(AP MADRID - Spain is breathing a little easier ever since the European Central Bank said it would buy unlimited amounts of government bonds to help countries like it that are being strangled by their debts.
After the ECB pledged two weeks ago to rescue countries that seek the bank's help, Spanish borrowing costs have fallen sharply a sign that investors are more confident the government can pay its bills.
Yet Spain, Europe's fourth-largest economy, isn't out of the danger zone. How its leaders interpret and respond to the recent calm in financial markets matters.
Prime Minister Mariano Rajoy said last week that Spain may not need outside help now that the interest rates on its bonds have fallen to more manageable levels. But this reprieve may not last.
Spain's economy is shrinking, its banks are struggling under the weight of a collapsed real estate market and the debts of its regional governments are piling higher. And with unemployment at almost 25 percent, social unrest is rising as further austerity measures loom.
It isn't clear if financial markets have eased up on Spain simply because the ECB stands ready to act as the so-called lender of last resort, or whether bond investors expect Spain to seek a financial lifeline and if so, how soon.
Analysts say that if Spain doesn't request a bailout, it is only a matter of time before its borrowing costs rise to unhealthy levels again.
"Spain is in a situation where some dramatic event, be it political instability, another bank collapse or another region in difficulty, could send bond yields to the roof overnight,' said Vincent Forest, a London-based economist with the Economist Intelligence Unit.
Spain's borrowing costs have crept higher this week as uncertainty about Rajoy's plans seeps into the market's psychology.
The interest rate, or yield, on Spanish 10-year bonds fell to a six-month low of 5.62 percent in the days after the ECB bond-buying plan was announced. That was down from a July 24 peak of 7.54 percent near the level that forced Greece, Portugal and Ireland to seek international bailouts.
On Wednesday, the yield on Spanish 10-year bonds stood at 5.84 percent.
Spain's debt of euro804 billion is equivalent to 76 percent of its economic output, near the upper end of the range that is considered healthy. The country has raised 77 percent of the euro86 billion it needs to borrow this year, but has not estimated the size of next year's budget deficit.
Economists and bond market analysts warn that Rajoy should hurry up and make a formal request for help.
"Mariano Rajoy is claiming that while yields are low, there's no rush to make a decision," says Craig Erlam of the London-based brokerage Alpari (UK) Ltd. "This completely defeats the point of the program and the longer he tests the patience of investors, the more chance there is of a collapse in confidence and move back toward unsustainable borrowing costs."
Earlier this year Rajoy denied for months that Spain would seek a bailout for its troubled banks. But it eventually did, receiving a commitment in June of up to euro100 billion ($129 billion) from the eurozone.
While Rajoy lobbied the ECB earlier this year to help countries struggling to manage their debts, what he had in mind was a little different than what the ECB has offered.
Specifically, Rajoy is leery of the strings that could be attached to any help from the ECB. To trigger bond-buying by the ECB, a country must first seek help from one of the two bailout funds managed by the 17 countries that use the euro and those funds are likely to mandate further budget cutting.
Rajoy is worried that this could further slow Spain's economy and imperil his political future. In the past year, Spain has imposed major tax hikes, cuts in education and national health care and labor reforms making it easier for businesses to hire and fire workers all in the name of avoiding international bailouts.
Now that an international bailout and more austerity loom, signs of voter discontent are growing. Last week in Barcelona, the capital of the Catalan region, 1.5 million protesters demanded independence from the rest of Spain. Over the weekend, tens of thousands of public servants and union workers took to the streets of Madrid. And on Monday train and subway workers held a strike, causing transportation chaos.
Rajoy's Popular Party faces its first electoral test this year in an Oct. 21 vote in Galicia, the region of northwestern Spain where Rajoy is from. Some analysts say Rajoy is stalling on the ECB decision because he hopes his party can win there first and then he can announce an unpopular move afterwards.
Still, a decision could come soon. At a meeting of Europe's finance ministers in Cyprus over the weekend, Rajoy's economy minister, Luis de Guindos, told delegates that he was preparing a raft of economic reforms to be unveiled by the end of September. This was widely seen by analysts as a hint that the Spanish government was preparing to seek the ECB's help.
"If you look at his record, he has taken firm decisions," says Antonio Moreno, an economist at the University of Navarra. Moreno believes Rajoy is using the wiggle room granted to him by financial markets to negotiate the best possible deal from his eurozone partners. "I don't think he's going to blow it."