Spain’s cost of raising loans spells out the EU denouement for all to see.

Although a few of the financial specialist media caught up on the story yesterday, observers of the EU crisis too often forget how the interconnection of debt must inevitably infect one country after another. Italy and Spain are two closely entwined debtors: although the nature of (and reasons for) their debts are very different, latin credit has a tendency to flow easily from one EU ClubMed to another.

This explains why, in the light of Italy’s disastrous position finally appearing in full on the markets’ radar screens, Spain is heavily implicated – and burdened – when it comes to raising money. Madrid held an important debt auction yesterday, and although the Spanish Treasury managed to attract reasonable demand, it paid much bigger yields (around 20 basis points more than last time) on the bonds.

It was always something of a toss-up which country would be the eventual tipping point, but the simple mathematical truth is that the EU can just about afford a Greece and an Italy, but it can’t sustain a Greece, a Spain and and Italy. And as the latter two are tweedledum and tweedledee in this equation, then – as the Motown classic had it – ‘it just takes two, baby’.

Italy will fail in the end thanks to an unhappy coincidence of Berlusconi scandal, statistical mendacity, and a complete lack of commitment to the idea of trying to do the decent thing – ie, pay creditors back. But Spain’s fiscal system will collapse because it has no strategy for returning the country to sustainable growth. Its economy is so lopsided in favour of property tourism, there simply isn’t the time to rebalance it, nor the money to encourage it. (Let’s not be patronising, by the way: this is the UK’s problem exactly, only without the same pressing urgency – yet).

It is thus unsurprising that in a Spanish press interview yesterday, Jean-Claude Trichet of the EU’s Central Bank urged Spain to continue reinforcing measures to return the country to sustainable growth. You can always rely on JCT to tell the patient to stop breathing for a year or so. A little-known fact is that Spain’s economic indebtedness outside the financial arena (and its key problem is in the construction industry) is running at 12 times the profit builders could make even if they sold the whole portfolio tomorrw. In the mid 1990s, Japan found itself in the same position….but did, of course, have a currency it could devalue. Spain doesn’t.

So in a nutshell, all three latin debtors will go down. And thus, the eurozone will go down.

In the light of this glaring inevitability, mates often ask me why the lenders carry on supplying money to pump these dead horses full of formaldehyde, as if they might be whole herds of Damien Hirsts. Surely, they point out, they must know they won’t get paid?

Of course they do. But ownership of debt is power in this world. Not for nothing do banking accountants treat debt as an asset. In truth, it’s more than an asset: it’s a lever.

“Look,” say all these bare-faced lenders, “We lent this money on good faith. Damn it, you begged us to, in order to keep your EU afloat. Well, we did out duty….where’s our reward?”

It is a wonderful line, but it’s hypocritical bollocks. These lizards keep going until they get to the guarantor of last resort – and then they exact their price. “Can’t pay us in cash? That’s OK…we’ll take it in power instead.”

How do you think they got to their contemporary level of immunity? No wonder Angela Merkel doesn’t want to be that final guarantor: she’d be in debt to the bankers for the next thousand years.

Except that she won’t be: Merkel is fearful of fear itself, but she’s wrong. In this instance, the lending community has overplayed its hand – overestimating as it does the tolerance of taxpayers. You see, they never meet any. Each one of them is a befuddled little Louis XVI, fiddling with lock mechanisms, but unaware that the tumbril beckons.