At yesterday's hastily convened press conference Spanish Prime Minister Rajoy poured some cold water over weekend reports of a EUR 19bn bailout for Bankia, claiming that no decision had yet been taken. Rajoy further contributed to the climate of fear and uncertainty by asserting that Spanish banks did not need recuing (a claim which he surely will regret in due course), while arguing that Spain's debt sustainability problem needed to be resolved. He also argued that the EFSF and ERM ought to be able to recapitalise European banks directly, rather than needing to go through national governments. Unfortunately, Rajoy's latest missive only conflagrated existing paranoia regarding Spain's increasingly desperate financial predicament (see below). The Pandora's Box that is the dodgy loans on the balance sheets of Spanish banks is now spilling forth into full view, and it is every bit as bad as many of us suspected.