As analysts look deeper under the hood of Spain's public finances, they are finding an increasingly unstable engine. It's not just the growth in the debt to GDP ratio that worries people but also the "contingent" liabilities and other debt not yet included in this ratio. In many cases the central government will be stepping in to bail out regional governments,some of which are in trouble (sometimes unable to pay vendors such as garbage collectors, etc.). FROB (Fund For Orderly Bank Restructuring) that gets consolidated into government's balance sheet has contingent liabilities to the banking system. And the government continues to guarantee bank-issued unsecured bonds that banks use as collateral at the ECB to borrow funds. That allows them to buy more Spanish government paper to support Spain's bond auctions. The chart below shows how government guarantees have grown in the past few years - both on an absolute basis as well as the percentage of the GDP.

Spain's government guarantees

Italy is also facing some of the same issues. But at this point market participants' view is that even though Italy has more debt to roll, Spain's issues are more extreme - particularly the banking sector. The market views the recent announcement of Eurozone's support for Spanish banks as lacking in detail and insufficient in size. Many view Spain's property market bubble as dwarfing that of Italy.

Italy to Spain 10-year spread has hit a record (as did the Spanish yields, spreads, and CDS levels this morning). In fact some in the market are now putting on Italy to Spain spread trades (long Italy short Spain).

Italy 10y yield minus Spain 10y yield.

With the Greek elections out of the way, Spain will now be the primary focus.

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