There have been a few unexpected twists and turns along the way, but the European debt crisis, which has dragged on for over a year now, has mostly been a series of "whens" rather than "ifs". We didn't know the exact timing, but we knew the bailouts for Greece, Ireland and Portugal were inevitable. Equally sure is that Portugal's application for a bailout from her eurozone partners and the IMF is far from the end of this.
For now, the big surprise is that Spain has managed to escape the turmoil – the domino that did not fall. The malign magic of "contagion" ought to have led inexorably to a Spanish rescue deal. But for now, the markets seem to have given Spain the benefit of the doubt, impressed by the government's apparent determination to force through austerity measures, reform Spain's sclerotic labour market and work though its busted small regional banks – the cajas poleaxed by the real estate crash.
Dangers remain. First, the European Central Bank's (ECB) decision to raise interest rates will make life more difficult for highly indebted banks, governments and households throughout the continent, but especially in Spain, where householders have more mortgage debt on devalued property than is healthy.
And, while one interest-rate hike from 1 per cent to 1.25 per cent doesn't sound like much, it will hobble already unsteady recoveries. Meanwhile, there remains no guarantee that Spain's powerful autonomous regions will go along with successive waves of austerity, or that the cajas are fixable, or that Spain will be able to bring its productivity up to German standards.
This is why investors demand a significant premium to lend to Spain. And a Spanish failure, because of its size, could overwhelm the eurozone and spell the end of the euro itself. Spain, as has become clear, is too big to fail but too expensive to save.
The other problem is that some dominoes can topple more than once. Greece, for example. The interest rates it has to pay to investors to take on its debts are back to where they were before its bailout last May.
The brutal truth now dawning on all concerned is that another bailout would do Greece no good. Its debts are just so vast and the attempt to honour them is futile and everyone knows it.
Greece labours under uncompetitiveness, a failure to collect taxes, dodgy statistics and austerity packages and all of these are driving it into a death spiral. If an economy has 150 per cent of national income as debt, and the interest rate on that is two or three times the economy's growth rate, then no amount of austerity and no volume of rescue loans can prevent a default. A "restructuring", the favoured euphemism for default, is inevitable.
To a lesser extent, the same logic applies to Ireland, though its problems are much more about its banks than its competitiveness. But politics is never far away, and market economics is colliding with democracy. As Harry Hill might say: "I like both – but which is best?" A fight is the way to find out, and the combat is coming.
Ireland recently elected a government which pledged to "renegotiate" its rescue loan, but that doesn't mean that it will achieve any meaningful debt forgiveness just because the Irish voters want it. Nor will the Portuguese elections on 5 June necessarily yield a parliament any more willing to vote for an austerity package demanded by the eurozone and the IMF.
And Spain's linchpin, Prime Minister Jose Luis Rodriguez Zapatero, is due to stand down before long. Political risk is everywhere.
Finally, the ECB must take its share of the blame. The rate rise yesterday was badly timed and probably triggered Portugal's capitulation. Behind all this is a determination by the ECB to end its secret bailouts of peripheral economies. For months the governments of Portugal, Ireland and Greece have only been able to offload their government bonds to their own banks. These banks then took these bonds along to the ECB, which accepted them as collateral and handed over the euros.
Thus the ECB has been bailing governments out with no great fuss or headlines. The ECB, with great reluctance, went along with this pantomime as part of its "emergency" measures to deal with the crisis, even relaxing its collateral rules to accommodate the near-junk bonds issued by Athens, Dublin and Lisbon.
Thus some €40bn (£35bn) has been already loaned to Portugal and another €140bn to Ireland, neither ever politically sanctioned nor even acknowledged.
It was perfectly right for the ECB to want to get out of this, but it ought to have waited until the eurozone had finally agreed an expansion in the existing rescue fund and the rules for the new one that is supposed to operate from 2013.
Whether the patience of Angela Merkel and the German taxpayers – and their devotion to the European ideal – will last that long is perhaps the one great unknown in the eurozone's unending agony.Reuse content