Eurozone leaders have made progress towards beating the economic crisis in the last month – but the risks remain high and the solution will not come quickly, the rating agency Fitch said in a report published today.
It also said a quick decision on whether to accept Greece's call for more time to meet the conditions of its bail-out would lower the chances of the country being forced out of the single currency.
The agency said some headway had been made on four of the six issues that it claimed had to be addressed before market uncertainty about the eurozone's viability would subside – including European Central Bank funding, banking supervision, a credible financial firewall, and structural reforms.
And it added that European Commission President José Manuel Barroso had made "early stage remarks" about the other two areas: fiscal integration, and political and institutional reform.
"Eurozone policy-makers have recently outlined or clarified their desired approach to facilitating greater economic and monetary union and avoid the high economic and political costs of a eurozone break-up," Fitch said in a statement. "This supports our view that the eurozone will survive".
But it also sounded a note of caution: "Political and execution risks remain high. Despite the progress made this month, solving the crisis is far from certain and any resolution will not be quick."
The ECB's proposal to buy unlimited sovereign bonds from countries that request assistance – along with the German Constitutional Court's recent approval of the permanent European Stability Mechanism bail-out fund – "should lower the risk of self-fulfilling liquidity crises" as long as both act as a support to market access rather than as a substitute to it, the rating agency said.
Meanwhile the plan set out by the commission for a single supervisory mechanism for euro area banks should "help break the link between weak banking sectors and sovereign creditworthiness". However, Fitch warned that the final agreement would likely be less ambitious than the original proposal and the timetable for implementation early next year was "tight".
Structural reforms in peripheral eurozone countries "remained a priority" and – on Greece's bid to extend the time it has to implement its austerity and reform programme – Fitch added: "An agreement on any change to the Greek programme before the next EU summit in October would reduce the risk of a Greek exit or second default."
On the longer term ideas put forward by Barroso for the creation of a "federation of nation states
"and deeper economic and monetary union, Fitch said: "It is highly uncertain how much political momentum there is for full-blown treaty revision, so any commission proposals may look more like a wish-list at this stage."