Yikes

Portugal, Ireland and Greece are all sad stories, but, because of its size, the real atomic bomb in Europe is Spain. This is bad news indeed for the Continent.

MADRID—Weekend elections that threaten to drive Spain's ruling Socialist party from power in several regions and cities also promise a potentially nasty surprise: the revelation of piles of undisclosed debt in local governments that could undercut the country's drive to avoid an international bailout.

Five months ago, a government change in Spain's Catalonia region revealed a budget deficit more than twice as big as previously reported. Now, a growing chorus of economists, local politicians and business leaders say that new governments are likely to discover, as Catalonia did, piles of "hidden debt" owed to health clinics and other suppliers.

Elsewhere, it was reported that Spanish bond yields have jumped. Having a lot of debt makes you fragile. Increases in the interest rate you pay on your debt have larger and larger effects as your debt level grows.

Bad medicine, this.