And, you know, not because of a massive housing bubble that popped, dropping the bottom from under the Spanish banking system that systematically masked internal deficiencies and the depletion of capital reserves, coupled with rising labor costs that disincentivized domestic investment.
You mean the rising labor costs that happened after the crisis when European solidarity took the form of the core saying "Fuck you, not only will we not help, we are going to actively promote deflation?" Certainly a big part of why Spain hasn't recovered.
I was more talking about how the problem started in Spain though.
That was how the problem started in Spain; a huge demand in housing spurred by government (the national government, and very explicitly not the EU) pressure along the lines of ensuring a house (not just housing, mind you) for everyone, which the banks were more than eager to follow through on due to the potential profits for themselves. When the bubble burst in 2007 and 2008, construction in Spain dropped like a rock, and sales of houses dropped by a quarter nationwide. Government revenues based on this bubble also contracted, leaving many planned projects high and dry. High labor costs predated the crisis, and while they weren't a major contributor to its start, they were definitely a contributor to the inflexibility of the economy and thus its difficult recovery. A lot of comparisons can actually be drawn to the US housing bubble, which was spurred onward for much the same reasons.
I don't even know which European-wide banks you're referring to that the EU offloaded on Spain, to be honest. Dealings between specifically-Spanish banks and the EU have been conducted directly mostly because the Spanish government doesn't want to assume their debts any more than they have to. Indeed, they still haven't assumed these debts directly as such via nationalization or any other means; most of such assumption has been indirect via the floating of loans from the government to the banks, which for a time (not sure if it still is) got caught in a perverse feedback loop where banks needed to use bailout money to buy Spanish government bonds which were floated to get bailout money for the banks. Again, these are also just to Spanish banks; as for European banks in general, I have no idea why the EU would even do something like put, say, a Polish bank's debts on Madrid's shoulders. I genuinely have no idea what you're referring to by your claim, and I'm curious if you have more information.