Spain's Biggest Export, Young People

Spain has avoided a costly run on its debt even as its closest neighbor, Portugal, has been forced to ask the European Union for help to help fund its debt burden. But one analyst remains skeptical the Spanish are out of the woods just yet.

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"Conventional wisdom says that the rot has stopped at Spain, but private and corporate debt is alarmingly high, unemployment is over 20 percent and youth unemployment stands at 40 percent," Julian Pendock, a senior partner at Senhouse Capital told CNBC in an interview.

With a recent survey indicating 80 percent of young people in Spain are seriously considering leaving the country due to poor career prospects, Pendock warned that a mass exodus of the next generation could be very bad news.

"The long-term impact on the country would be seriously detrimental if this were to happen. Further, Spain has three times the number of unsold residences in comparison to the US, which makes many suspicious of Spanish banks' reported non-performing loans, given their exposure to real estate," he said.

Contacts in Spain told CNBC that the younger generation is unlikely to want to buy a house following the collapse of the Spanish housing market, adding to fears the market has no fundamental drivers, with prices yet to fall as far as the demand situation would indicate it should.

"Not so long ago I had a discussion with an interest rate strategist arguing that Ireland was 'fine' – the next week, it imploded," Pendock said.

"The definition of insanity is to keep doing the same thing over and over and expecting different results. The only chance of muddling through is for the ECB to keep buying debt, i.e. monetizing debt, creating a false market," he added.

Policy makers meeting in Budapest on Friday and European Central Bank members have been quick to say that Portugal will be the last euro zone member needing a bailoutbut Pendock believes the euro zone's problems are far from over.

"Politicians like to talk up the chances of success, as do bankers, as periphery implosion would cause a secondary banking crisis," Pendock said. "But in which case why are European banks putting 92 percent of Spanish sovereign debt in their 'Banking Book', which does not have to be marked to market?"

"In terms of working through suffocating debt, more debt is not the answer, although even the leader of the Portuguese opposition has acknowledged that far-reaching supply-side reform is necessary," he added.