Market fear – real market fear – began to spread as Portugal saw its credit rating go down by two notches as fears of contagion began to rip through the markets yesterday.

Greece, the major culprit (or the scapegoat) also saw its bonds downgraded to junk status. All does not look well at all. Analysts and experts – who are beginning to admit that they never realised the full implications of monetary union without political union – fear that if Portugal now falls, the crisis will spill over to Spain and Italy. The EU (chiefly Germany) and the International Monetary Fund, have pockets deep enough to help Greece in at least restructuring its debts, but doing the same for Portugal would be stretching it to say the least.

Bailing out Spain and Italy is simply out of the question. Spain’s economy is four times the size of Greece’s and Italy’s is anyone’s guess as given figures constantly shift and change. The money simply isn’t there. What is certain at this point is that a lot of Greek bond buyers are going to lose a lot of money. There is already consensus that even if Greece does get its bailout before it runs into the ever looming brick wall – it will still need to restructure its debt.

Greece has asked for some E45 billion – of which Malta will contribute E30 million – in order to pay off debts which are due to mature on 19 May. They will be borrowing the money at an interest rate of five per cent – but the markets are simply not satisfied – Greece was paying interest rates of some 13 per cent at one point yesterday. But what is even more worrying is the emergence of admissions that when European governments signed up to the Maastricht Treaty, experts really did not understand the full implications of what they were signing up to.

The major issue is well summed up in layman’s terms by former Chief Economist at the European Central Bank Otto Issing who said: “Starting the European Monetary Union without having established political union was a case of putting the cart before the horse.”

Another leading German who warned about the disparity between political and monetary union was former Chancellor Helmut Kohl, who said that the system would eventually fail if there was no political unity.

In hindsight, there were plenty of warnings. Despite the ‘no bailout clause’ – designed to ‘force’ good and prudent behaviour in the national interest – it simply did not work. We have admission from Greece that their books were cooked year after year. It is an open secret that Italy also fudges its figures and it can only make one wonder just how deep the rot goes.

Eventually, once the storm does pass (whether it involves countries leaving the eurozone or not), the recriminations will come about and fingers will be pointed. In particular one must point out the fact that the European Commission’s 328-page report on the first decade of the euro’s existence only dedicated three short paragraphs to account imbalances.

In addition, before the Greek crisis exploded, the European Commission voiced concern in a number of reports on rising debt in Greece and Portugal – caused by huge account deficits.

The EU’s President Hermann Van Rompuy and ECB head Jean Claude Trichet believe that Greece will get the money in time. But in doing so, they are only showing naivety. This is no longer about Greece. It is spreading and it is spreading fast. One can only guess at the eventual outcome – maybe we will see states leaving the eurozone. Others might be thrown out. But whatever does happen – it is clear that the model as it is simply cannot work. We only have enough money for one bailout – two at most. What happens after that is anyone’s guess. The sad thing is that Malta, in comparison, is sound. The situation is in real flux and no one can really predict the outcome.