Source: Bloomberg
Source: Bloomberg

What a difference a competent central bank makes. Four years ago, Spain's borrowing costs were so high it was almost forced out of the eurozone. Now it's getting paid to borrow.

Thanks, Mario Draghi.

It turns out the pain in Spain was self-fulfilling—at least when it came to its bonds. Now it's true that Spain had a housing boom and bust that, at its peak, left it with upwards of 26 percent unemployment. But it didn't have a lot of debt going into the crisis, so there's no reason it should have had trouble borrowing money to fight it. Well, no reason other than the euro. When Spain joined the common currency, it gave up having its own central bank that could be a buyer-of-last-resort for its debt. Instead, it had the European Central Bank, which wasn't interested in doing any of that. So that meant Spain was vulnerable to what amounted to a bank run on its bonds. If investors just thought that Spain might run out of money—which it could, since it couldn't print any now—then they'd sell Spain's bonds to leave someone else holding the bag. The problem was this pushed up Spain's borrowing costs so much that it became a lot more likely it actually would default. The panic, in other words, was self-justifying.

That, as you can see, above, is what happened at the end of 2011, when even Spain's 6-month bonds had unsustainable 6 percent borrowing costs. Now the ECB was able to calm things down for a little while by giving banks super-cheap loans to buy bonds with, but by mid-2012, Greece's elections had brought the financial contagion back. This time, ECB chief Mario Draghi said he'd do "whatever it takes" to save the euro—and that was all it took. Interest rates promptly fell. And they fell even more once the ECB fleshed out what this meant, saying that, if need be, it'd buy a country's bonds in unlimited amounts to keep its borrowing costs down, assuming, of course, that it was doing austerity. Ever since then, borrowing costs have been on a one-way trip down.

All the way below zero. Now here are good and bad reasons for this. The not-so-optimistic one is that inflation and growth have fallen so far that investors don't need to be paid much interest for it to be worth their while to lend to the government. But the better one is that the ECB is finally trying to do something about this by buying bonds with newly-printed money. That also pushes down borrowing costs—people are willing to pay higher prices for bonds since they know they can resell them to the ECB for more—even, it turns out, into negative territory. Indeed, Spain just sold a 6-month bond with a -0.002 percent interest rate. That's right, it's just barely being paid to borrow.

It's a reminder that Europe never really had a debt crisis. It has a currency crisis that the ECB allowed to push up country's borrowing costs. But once the ECB said it wouldn't, it didn't, and the real crisis became apparent: saving the continent from, well, another lost decade.

Next, maybe they'll figure out they should borrow more money when people are paying you to do so. Although let's not get too ambitious.