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As a possible way out of the crisis takes shape, pressure mounts on the Spanish prime minister to request aid.
BRUSSELS, Belgium — A curious calm has settled over Europe.
For more than a week, the continent has been spared the usual dire warnings about the demise of its currency or an imminent economic meltdown.
While the world frets about the risk of war between China and Japan and anti-American rage sweeping the Muslim world, issues such as Spain's interest rates and modifications to Portugal's social security system suddenly seem far less urgent than when they recently threatened to sink the European single currency.
However, that doesn't mean the euro zone is safe.
With many countries in the second part of a double-dip recession, Spain, Greece and Portugal all face tests in the coming days and weeks that could prove decisive for Europe's efforts to pull out of the debt crisis that has crippled many economies.
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The immediate concern is Spain, which is set to unveil a package of economic reforms and budget cuts on Thursday. It’s expected to freeze pensions in addition to other unpopular austerity measures that are expected to trigger more social unrest — and demands for independence in the restive Catalonia region — in a country already suffering 25 percent unemployment.
That will pile the pressure on Prime Minister Mariano Rajoy to ease Spain's pain by appealing to the European Central Bank to activate a new bond-buying scheme that has done much to calm speculation about the end of the euro zone since it was announced on Sept. 6.
Rajoy has held out so far in what some believe to be a bargaining ploy over the strict conditions the ECB says it will impose on countries it agrees to help.
As he ponders the risks and benefits of a bailout, he’s been getting mixed advice from around Europe. Some argue ECB intervention is vital to save Spain and bring wider stability to the euro zone. Others hope Madrid can survive without European help.
"Spain needs no program because it is doing the right thing and it will be successful," German finance minister Wolfgang Schauble said Friday in Berlin. "What Spain needs is the confidence of financial markets and that is where Spain has real problems."
The markets have eased up on Spain since the ECB announced its backstop plan. The 5.7 percent interest it had to offer to persuade investors to buy its benchmark 10-year bond last week was the lowest in months. But it's still way above what Germany pays and means that interest payments eat up huge chunks of Spain's budget.
The government is hoping this week's reforms will ensure it won't have to submit to further austerity measures imposed from outside if it does apply for ECB help.
Under the bailout rules, cash-strapped governments must convince fellow euro zone countries they're doing enough to get their finances under control. If they fail, bailouts will come attached with international austerity plans.
Spaniards will discover how much damage the country's property market crash has wreaked on their banks on Friday.
Finance Minister Luis de Guindos has already indicated the banking sector will need an injection of around $78 billion, well within the $130 billion the euro zone has already set aside for a separate rescue fund to save Spanish banks.
But while attention has focused on Spain, new problems have arisen elsewhere.
Neighboring Portugal until recently provided a model of success for applying austerity medicine prescribed by the International Monetary Fund and European Union in return its 78 billion euro bailout. But its reputation took a hit Friday, when a wave of protests forced the government into a U-turn over proposed social security reforms.
Prime Minister Pedro Passos Coelho announced the government was "seeking alternatives" to plans announced days earlier that would have raised workers' social security contributions from 11 percent to 18 percent of their salaries.
The measure prompted a rebellion within the center-right government that shook the broad political consensus that has enabled Portugal to escape the kind of sometimes violent unrest seen in Greece and Spain.
Passos Coelho will now have to find money elsewhere. Ominously for him, the government climb-down seems to have encouraged protesters to push ahead with their fight against austerity.
"The government was obliged to back down in the face of the struggle by the people, the Portuguese workers," veteran trade union leader Manuel Carvalho da Silva said on Saturday. "We can't stop now, it’s very important to keep this movement going."
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Greece's problems are even more acute. Athens has until mid-October to explain to a team of EU and IMF experts how it plans to cut $14.2 billion from its already tightly squeezed state budget, a condition for freeing the next $41.5 billion tranche of bailout money it needs to keep afloat.
Failure could force it out of the euro zone, a prospect many believe would trigger a wider break up, regardless of the new ECB safety mechanism.
"An exit from the euro zone is not a choice for Greece, it's a nightmare," Prime Minister Antonis Samaras said Friday, when he warned of a domino effect. "Once a country is out of the euro zone, speculators will start hitting the next weakest link, then the next one."
Samaras received powerful backing from France on Sunday for his effort to lobby for more time to meet Greece’s deficit-cutting targets.
"The answer cannot be a Greek exit from the euro," said French Prime Minister Jean-Marc Ayrault. "We can already give it some more time… on the condition that Greece is sincere about its commitment to reform."
But despite the numerous pitfalls ahead, a new, cautious optimism has emerged among European officials.
Some have started to whisper about a "virtuous circle," in which market confidence from the ECB bond-buying plan starts to boost the real economy, nurturing growth and offering hope for the euro zone’s 18 million unemployed.
However, few dare to predict the crisis has definitively turned the corner.