Angela Merkel’s hiking holiday in the Italian Alps, Francois Hollande’s stay on the French Riviera and Mariano Rajoy’s visit to Galicia this summer must already seem like distant memories to the European leaders.
As the kicks off after the traditional August break in Europe, Spain is once again firmly in the spotlight.
The country has been a key concern for investors throughout the summer, with seemingly endless speculation over how much longer it will resist an appeal for a bailout from European authorities.
Many analysts believe it will soon concede.
With the holidays over and a number of key events ahead, the time may have come for the country to go cold turkey and accept the austerity measures that will come with an aid request.
Spain’s long-term borrowing costs remain near unsustainable levels (read more: ) and Reuters cited a source as saying that Spain's national bank rescue fund FROB would approve, later on Monday, a of between 4 and 5 billion euros for nationalized lender Bankia.
“August always was going to be a month where we were going to get off lightly. The testing time comes now,” Alistair Newton, political analyst at Nomura told CNBC on Monday.
With a crucial , elections in the Netherlands and a ruling on the legality of Europe’s permanent rescue fund known as the ESM later this month – September has been billed as crunch time for the euro zone.
“Spain has over 30 billion (euros) of redemptions coming up in October. It’s ‘make your mind up’ time for Mariano Rajoy,” Newton said. The Spanish Prime Minister needed to decide urgently on a request for aid, he said.
Until that happens, investors will remain on edge, Padhraic Garvey, head of developed markets, rates and debt strategy at ING told CNBC.
The brokerage hopes the ECB will announce, this week (read more: ) , that it will buy short-term Spanish debt to alleviate Spain’s funding concerns.
“I think it’s absolutely crucial that the ECB gives the markets the impression that what it’s going to buy it will do in a very aggressive manner, practically in a limitless manner,” he said.
On Friday, Spain’s IBEX index rallied over 3 percent after the government announced it would set up a bad bank to buy up souring property assets from the financial sector.
But on Monday, Spanish stocks traded lower as data showed further weakness in the manufacturing sector.
“This is the first week of proper trading…Friday we saw Spain trade heavy. I think the odds are over the next number of weeks that Spain continues to trade heavy until we get to a point where there is real support for Spain. That support would require Spain actually asking for help,” Garvey said.
Riccardo Barbieri Chief European Economist at Mizuho International told CNBC the ECB would need to be specific on Thursday to satisfy markets and say it would aim to keep bond yields at sustainable levels.
He also believed the ECB would buy mainly short-term bonds to drive those yields down. Spain did not have much time, he said.
“Spain is a country with a negative international position…it needs capital inflows,” he said.
With these key events ahead, there may be some sense of relief among investors by the end of September.
“We’ve got to the tipping point and the answers are (coming) very, very soon. It may not be a perfect answer but we will have moved on from this issue to a greater extent by this time next month,” Michael Brown, Fund Manager at Martin Currie said.
Newton also believes there is the potential for quite a lot of upside news.
“The ECB may disappoint on Thursday because market expectations are too high but I don’t think we should underestimate the commitment of (ECB President) Mario Draghi.”