Speculation Spain will need a bailout has abated but volatility is high, nerves are frayed and some experts say Madrid should tap emergency funding now to pre-empt the next wave of attacks on its sovereign bonds.
The wolves have been kept from the door by well-subscribed debt auctions - the Treasury has issued €14.5-billion of debt in the last week - and an aggressive commitment to economic reforms and spending cuts, but the peace won't last.
Any sign of weakening resolve, either from the Spanish government or from euro zone leaders on the development of their European Financial Stability Facility rescue fund could provoke a new round of sell-offs of Spanish debt.
Spain's ruling Socialists say they do not need outside help and most analysts agree.
A Reuters poll of 51 economists this month found 44 predicting Portugal would need a bailout similar to the aid given to Greece and Ireland. Only seven of them said Spain would need the same treatment.
But nagging investor concerns have kept premiums demanded on benchmark Spanish bonds over the equivalent German Bund near euro lifetime highs and the cost to insure Spain's debt against default at levels similar to those of Iraq and Lebanon.
Merrill Lynch currently puts the probability of Spain seeking outside help this year at 41 per cent.
"The handling of previous rescue packages indicates that reactive rather than pro-active action by policy makers may not suffice to re-establish investors' confidence, and we now see increased urgency for policy makers to try to get ahead of the curve," economist Tullia Bucco of Unicredit said.
Spain's Achilles' Heel is its banking system.
Split evenly between international commercial banks such as Santander and BBVA, and debt-stricken, regional, unlisted savings banks, the sector could be as serious a liability for Spain as it was for Ireland.
This is where a pre-emptive strike would help.
A €100 billion package would recapitalize the banks - which have a shortfall estimated at €20-billion to over €100-billion - and settle nerves over the system's weaknesses.
"By reducing the uncertainty on the recapitalization of the banking sector and lowering chances of a negative feedback loop between banks and the sovereign, the move should have a positive impact on government bond yields," said the Unicredit economist.
A full sovereign bailout for Spain on the scale of that offered Greece and Ireland could be more than €400-billion, according to estimates, more than the EFSF could handle.
Concentrating on Spain's banks would make the package more digestible, especially for euro zone paymaster Germany.
The government says it is working on a new round of recapitalization, after reforms cut the number of savings banks to 17 from 45 in 6 months, but says the money will not come from its own coffers.
"Where do you find the money for the savings banks? If the money has to be raised through the government, at what rate? That issue has not gone away. This problem has not been fundamentally addressed," economist at Merrill Lynch Guillaume Menuet said.
"I want to see those banks recapitalized before I turn positive on Spain."
Despite recently improved sentiment, Spain faces a bumpy road this year and a confidence-shattering shock could come from a number of sources.
"The threats are profound ... We continue to believe that the probability of Spain needing a bailout is still low, but accept the risks have risen and are likely to linger well into 2012," said Raj Badiani, economist at Global Insight.
Unexpected bad news on the economy, which barely avoided tipping back into recession in 2010, or worse-than-expected deficit news from regional governments, could fuel concerns as could any weakening of the ruling Socialists' power base.
Local and regional elections in May could erode the essential small-party backing the minority government has in parliament, hobbling Prime Minister Jose Luis Rodriguez Zapatero until general elections in 2012.
Failure to push through long-promised reforms, such as raising the pension age to 67 from 65, due at the end of January or extensions to labour market reforms could also act as a tipping point for the perception of Spain as a viable economy.
Debt redemption humps in April and July and October will be met with the same skepticism and rising rates as the last big payment in July, even though they passed without incident.
If the government accepted aid for the banks alone there would be less stigma than an aid plea for the sovereign, though this argument is unlikely to win many supporters in Madrid after repeated insistence the banks and the economy are solid.
However, if the situation turns nasty again, Mr. Zapatero could be forced to make the difficult choice between saving Spain from the doubting investor and saving face before the electorate.
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