Spain sets the stage

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Markets have been rattled in Europe in recent sessions as the predicted resurgence of worries over sovereign debt issues has come true.

There was a short-lived dose of optimism thanks to the European Central Bank that made good on ECB President Mario Draghi's pledge to do "whatever it takes to preserve the euro," which culminated in the announcement of a bond-purchasing program.

The ECB said it would buy short-term bonds -- emphasis on the word "short" -- from struggling countries, but only if they first applied for aid from the international community, a move that was half carrot and half stick. For what it was worth, it was a gesture that was widely interpreted as meaning the euro is here to stay.

Lest anyone get too comfortable, warnings immediately surfaced about Spanish Prime Minister Mariano Rajoy's reluctance to play the game. For a while it seemed that he wouldn't.

Signals are clearer now. Rajoy has said Spain would apply for help if the country's borrowing costs were "too high for too long," exactly as explained here on numerous occasions.

That mollifying diplomatic Band-Aid was followed by news that austerity budgeting was on the way.

This crisis is, of course, louder in European capitals for those with open windows than it is in the isolated canyons of Wall Street. Droves of shouting demonstrators have taken to the streets in Portugal, Spain and Greece in the past two weeks. Rajoy's new budget, not even fully unveiled, provoked two days of street demonstrations this week in Madrid.

The remainder of the week should be rocky, as well. On Thursday Rajoy is to hand a new budget plan to Parliament and on Friday the government is to release estimates of how much will be needed to restore health to its troubled banking sector.

Rajoy's aim is to reduce the country's budget deficit from 9 percent of gross domestic product to 6.3 percent in 2012 and 4.5 percent in 2013, The Wall Street Journal reported after an interview with Rajoy this week.

On the financial side, it is expected that banks in Spain, rocked hard by failing mortgages as the economy turned, will need considerably less than the full $131 billion set aside for Spain by eurozone partners.

As well, Madrid is expected to announce the creation of a "bad bank" that will be a depository for the mortgages that are weighing on bank ledgers.

But the truth is, the hard part is what comes next.

That is to say, when the smoke clears, Spain's unemployment will still be closer to 25 percent than to 5 percent and when the engines of commerce have ground to a halt cutting back on social programs might be necessary, but it is a reaction, not a solution.

Writing off bad loans is relatively easy compared with kick-starting a housing market on a national scale.

That means Spain is quite far from where it needs to be to be a good bet again.

In international markets Thursday, the Nikkei 225 index in Japan added 0.48 percent, while the Shanghai composite index in China gained 2.6 percent. The Hang Seng index in Hong Kong added 1.14 percent, while the Sensex in India fell 0.28 percent.

The S&P/ASX 200 in Australia rose 0.52 percent.

In midday trading in Europe, the FTSE 100 index in Britain climbed 0.36 percent, while the DAX 30 in Germany gained 0.55 percent. The CAC 40 in France rose 0.93 percent, while the Stoxx Europe 600 rose 0.57 percent.