Economic paralysis is starting to grip Europe. In the span of just four days, five European banks have either collapsed or have been bailed-out by governments.

On Tuesday, the Irish government, in an unprecedented move, guaranteed all deposits for the country’s five largest banks, possibly stemming a run. Ireland is now viewed as a European safe-haven amid the ongoing financial storm since the government is protecting all deposits, unlike other European deposit schemes.

On Monday, the Benelux countries of Belgium, the Netherlands and Luxembourg collectively spent $16 billion dollars to keep Fortis NV alive, one of the largest financial services companies in the Low Countries. Each government got a 49% share of the bank’s operations in its country.

While Europe heads deeper into a credit crisis of its own, the Spanish market has been able to thus far absorb weaker financial institutions and has not witnessed even a single bank failure among its largest companies.

In Spain, where I’m visiting this week, the country’s banks remain mired in an increasingly vulnerable residential real estate market that has already peaked. Barcelona property is now in a downtrend while the rest of the region, including Costa Brava and even Costa del Sol in the south (Marbella, Malaga) is also clearly in a major downtrend.

Several construction companies have gone bankrupt and the bear market in real estate has resulted in a steadily rising unemployment rate north of 10% -- among Europe’s highest.

Spain, unlike many other European countries, harbors some of the best regulations governing real estate ownership, including provisions avoiding aggressive lending practices. That’s something that didn’t exist in the United States or England before 2008 and is the root cause of those Anglo-Saxon economies’ woes over the last 12 months. That might save Spain from more economic hardship.

A few of the smaller Spanish banks remain exposed to real estate loans that are souring. But I doubt you’ll see a bank panic grip Spain. The country’s biggest bank, Banco Santander (NYSE-STD), is flushed with net cash-flow and has more than two-thirds of its earnings generated outside Spain, mainly in Latin America and Europe. The bank has been busy buying busted British bank balance-sheets and has debated purchasing distressed American banks, too.

But aside from Spain, the rest of the region will see more bank failures. Europe is still about 6-9 months behind America’s credit cycle and we’re now seeing more signs of weakening economic growth. Some of the region’s largest banks remain hugely leveraged, including Barclays and Deutsche Bank. As this process reverses, I expect more turmoil in Europe and probably, more failures and bail-outs.