Spanish bailout looms larger

- Regions already asking for help
- Troika visits Athens this week

As the passport inspectors prepare for their unauthorised day off on Thursday, it transpires that they have managed to allow 275,156 "missing foreign criminals, failed asylum seekers and illegal immigrants" into the country. Not only that, the border guards have lost track of the interlopers. This seems odd, given that Keith Vaz, the chairman of parliament's Home Affairs Select Committee, seems to think they are all in Newcastle Upon Tyne.

In that Newcastle of the South, Valencia, there are three times as many foreigners but they have run out of money. The local authority said on Friday that it would need financial assistance from the fund set up ten days ago by Madrid to bail out cash-strapped regional governments. Murcia put its hand up to make the same request on Sunday and another handful of regions, including Catalonia, could do the same this week. That is a worry: the fund contains only €18bn.

Investors find it increasingly difficult to see an upside for Spain. Apart from the €30bn of EU assistance for its troubled banks, Spain must finance itself like every other country, by collecting taxes and selling bonds. With a quarter of the workforce unemployed, tax collection is becoming no easier and even a ten-year yield of 7.4% is not enough to persuade investors outside the country to buy government bonds. The whisper about Spain needing a full-scale bailout is growing to a crescendo. All that is needed to confirm it now is a denial by the prime minister that Spain needs a bailout.

As concern about Spain grew on Friday, the euro slid lower on every front, touching a two-year low against the US dollar, a 3 1/2-year low against the pound and a 12-year low against the yen. The Japanese currency was the best performer with the US dollar in second place. Sterling is unchanged against the Canadian dollar and firmer against the antipodeans. 

Apart from higher-than-expected UK public sector borrowing and lower-than-expected Canadian inflation (1.5%) there were no useful economic statistics on Friday. Today will be similarly lacking in guidance for investors. Early this morning the Australian producer price index was close to target, rising by 1.1% in the year to June. Swiss money supply and the Chicago Fed's national activity index will be just as uninspiring as they sound. Eurozone consumer confidence, which has not delivered a positive reading for more than five years, is forecast to come in at -20.

With so little to go on, investors will find it difficult to distract themselves from the financial pickle in Spain and the imminent arrival in Athens of inspectors from the International Monetary Fund, the European Central Bank and the European Commission. If the Greek government cannot convince the "troika" that it is saving money at the correct speed it will not receive the next instalment of its bailout. That would be unfortunate for Greece's prospect of remaining a member of the single currency and unfortunate for the currency itself.