The eurozone debt crisis is showing signs of easing now that the European Central Bank has injected cheap money into the economy and the European Union has agreed on a new fiscal accord.
As borrowing costs for eurozone countries declined, Portugal returned to the government bond market with a better response than expected for the first time this year.
The yield rate of Italian 10-year bonds dropped from peaks at around 8 percent to 6 percent in January, while Spanish 10-year bonds fell below 5 percent.
International rating agencies Standard & Poors and Fitch downgraded the credit ratings of some eurozone countries, including France, in January, but without having a huge impact on the European market.
ECB chief Mario Draghi said last Friday that financial market have revived since the central bank injected nearly 500 billion euros (633.3 billion U.S. dollars) into eurozone banks since late December.
"We know for sure that we have avoided a major credit crunch, a major funding crisis." Draghi said at the recent World Economic Forum in Davos.
A total of 523 European banks applied for the 3-year loans, which come with a low interest rate of 1 percent.
According to a recent Morgan Stanley report, Italian banks were the biggest users of the ECB fund, receiving 50 billion euros (65.55 billion U.S. dollars), which covered more than 90 percent of their funding requirements for 2012.
Guntram Wolff, deputy director of the Brussels-based think tank Bruegel,said the ECB's financing operation has relieved pressure on European banks and raised confidence in the markets.
Herman Van Rompuy, president of the European Council, said Monday that 25 of the 27 EU member states would sign a treaty at the EU summit to ensure tighter deficit and debt discipline.
"This represents a major step forward towards closer and irrevocable fiscal and economic integration and stronger governance in the euro area," Van Rompuy said. "It will significantly bolster the outlook for fiscal stainability and euro area sovereign debt and enhance growth."
Progress was also observed at the center of the crisis, Greece, where a deal on private sector involvement between the Greek government and the private creditor community would be closed.
"We are very close, and we have to have a sustainable solution for Greece," said EU Economic and Monetary Affairs Commissioner Olli Rehn.
His remarks were echoed by German Finance Minister Wolfgang Schaeuble.
"I don't expect the default of Greece," Schaeuble said. "I am sure that if everybody is ready to deliver what has been agreed, and all the parties of Greece are ready to do it, we will avoid -- we can avoid and we will avoid - a default of Greece."
The positive signals did not allay experts' concerns on the European debt crisis. Wollf, currently an adviser to the International Monetary Fund, said the crisis was far from over.
The Southern European countries, which lack economic competency compared to the richer nations in Western Europe, had to take on large debt to maintain comparable welfare services for their people, he said.
As the competency differences cannot be eliminated in the short term, the debt crisis remains, he said.
The EU's economy is also facing risks of stagnation or recession, which undermines the capacity to pay its debt, Wollf added.
The IMF estimated that 17 eurozone states would face recession this year, while the European Council forecast that 27 EU members would suffer.
Analysts said the Greek debt crisis might become another blasting fuse if Greece and its lenders cannot reach a quick deal on cutting its debts.
Greece would not get the bailout package of 130 billion euros (171 billion U.S. dollars) provided by eurozone governments if private creditors do not accept a 50 percent voluntary writedown of their Greek debt holdings.
IMF official Poul Thomsen said Wednesday that Greece needs to step up structural reforms to overcome the crisis.
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