"We believe that, so far, the region has made little progress in weakening the links between sovereigns and vulnerable banks in their jurisdictions," said Standard & Poor's credit analyst Moritz Kraemer.

The eurozone will nevertheless continue with its slow recovery in 2014, which high-frequency indicators appear to confirm.

"We think that economic rebalancing across the eurozone, including more robust demand from the monetary union's surplus countries, especially Germany, would go a long way toward resolving the debt crisis for good," said Mr. Kraemer.

Successful rebalancing of the eurozone is, we believe, in the joint interest of both debtor and creditor countries. Indications that wage increases in Germany (and the U.K.) are picking up suggest that these nations will export some modest additional demand to the periphery over the next several years.

"There is a risk of adjustment fatigue: with more favorable conditions in the capital markets in recent months and the increasing impatience of voters, governments could become complacent, and may be tempted to retreat from structural reforms conducive to the eurozone's growth potential, which is currently low," Mr. Kraemer said.

Over the longer term, we believe that cuts in spending on productivity-enhancing public infrastructure in recent years may further exacerbate what we consider to be a subdued outlook for economic growth.

The rating outlook for European sovereigns has generally improved over the past year and gained more ground than any other region, but it is, overall, still negative. While most of our sovereign rating outlooks in the eurozone are stable (negative outlooks remain only on the ratings of Belgium, Italy,
and Portugal), we nevertheless believe it is premature to declare that the eurozone's troubles are over.

The report also addresses questions about the creditworthiness of specific countries in Europe:
- Will the economic recovery in the U.K. last?
- Why is Italy's rating outlook still negative?
- What effect will Slovenia's plan to recapitalize its banks have on the ratings?
- What is the ratings impact arising from Germany's grand coalition?
- What is the likely impact of France's fiscal reform efforts?
- Has Spain's sovereign creditworthiness stabilized?
- Why is the outlook on Portugal's rating still negative?

Standard & Poor's Ratings Services, part of McGraw Hill Financial (NYSE: MHFI), is the world's leading provider of independent credit risk research and benchmarks. We publish more than a million credit ratings on debt issued by sovereign, municipal, corporate and financial sector entities. With over 1,400 credit analysts in 23 countries, and more than 150 years' experience of assessing credit risk, we offer a unique combination of global coverage and local insight. Our research and opinions about relative credit risk provide market participants with information and independent benchmarks that help to support the growth of transparent, liquid debt markets worldwide.

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