Spain is putting all its eggs into one basket, and if it carries on like this, we may start to see a lot of Basques and Catalans crowding into one exit.

The state pension fund – the €64bn Fondo de Reserva, known as the ‘hucha de las pensiones‘ – is buying Spanish sovereign debt at a vertiginous pace.

The financial daily Cinco Dias reports that the share of the Fondo’s total portfolio invested in Spanish government bonds rose from below 50pc in 2007 to 76pc in 2009.

The Social Security minister Octavio Granado said it will rise to 90pc by the end of this year.

It is clear from an analysis of the data that the Fondo is not just investing fresh revenues in Spanish bonds, but also rotating out of Dutch, French, and German bonds into Spanish debt. The Spanish government is also funnelling 90pc of its sickness fund into state bonds.

Evidently, Spanish savers are underpinning Madrid’s Treasury auctions, whether they like or not. It is they who are mopping up the debt along with the European Central Bank as foreign creditors stay away. The Bank of New York Mellon said that its iFlow data on bonds reveal that foreign demand for Spanish debt has “dried up” again after a brief recovery in July. There has also been some “net selling” of French bonds. I think we will hear more of that Gallic sub-plot over the next year.

Here is a link to the last annual report of the Cortes Generales, packed with detail, including this chart:

Sr Granado said the sole motive for the purchases is to reap a higher yield. Spanish 10-year bonds were trading yesterday at 173 basis points over German Bunds. But there again, spreads on Greek bonds were at 853 points, so if yield is what you want – and if you believe EU assertions that default/EMU exit by any eurozone member is preposterous – then why not buy Greek debt? Unless, unless, but let’s not labour the point.

I am grateful to the splendid Edward Hugh at A Fistful of Euros for bringing this to my attention. Dr Hugh lives in Barcelona and is highly valued by the Spanish media as one of the few analysts who saw the whole disaster coming, and why it was coming – namely the perverse mechanisms of EMU on a peripheral economy in a catch-up-phase with a higher growth rate than Carolingia, and therefore a need for a higher interest regime (ceteris paribus) during the boom.

Just to be clear, Dr Hugh does not call for Spain to leave EMU, and nor do I. It is too late for that. As Brian Coulton af Fitch Ratings puts it, leaving EMU is like trying to remove the sugar from your coffee once you have stirred it in.

In my view the proper response at this late stage – after the EU elites have already been “asleep at the wheel” for a decade, in the words EU president Herman Van Rompuy – is for Germany to endure a phase of higher inflation for a few years to let Greece, Portugal, Spain, and Ireland claw their way out of their trap without succumbing to debt-deflation and a death spiral. Berlin does not yet understand that this is the unavoidable implication of Germany’s EMU membership, of course, so we have a problem.

Spain is not alone in tapping its pension fund.  Half the world is doing it. In Japan the DPJ government is dragging its feet on privatisation of Japan Post, the biggest financial conglomerate on the planet, and holder of a big chunk of all Japanese sovereign bonds. The DPJ is clearly terrified of what may happen it loses its captive buyer, notwithstanding today’s fall in yields on 10-year bonds to 0.92pc. Those yields will change in a hurry if and when psychology turns in the Tokyo market. Who else will fund a public debt reaching 225pc of GDP this year (IMF data)? The Japanese can’t count on the Chinese central bank to keeping plug the gap.

Of course, Britain also plays the game. It uses pension rules to force its savers to buy Gilts. The US social security fund buys Treasuries. We all do it. We are building up a nasty inter-generational clash by plundering the savings of current workers to fund a bloated state and an aging bulge of pensioners who – through no fault on their own: many were even forced to retire before they wanted to – have become ruinously expensive for a shrivelled tax base.

The issue for Spain is the motive for their CHANGE in policy. In effect, the country is upping the political ante. The Fondo’s gamble may pay off nicely. But if Germany refuses to rescue Spain from debt-deflation by tolerating 5pc inflation (in Germany), and if Spain’s EMU adventure turns bad, then hard-working Spanish savers will have lost their final hedge.

Let us call it the last roll of the dice.