So much for the action “shifting” away from Europe. Today markets on the continent are melting down, particularly due to the increased Spanish borrowing costs. As I explained yesterday, the votes in Germany to approve the bailout of Spanish banks, which was reiterated by the Eurozone, effectively reversed the results of the EU Summit by making it explicit that the Spanish government would be on the hook for the bailout funds, rather than direct injections into the banks themselves. This has raised those borrowing rates, as it means that Spain, a country already suffering from a high amount of debt, just had €100 billion added onto that.

Spain also approved their austerity program yesterday, which led to riots in Madrid, after tens of thousands participated in mostly peaceful protests throughout the day.

Another austerity program in Spain, in a time of 24% unemployment, has no chance of succeeding, either in improving the economy or even reducing the debt. We have a test case of that today, in Britain:

Chancellor George Osborne’s deficit-busting plans are struggling to keep up with full-year targets as official figures published today revealed another rise in Government borrowing.

Public sector net borrowing, excluding financial interventions, such as bank bailouts, was £14.4 billion in June, up from a revised £13.9 billion the previous year, the Office for National Statistics (ONS) said.

So Britain, which is two years into its austerity program, is borrowing more money than ever. It’s not reducing the deficit, it’s exacerbating it. And that’s what you should expect in Spain.

The euro crisis hasn’t come back, it actually never left. In other countries like Portugal, Greece and Ireland, once those countries went over the 7% borrowing cost threshold, the rates kept rising and rising. If that happens in Spain, it’s unclear that there is enough firepower in existing accounts to do the kind of bailout that happened in those countries. The European Central Bank would finally have to act. And they appear institutionally incapable of doing so.