The previous post  suggested a leak in the EU containment system. That is, the announcement of a $ trillion bailout fund did not stop interest rates from rising in possible contagion countries. 

Today German papers report that Spain's bail out is imminent.  Here is the scoop via Euro Intelligence 

Frankfurter Allgemeine reports this morning that EU officials will start talks about a bail out for Spain, citing unnamed sourced in Berlin. The paper said the situation had deteriorated so much that they did not want wait until the EU summit on Thursday. It also said neither the European Commission nor the ECB excluded an aid package. The paper quoted Spanish officials as denying that they are about to ask for EU aid, and immediatedly pointed out that Greek officials made the same claims before. The trigger is the freeze in the inter-banking market last week as the markets have lost confidence in the Spanish banking sector.

In a separate news report, Frankfurter Allgemeine writes that Barroso and Trichet were worried about the state of Spanish banks, and pleaded for aid. The paper also cites the latest statistics from the BIS, according to which German banks had given credits to Spain of $202bn, more than half of which to Spanish banks. The exposure of French banks is $248bn – mostly to companies and households. The Spanish central bank estimates the extent of the bad loans to be €166bn, of which only a quarter has been written off so far.  The Spanish bank bailout fund is €99bn. One of the problems now is that Spain has immediate finance needs at a time when market interest rates are rising sharply.

The paper also reports that France is getting nervous about the effect of the crisis on its own liquidity. In a short comment, the paper makes the point that the €750bn rescue umbrella is just another bank bailout package.

There is no whiff of any of this in the Spanish press this morning. El Pais reports on the latest BIS statistics, citing that the total exposure of European banks to Spain is €600bn (enough to bring the house down). Spain has been the beneficiary of intra-EU credit flows to a much larger extent than Greece, Portugal, and Ireland. Last week, the inter-banking market froze again in parts. The articles quotes that BIS as saying that while the single currency brought a greater diversification of risk, it warned of a contagion if any of the countries were facing solvency problems.