With Shanghai down 2% and the Nikkei plunging a further 3% overnight, the FTSE this morning fell into the Volatility Index (VIX) crisis zone at 4947.

The Euro has also continued its fall against major currencies. The single currency dropped to within one yen of its lowest level in more than eight years after the International Monetary Fund urged Spain to do more to overhaul its ailing banks. Specifically, it is clear that Spain’s property-lender caja sector insolvency epidemic is spreading.

This is an extract from the IMF Spain warning issued yesterday:

‘“Spain’s economy needs far-reaching and comprehensive reforms. The challenges are severe: a dysfunctional labor market, the deflating property bubble, a large fiscal deficit, heavy private sector and external indebtedness, anemic productivity growth, weak competitiveness, and a banking sector with pockets of weakness.’

Stern stuff, rounded off at the end of the IMF summary with ‘time is of the essence’.

Indeed it is, but time is what too many EU members no longer have.

The FTSE 5000 breach is of both historical and psychological importance: if the drop continues during today and leaves 5000 too far behind, The Slog believes we can safely see this as the start of Crash II. And whether it realises this or not, North Korea’s bizarre belligerence will exacerbate problems in the Asian markets.