Spanish Prime Minister Mariano Rajoy secured an overall majority in regional elections in Galicia over the weekend but in the Basque country, the nationalists were the big winners. These polls have been identified as one reason why Rajoy has held off asking for sovereign aid and Catalan elections still loom next month. Rajoy is likely to have to offer politically poisonous pension reforms in return for outside assistance.

So far, we seem to be no closer to a bailout request, which could then trigger European Central Bank intervention, and with 10-year yields having dropped more than two percentage points from a 7.5 percent peak since Mario Draghi’s vow to do whatever it takes to save the euro, one could reasonably ask why Madrid should be in a hurry. Some officials are saying Spain could quite comfortably wait until the turn of the year, leaving a prolonged period of limbo.

The fact is that if market pressure comes back on, Spain can quickly approach the euro zone’s ESM rescue fund for help and the ECB can pile in thereafter. So what has happened is that a bit of fear has been put back into investors intent on shorting the euro zone periphery to their hearts’ content; fear that wasn’t there until recently. It looks increasingly likely that Madrid would seek a precautionary credit line from the ESM, with conditions attached, which in theory could allow the ECB to buy Spanish bonds without the government actually taking money from the rescue fund. That would be a much easier sell politically.

In the meantime, the government’s assertion that it can comfortably fund itself through the end of the year looks plausible. That doesn’t rule out pre-emptive action though. On the financing front, the same applies to Italy. Having achieved bumper sales of its bond aimed at retail investors, it will now slash the amount of debt issued up to the year-end.

Last week’s EU summit certainly showed any panicky sense of urgency has evaporated although progress was made on step one of the banking union. As usual, however, what is agreed at summits is as likely to fray at the edges as to be pushed forward, so the proof will be in the eating. Taken at face value, it looks like cross-border banking supervision and therefore the ability of the ESM rescue fund to recapitalize banks direct could be in place by the middle of next year. But Germany still seems to want to go slower and what Germany wants… There was also no clarity on how banks long in trouble will be dealt with, given Angela Merkel’s insistence that there will be no back-dated recapitalization.