The financial markets have started to do the math they should have done six months ago, and they don’t like what they’re seeing: The European Union’s much vaunted financial backstop fund might not have enough money to rescue Spain, the numbers argue. That’s because the fund never was as big as advertised.

The realization that the attempt to paper over the euro crisis until 2012 or so isn’t very credible has savaged Portuguese and Spanish government debt today. As of noon the cost in the derivative market to insure Portugal’s government debt against default hit a new record and investors demanded the highest premium since the euro began to hold Spanish 10-year bonds instead of their German counterparts.

The euro itself dropped to a 10-week low at $1.3034 this morning

When the European Union’s plan for a fund to backstop financial markets was first announced it was billed as a $600 billion or 440 billion euro pot of money. But the European Financial Stability Facility was never actually that large. According to number crunching by Nomura International, the facility may only actually have 255 billion euros available.

That’s because of the way the fund was structured. Instead of actually getting hard cash from the governments of the European Union, the facility sold bonds to raise money. And to make sure that the bonds would earn an AAA rating (and the lowest interest rate), the governments involved pledged that they would set aside part of the 440 euro total to backstop the bonds. (In effect a backstop to the backstop facility.)

According to calculations by HSBC, 255 billion euros wouldn’t be enough to rescue the Spanish economy, which is twice the size of the combined Irish, Greek and Portuguese economies. HSBC has calculated that Spain needs 350 billion euros over the next three years to refinance maturing debt and to meet new borrowing needs generated by a budget deficit that will reach 9.3% of GDP in 2010

Besides the 255 billion euros from Euro Zone governments available to the facility, an additional 60 billion euros from the European Commission and 250 billion pledged by the International Monetary Fund are part of the pool. That brings the total available to 565 euros. That’s enough to cover a Spanish rescue but you can understand why investors who think Portugal might need to draw on the facility too are getting a tad nervous.

Financial markets are looking to the December 2 meeting of the governing council of the European Central Bank to see if 1) the bank will stick to its plan to withdraw emergency loans to troubled banks beginning in early 2011, or 2) if the bank will scrap that plan and maybe even announce new measures to deal with the crisis.

Alternative #1 would undoubtedly further spook markets that are looking to see where the capital to get through the next stage of this crisis is going to come from. A stubborn decision to go down this path is likely, in my opinion, to pull other economies into the crisis. The cost of insuring against Italian default has risen in recent days.

Alternative #2 might head off the immediate crisis of confidence if the central bank announced that it would buy more bank debt from troubled banks and loosen its rules on what it will accept as collateral for lending to those banks.

Even Alternative #2, however, won’t fix the debt problems for Greece, Portugal, Ireland, Spain and more that surface again in 2012 or 2013 when these countries will face the need to refinance a huge amount of debt.

But at this point, kicking the problem a year or two down the road sounds like a really, really attractive possibility.