Spain is running out of road. Madrid has spent much of this year trying to avoid tapping eurozone bailout funds. This has been understandable. Every eurozone country that has needed external assistance has ended up borrowing far more than anticipated and had to accept a growth-sapping, politically disastrous austerity program; none has yet regained market access. But Madrid's efforts to avoid this fate now risk inflicting wider damage.

Spain's strategy until recently was to force the banking system to bear the cost of bailing itself out via rights issues, mergers and asset sales. But the collapse of Bankia has blown a hole in that, confirming investors' fears that the overall system's capital needs are far beyond its own resources. Bankia needs €24bn of new equity, and the rest of the sector may need up to €100bn, reckons UBS.