Sean O'Grady: If Greece was Northern Rock, Spain is Lehman Brothers

Unlike the football result, Spain's financial fiasco was entirely predictable. Though her problems are not as deep-seated as those in Greece, they are more dangerous simply because the Spanish economy is so much larger than that of Greece – about five times larger, in fact. It is the sort of difference, to draw an uncomfortable analogy, between Northern Rock and Lehman Brothers.

The first was serious indeed, and a precursor of worse to come, but it did not shake the world; Lehman Brothers was globally systemic, just as Spain is. Spain's economy is five times the size of Greece's; she is too big for Germany and France to save, and threatens the euro's survival. But, to borrow a phrase, Spain is also too big to fail.

The short-term problem is that investors are unwilling to lend to Spain – the Spanish government, Spanish banks and Spanish companies are finding it difficult to raise funds. Without those funds, they cannot go on. It is a credit crunch, based, as in Greece before it, on a rising tide of scepticism about Spain's ability to meet her obligations as they fall due. The banks, in particular, need liquid funds to carry on their normal business of lending. If they cannot rely on those, then they will fail, with disastrous consequences for the Spanish, European and world economies.

Having survived the slump well – Banco Santander snapped up Alliance & Leicester and Bradford and Bingley, and now wants to buy some RBS branches – Spain's banks are now in the sort of trouble that the British banks were in in 2008-09. But this time it is the government's lack of credibility damaging the banks, rather than the other way round. So they will have to draw on foreign funding, EU or IMF.

But why don't the markets believe that the Spanish government will reduce its deficit and get its house in order? Again, as in the Greek case, there is political and union resistance – strikes, protests, parliament votes. Added to that are Spain's unusually powerful autonomous regions, responsible for much public spending. Madrid claims that they are signed up to prudence, but some doubt it.

The longer term obstacle is Spain's notoriously restrictive and inflexible labour market. It has contributed to a youth unemployment rate of 30 per cent-plus (though some of that is also down to some slipping out of the tax system and into the black economy, a traditional Spanish defence mechanism in a downturn).

Like Britain, Spain relied on an unsustainable property bubble to sustain growth, as the unfinished apartment blocks and idle cranes littering Madrid and the Costas testify. Spain borrowed heavily from abroad, but did not invest the money wisely. Foreign investors wonder if Spain can grow her way out of her problems under the weight of government debt, a creaking banking system, a woefully unreformed economy difficult to control from the centre, and membership of a single currency that prevents devaluation and export-led recovery (as may yet happen in the UK).

Spain isn't Greece; it could be worse than that.