Working out the likely trajectory then became a matter of judging whether it was plausible that a country could hit its nominal GDP hurdle rate any time in the foreseeable future. Here's how it looked (then) for Portugal:
On this methodology, there were other victims: Greece (obviously), Ireland (less obviously), and . . . Italy (I'm afraid).
But Spain - the current focus of market attention - was a close call. It had a hurdle rate of only 3.7% - well within its recent historic experience, and, with a 20%+ unemployment ratio, damned easy if you closed the gap with potential output. And the curious thing is, even though Spain is under the market cosh, the hurdle rate has risen only to 3.9%, whilst its 1Q GDP rose by a nominal 2.6%. More, since its capital stock is contracting by around 2.8% a year, Spain's ROA must be climbing structurally - which suggests short/medium term cyclical support. Here's how it looks now:
My conclusion is this: even if/when the People's Party is going to spend the next weeks finding stacks of IOU's down the back of the municipal sofa, Spain's sovereign debt has still got a fighting chance.