Why are Spanish banks buying so much government debt?

They are attracted to the high interest rate on Spanish government bonds. The interest rate, or yield, on 10-year Spanish bonds has been the highest since the country joined the euro in 1999. It means financial markets consider Spanish bonds to be a risky investment.

The European Central Bank is making Spanish bonds even more attractive for banks. To help ease the continent's financial crisis, the ECB has provided European banks 1 trillion euros in three-year loans carrying an interest rate of 1 percent.

Spanish banks, which have borrowed tens of billions of euros under the ECB program, can make a tidy profit simply by pocketing the spread between the interest rates on ECB loans and Spanish bonds.

Analysts say there is another reason Spanish banks keep buying their government's debt: survival. If Spanish banks were to stop buying Spain's bonds at a time when foreign money is fleeing, the government's borrowing costs would rise even higher and so would the threat of default, on the very bonds held by the banks.

"If something does go wrong, it is Spanish banks that will be hardest hit by that," says Jennifer McKeown of Capital Economics in London.