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After helping a few Cajas, the rumor is that at the close of today's session, the Spanish State is going to partially nationalize Bankia through a 4.5 billion euro capital injection. This will give the Spanish State a 45% share.

By going down this road, Spain (NYSEARCA:EWP) seems to effectively be choosing the Irish route. Ireland (NYSE:IRL) before its financial Armageddon had a very low public debt/GDP ratio (around 25% at 2007 year-end). By helping out its financial sector and taking on many of its liabilities instead of letting defaults take place, however, Ireland's public debt/GDP ballooned to 108% at 2011 year-end (source: tradingeconomics.com). And with that explosion to unsustainable levels, came the need to ask for FMI/UE financial assistance.

So Spain is taking the same route. From a manageable public debt/GDP ratio of 40% at 2007 year-end to 68% at 2011 year-end (source: tradingeconomics.com), still a level below the European average, Spain will - if it starts helping its financial sector as it seems to be doing - see an explosion to unsustainable debt levels, furthering the need to seek assistance as well. This need for assistance could have been avoided if Spain was to let the shareholders and creditors of its financial sector take on the burden of default before lending its helping hand to sustain the system.

Conclusion

As Spain takes the route to help its failing banks before handing out massive losses to these bank's creditors, the likelihood of Spain needing a bailout down the road is greatly increased. Without this move Spain could probably do without such help. With it, it probably can't.

This won't be the last bank bailout in Spain, others will line up and the bill will quickly balloon to the point where Spain's finances will be compromised, much like it happened with Ireland.

Source: Spain Is Taking The Irish Route