According to a recent report from a risk adviser to Banco Santander SA (SAN) and five other lenders, Spanish banks are currently holding 30 billion Euros worth of property that they can’t sell.

“I’m really worried about the small- and medium-sized banks whose business is 100 percent in Spain and based on real- estate growth, Pablo Cantos, managing partner of Madrid-based MaC Group, said in an interview. “I foresee Spain will be left with just four large banks.”

According to the bank of Spain, the beleaguered Spanish banks are also holding about 150 million Euros worth of bad loans, out of a total 300 million. This is after new rules last year forced banks to hold more reserves against any property taken onto its books, with the hope that this would incentivise their selling the properties rather than holding them until the market recovers.

The trouble being that there is no such incentive to buying the stuff. According to Cantos unfinished residential units, and land “in the middle of nowhere” will likely take as long as 40 years to sell.

Land in some parts of Spain is literally worthless, said Fernando Rodriguez de Acuna Martinez, a consultant at Madrid- based adviser R.R. de Acuna & Asociados.

“If there were to be a proper mark to market of real estate assets, every Spanish domestic bank would need additional capital,” said Daragh Quinn, an analyst at Nomura Holdings Inc. in Madrid, in a telephone interview.

However, according to Cantos this is largely down to the “enormous” gap between the prices banks are marketing properties at, and what investors feel they are worth/are willing to pay. This is an especially big problem in preventing the same of big portfolios said Cantos.

“Banks have already provisioned for a 30 percent loss, but if you are selling at 70 percent discount, you have to take another 40 percent loss. Which small and medium size banks can take such a hit?”

It is not only hard to see a path to recovery for the Spanish property market, it is hard to miss the fact that things are getting worse instead of better, and this looks set to continue. We all know that Italy has become the latest EU country to look like needing a bailout, but less common knowledge is the fact that Spain’s borrowing costs recently touched upon the 7% level that has marked the need for bailout money in all that have gone before it.

In terms of government debt, at 71% of GDP Spain has a much smaller problem than Italy with 120% of GDP, but when you bring in government debts, corporate debts, financial institution debts, and household debts it is Spain that looks like the burro about to keel.

When crisis struck Spanish businesses responded by taking on more debt, especially in the property and utility sectors. Household debt rose to 82% of GDP, financial debt rose to 76% of GDP, and as we know government debt rose to 71% of GDP.

Meanwhile the Italian private sector is in good shape with respect to its indebtedness. Italian business debt it at 81% of GDP, and household debt is at just 45% of GDP. So Italy’s total indebtedness at the end of last year was 313%, some 50 percentage points less than Spain’s. The fact that both their financial sectors are in debt to the tune of around the same 76% of GDP likely explains why both are in the same boiling pot where borrowing costs are concerned.

Back to Spain, 22% of the Spanish working population is unemployed, and the newly elected government must find a way to create jobs for them, while bringing down this massive debt burden. A report in the property press this week talked of hopes for a swift stimulus package for the property and tourism industries — fat chance.