Since the start of the crisis, the link between banks and their sovereigns has only been strengthening, with dire consequences for the
periphery’s economies. To focus on Spain, in October 2008, the Spanish financial system had 78bn of Spanish government bonds. The loop is also strengthening in the other direction. The hidden
losses in the banking system are starting to materialize, with 37bn
injected this year by the Spanish state plus a stock of slightly over
100bn of state guaranteed bank debt that existed by the end of 2012
