politics. Spain's centre-right government has been delaying the inevitable: asking the ECB and the Eurogroup of finance ministers for ESM funds to cover a partial bailout of the country's banks. Saturday's conference call among eurozone members to discuss a bailout had to bear fruit. No less than €100 billion is needed, according to two foreign audit firms. Germany, it seems, opposes this kind of bailout because the ESM requires new rules, to be approved, possibly, in the next few months. The referendum and general elections in Greece this weekend may be highly contagious to Spain's banking system. Spain could be forced to pay an even higher interest rate, and its banks would not be able to afford to take on debt. Spain favours a mutual eurobond system, a new European fiscal compact and a real European banking system - that is, more euro and fewer national markets.