The banks bring down the bunting

A Spanish flag flutters near the dome of the Bank of Spain in central Madrid Photo: Reuters

After four days of very British celebration, I'm afraid that as the bunting comes down the reality of the continent's financial situation bites.

Yesterday the Spanish Finance Minister more or less admitted that Spain couldn't get money from the markets. Given they rely on that to pay their bills because they have borrowed so much, that is a very significant admission.

The big problem is the gaping black hole in the country's banks who hold billions of pounds worth of property loans that have gone bad. And no one knows quite how big that black hole is.

Spain could apply to the European bailout fund, the European Financial Stability Fund, for cash to prop up its banks. What the Spanish government however appears to want to do is for its troubled banks to apply directly to the bailout for money.

But as ever in Europe nothing is that straightforward. The way the bailout fund was set up prevents that from happening, even if countries could all agree that it was a good idea.

Meanwhile the European Commission is today unveiling the first chunk of its plans for a eurozone banking union with new proposed rules that would protect the taxpayer from having to stump up for enormous bailouts.

Banking union has some support, but as ever Germany is cautious. The idea is in vogue in Brussels at the moment in the run up to the summit at the end of this month.

But two things are very clear. Whatever grand plan European leaders settle on next, any new regulations would not be in place until long after the Spanish situation will be settled either way. And the rest of the continent's fate is completely intertwined.

Six German banks have been downgraded overnight - a reminder of that if any were required. And even though we are not in the eurozone, our banks have an ultimate risk of about 50 billion pounds to Spain alone.