SPANISH PRIME minister Mariano Rajoy is pushing a budget of unprecedented severity through the Spanish parliament at a moment when Spain faces multiple threats and challenges, economic, political and constitutional. Like many EU governments, Rajoy’s has opted for blanket austerity. His critics ask how a course that constrains spending, public and private, can ever lead to a return to growth.

Rajoy has been betting that his willingness to slash public spending will calm the markets, which are currently pushing the interest rates on Spain’s 10-year bonds towards unsustainable levels. Preventing an EU-IMF bailout has become the core rationale for his policies, though he has protested repeatedly that a bailout for an economy the size of Spain’s is unthinkable. But as we learned from similar denials from our politicians before intervention, that does not make it impossible.

Spain has replaced Italy in recent weeks as the EU state most likely to fail for a number of reasons. The original sin was the chronic mismanagement of a property bubble by the Socialist Party (PSOE) government that Rajoy’s conservative Partido Popular (PP) ousted last November. But Rajoy’s tenure has been marked by a series of blunders that have further spooked the markets and sent the Spanish Ibex listings into freefall. He postponed his budget for months in the hope of winning elections to Andalusia’s autonomous parliament last month, and then still managed to lose at the polls. He unilaterally declared that Spain would not, after all, meet the deficit target for the current year that the previous government had already agreed with the EU. And he made that announcement on the very day he signed the European Fiscal Compact.

Spain’s visible economic indicators are bad enough, with 50 per cent youth unemployment casting a blight across the land. But the biggest fear is the scale of a problem that is not yet entirely visible: the debts of the 17 powerful autonomous governments through which the country is largely administered. These regional executives, set up to compensate other regions for historical rights demanded by the Basques and Catalans, have become a law unto themselves, including those governed by the PP. Calling these “barons” to order will be a key challenge for Rajoy. It will require a combination of political vision and astuteness in which he has been singularly lacking so far.