Yesterday, some of the indicators in Spain were starting to flash red — a sign that perhaps Europe hadn't cured its woes after all. Today, we've moved to the full-blown crisis phase. Spain's borrowing costs are rocketing upward and its stock market is getting absolutely crushed. So what happened? How did we go from calm to euro implosion in less than two days?

How did this happen? (Getty)

Basically, Spain got two bits of bad news that highlight (yet again) all the structural flaws of the euro zone right now. First, the Spanish government announced that the country would remain mired in recession through 2013, shrinking 0.5 percent next year. That's worse than expected. No one seems to believe that Spain can solve its budget woes simply by cutting the wages of its government employees and hiking taxes. Spain needs economic growth to shrink its debt burden. And, right now, Spain is tethered to a currency and a European Central Bank that cater far more to Germany's economy than Spain's. What's more, many economists worry that as long as Spain keeps pursuing endless austerity, growth could prove hard to come by.

Second, recall that in June, E.U. officials agreed to lend money directly to Spain's troubled banks. At the time, observers thought that the entire euro zone would use its financial might to prop up Spain's banks. The already-squeezed Spanish government wouldn't have to bear the burden alone. Europe would become more like the United States in that respect (recall that, after the U.S. housing bubble burst, Florida didn't have to rescue its troubled banks all by itself). That announcement seemed to reassure the markets.

Well, fast forward a month. The bailout package has just been approved by the rest of Europe. But Germany's politicians have thrown a kink in the plan. The German Bundestag voted Thursday to approve the $122 billion banking bailout, but only if the Spanish government accepted full liability for the loans. “There will be no direct bank financing,” said Volker Kauder, head of the Christian Democratic delegation in the Bundestag. While Spain does get some help, it's a sign that wealthier countries like Germany are only willing to do so much. Instead of edging closer to a full union, the euro zone remains a collection of very different countries awkwardly hitched together.

In the meantime, Spain's sinking deeper into debt woes. Some of the country's budget-crunched regions, such as Valencia, are now asking for further assistance. And with no growth and no prospect of outside help, fewer people are willing to lend the Spanish government money. A new research note from Capital Economics notes that the number of foreigners willing to lend to Spain has plummeted, with non-residential bond ownership dropping from 46 percent in January 2010 to 31 percent in April 2012. Nowadays, its largely Spanish banks and pension funds that are lending money to the Spanish government, which, in turn, is trying to prop up the country's banks. That's a bit dicey.

So Spain's 10-year bond yields are soaring to 7.2 percent. As explained yesterday, that's the level at which Greece, Ireland and Portugal all needed full-scale bailouts from the rest of the euro zone.

Related: FAQ: Why is Spain in crisis? And can it be fixed?