Countries with less unemployment than Spain? Most of them.

    Not surprisingly, as went the global construction market, so accelerated Spain's unemployment. Currently Spain's unemployment is sitting at just north of 20%. Both the Sudan and the West Bank are currently more employed than Spain. There is good news, though: according to Minister Salgado only 290,000 jobs were destroyed in the first quarter of 2010. Good news, of course, is always relative.

    Another debt issue as it relates to Spain's fiscal health is private indebtedness, currently at 178% of GDP, according to the recent S&P report that downgraded Spain's long-term sovereign debt. A substantial portion of this debt relates to mortgages and home financing. While defaults have been increasing -- doubling for the last three years in fact -- we believe they are set to accelerate one again due to unemployment and the timing of benefits.

Generous unemployment benefits could be propping up Spanish banking

    Spain has a very generous unemployment system that pays the unemployed 65% of the average national earnings for up to two years for those who have worked for the prior six years. The risk, of course, is that as these benefits begin to run out, the ability of the unemployed to pay their mortgages diminishes substantially, which could lead to broad issues for the Spanish banking system.

    As noted in the introductory quote, the Spanish leadership does not believe they have to ask for help. In the short term that may be true. In the longer term, they will have to show that they can help themselves. Spain is not Greece, we agree with that. But if the Spaniards do not change their trajectory, they have the potential to be much more than Greece. And that potential is still not priced into the market for their sovereign debt.