While European leaders haggle about the next EU budget for the next seven years, European economic data has continued to deteriorate, even though today's better than expected German IFO numbers have prompted a sliver of optimism.
All the while Spanish bond yields have been sliding lower despite an admission this week from Bank of Spain Governor Linde that Spain could well miss its fiscal targets for 2012. This admission doesn't appear to have fazed markets at all and Spain's reluctance to ask for a bailout in the near term is reinforced by the fact that they are now fully funded for 2012.
The recent benign conditions on the Spanish bond markets, helped by the ECB's OMT pledge has prompted Spanish authorities to get ahead if the curve this week and get pre-funded for 2013, this week raising nearly €4bn in funding for 2013.
These benign conditions have certainly helped Spanish Prime Minister Rajoy with respect to this weekend's regional election in Catalonia.
A bailout request prior to this election would have been manna from heaven for the separatist movement in this particular region, especially with the loss of fiscal sovereignty such a request would entail.
As things stand this weekend's election could prove pivotal to the next move in the euro as well as for Spanish bond yields, which have dropped sharply this week.
The most likely result, if polls are to be believed, is that people will probably vote for the status quo, due to fear of the consequences of the unknown that a vote for the separatists might bring.
In any case the outcome of the vote won't change some of the deep seated resentment felt by Catalans about the fact that they put more money in than they get out with respect to tax revenues to the Spanish exchequer. Whatever Sunday's outcome the Catalonia question will remain a thorn in Mr Rajoy's side for some time to come, especially, if as expected, Spain has to ask for a bailout next year.
On Monday it is hoped that markets will get final clarity on what steps will be taken to get Greece's finances back on a sustainable path.
Greece's problems are well documented and it seems likely that we could well get yet another fudge, next week with reports that the IMF will move from its original insistence that Greece's debt to GDP ratio must be 120% of GDP by 2020, and moved to 124%, which would be a significant climb-down.
There has also been talk all week of reducing the interest rate on loans to Greece, and extending maturities, as well as a €10bn debt buyback. There has also been speculation that the ECB would forgo its profits on its SMP program.
The reduction of interest rates on loans could well prove problematic, especially if Greece gets to pay a lower interest rate than the rate the money was originally borrowed at, thus generating a loss to the lender.
Certainly market optimism has been rising that these hurdles will be overcome and the rise in the euro this week has reflected that, nearing as it is some significant chart points and break levels.
The euro is currently testing resistance between 1.2905 and 1.2920 where the 50 day moving average and the 50% retracement of the 1.3150/1.2605 down move currently converge. A break higher could well retarget the 1.2970 area and on to 1.3020.
Unfortunately this market optimism also contrives to exacerbate the problems in Europe given that a higher euro makes it that much more difficult for the weaker euro nations to make the economic readjustments necessary to help their competitiveness, as well as address their debt problems.