It may be the darkest hour before the dawn but the economic news from Europe could hardly be more depressing for Mario Draghi, head of the European Central Bank.

He has thrown $1.3 trillion in credit at Europe's stricken banks, launched an "unlimited" program of buying euro government bonds in secondary markets and now has a $650 billion war chest to bail out the euro weaklings. That is why he has been dubbed Super-Mario.

But Super Mario has been mugged by reality. Spain has just reported that its deficit for the first half of this year is running at an annual rate of 8.56 percent of gross domestic product. The original deficit target for this year was 4.4 percent, then revised to 5 percent, then up again to 5.3 percent and then to 6.3 percent.

Small wonder, therefore, that the Financial Times is reporting secret talks between the Spanish finance minister and the ECB. This week, the results are expected of the long-awaited independent audit into the funding needs of Spanish banks, which is expected to exceed $80 billion. Some analysts like Nomura think it might exceed $4.12 trillion -- and that is without allowing for this summer's alarming levels of capital flight.

And now come new leaks of a second haircut being negotiated on Greek debt. This is for the $70 billion of Greece's first eurozone loan facility, the bilateral bailout program that ran from May 2010 to the end of last year. So far nothing has been officially confirmed but reports say that Greece's eurozone partners are facing a sharp modification of the loan terms.

Martin Blessing, chairman of Germany's second-largest bank, Commerzbank, warned last week that he sees a second debt haircut as inevitable.

"In the end we will see another debt haircut for Greece, in which all creditors will take part," he said publicly Thursday in Frankfurt.

Six months ago, Greece was relieved of $130 billion in debt through the first haircut for its private lenders. This second haircut will hit the other eurozone members directly, since neither the International Monetary Fund nor the ECB is willing (and may not be legally able) to take a cut on their loans. The IMF is also pushing for a further haircut on the remainder of Greece's sovereign debt that is held by private lenders.

By any logical standards, Greece is bankrupt, with its economy shrinking and quite unable to pay the interest on its debt without borrowing more money. The private debt markets are closed to it, so even to pay interest it will need more money from its eurozone partners , the ECB or the IMF.

The wider European context could hardly be more gloomy. The latest Markit index of purchasing managers across the eurozone is the worst since the spring and summer of 2009, at the depth of the recession. Both the composite and services indexes reached 39-month lows. This suggests that the private sector economy shrank for the 12th time in the past 13 months, with the pace of decline picking up speed to reach the most pessimistic level since June 2009.

Markit senior economist Chris Williamson said he had hoped that the purchasing managers would have been more encouraged by the ECB's latest moves but saw no sign of it and ominously also saw unemployment gaining.

"We had hoped that the news regarding the ECB's intervention to alleviate the debt crisis would have lifted business confidence but instead sentiment appears to have taken a turn for the worse, with businesses the most gloomy since early-2009 due to ongoing headwinds from slower global growth. This gloom is clearly reflected in headcounts falling at the fastest rate since January 2010 as companies seek to adjust to weaker demand," he said.

He also saw France, the eurozone's second-largest economy with a $2.6 trillion GDP, sinking deeper into trouble. France has seen no growth at this year and looks to contract 0.5-0.6 percent in the third quarter.

"France is really starting to struggle quite substantially now," Williamson said. "Its economy is suffering as its neighbors are seeing demand weaken and ... there are few signs of demand to stimulate growth in France."

French President Francois Hollande has already cut next year's target from 1.2 percent growth to 0.8 percent. It looks more likely that France will be in recession next year. That is alarming because no matter what kind of rescue is patched together for Greece and Spain, the markets already know that a new crisis looms next spring in Italy, when the unelected technocrat Prime Minister Mario Monti is due to step down and the country faces new elections.

There are, however, hints of a new dawn breaking. Unit labor costs in Greece have dropped way below German levels and in Spain, Portugal and Ireland they have dropped to less than the eurozone average. Only in France and Italy do unit labor costs continue to rise faster than those in Germany.

But with Italy moving into crisis and France looking as if it could be next, a dismayingly bumpy road map now looms ahead for Europe. And thanks to the "thus far and no further" verdict of Germany's supreme court, Super Mario is running out of ammunition to take advantage of that new dawn if and when it comes.