EU policymakers in Brussels and IMF strategists in Washington are waiting for an outcome of Rajoy's last-ditch effort to discipline and restructure the banks after the government part-nationalized Bankia, the fourth-largest institution in the sector.
Spain's gathering crisis is blamed by analysts on reckless lending by banks amid runaway speculation on real estate and a construction boom that soon turned to bust
Analysts fear the state's rescue of Bankia will not be the last such measure as other banks reel under the combined effects of bad loans. A $5.8 billion funding that Bankia received from the state in 2010 and 2011 was converted into shares of the bank's parent company, but more is needed to put the financial system as a whole safely out of danger.
A banking overhaul aims to free up frozen credit and induce growth to ease the politically explosive 24.4 percent unemployment, the highest among the 27-member EU.
Bankia's bad loans totaled $44 billion at the time of its rescue last week. Bad loans in other Spanish banks run into further tens of billions of dollars.
Bank of Spain figures show that, at the end of 2011, Spanish banks held $238 billion worth of problematic real estate assets, including loans and repossessed property, accounting for 60 percent of their property portfolios.
Rajoy handed out assurances the government was determined to guarantee the stability of the overall banking system.
This, he said, will be done through incentives to banks to start lending again to both businesses and individuals.
At the same, independent auditors appointed by the government would value the banks' property assets to decide how to raise more cash or restructure their balance sheets.
Many of the smaller lenders in the country currently hold loan portfolios that are unlikely to be repaid, meaning they face meltdown unless the government steps in with cash.
Current estimates in European Commission economic data suggest Spain's economy may shrink by 1.8 percent this year and by 0.3 percent in 2013. However, these figures will be up for review as the government rescue goes into full swing.
Spain's debt was downgraded by Standard & Poor's ratings agency last month.
Amid EU calls for continued austerity, Spain is showing signs it wants to do something different -- spend more to inject some life into the economy while aiming to cut the deficit.
French President-elect Francois Hollande opposes the EU's austerity program and has already triggered a rethink on the austerity policy.
However, EU officials Friday continued to insist they hoped Spain would go through with its austerity plans and cut its budget deficit.
Spain was originally supposed to bring the deficit down to 4.4 percent in 2011, but Rajoy convinced EU partners to raise the target to 5.3 percent after it hit a worse-than-expected 8.5 percent in 2011. However, all that was before Hollande's appearance on the scene as the arch challenger of the EU's fiscal policy.
The Spanish situation will figure high on the agenda at a meeting of eurozone finance ministers Monday.