Financial Madrid reminds president Mariano Rajoy of the “underlying fundamentals”

No time for siesta, presidente. While Spain’s Mariano Rajoy was meeting his colleagues from the European Union in Brussels, to discuss growth and integration, financial analysts in Madrid sent Thursday a warning: market pressures may have softened, but the Spanish government should now complete the implementation of reforms promised not so long ago.

With a premium risk over German 10-year bonds below 400 basis points, and credit costs down to 5.5 percent from more than 7 percent, it is easy to imagine how relieved Rajoy must feel.

But the message from various reports the financial City of Madrid published today bore a common tone. The sense of urgency about Spain’s bailout has only ebbed away, they agreed, and it could make a harsh comeback.

Bankia Bolsa said that current moderate yields “will increase unless fundamentals change and investors can appreciate that the economy is improving due to the adjustment policies.” Experts at Bankia admitted the global economic context helps little, as also emerging countries suffer a slowdown. Nevertheless, an idle government “would irritate the markets.”

Indeed, “markets could give Spain a could shoulder very easily,” Bankinter noted, because investor patience “has a limit.”

Moody’s’ decision of maintaining Spanish bonds on an investing grade brought relevant implications for foreign investors, most observers remarked. “As a new downgrade is less likely to happen in the short term, non-resident investors could cover their underweight positions in sovereign debt,” Afi analysts explained. But the fact that “public debt markets have been more favourable during the last three months, is not an assurance for future market behaviour.”

In the opinion of BSAnálisis experts, a reversal in market mood isn’t a far-fetched possibility. There would be small hope that the ongoing EU summit engages in a timetable to introduce the Banking Union–this would allow Spain to rescue its banks without adding the external loan to the public debt tab. “We don’t expect that the Spanish government will officially require capital aid in this summit,” BSAnálisis said, “so it will be less than encouraging in the end.”

For the moment, it appears that president Rajoy would be better off trusting his country’s own strengths, then.