Nearly four years into the global banking crisis, European policy makers still have no clue how to recapitalise a failing bank. The rescue of Bankia is a fiasco. What should have been a €19bn capital injection into Spain’s third-largest bank by assets has become a tug of war for Madrid, Brussels and Frankfurt. It has also sent Spanish borrowing costs soaring. Spain is now the test case for how the eurozone resolves its banking crisis.

Viewed through a banking lens, there are alarming parallels between Spain and Ireland. Both experienced an enormous property price bubble before the global financial crisis in 2008. True, the bubble was smaller in Spain: Spanish property prices rose about three times between the mid-1990s and the peak compared with 4.5 times in Ireland, according to Barclays. That suggests the decline from the peak will be less severe (house prices in Dublin are down at least 56 per cent since 2007).

That ought to make Spain’s current problem more manageable. First, it is confined (for the time being, anyway) to the second tier of Spanish banks, led by Bankia. Banks with large international operations such as Santander and BBVA are much less affected. Not only that, but Spain has a recapitalisation policy, centred on Frob, the state bank rescue fund. With only €5bn left, however, it is insufficient to cover the losses at Bankia; the government is keen to keep the €19bn injection off the Spanish books. So much for best-laid plans.