The euro area is still a considerable source of risk for the world economy and needs to do more to put its banking system on a healthy footing.
This is according to the Organisation for Economic Cooperation and Development's chief economist.
Pier Carlo Padoan told a conference in Portugal that the euro zone would contract again this year and that the world economy in general was exiting recession slowly and was far from sustainable growth.
"In the euro area, many banks remain weakly capitalised," he said.
"We think much more must be done to bring the banking system to a healthy area, without which structural reforms won't deliver enough. We need all policies to be activated,'' he added.
EU officials have said that Germany is working on a plan that would move the banking union forward without changing existing EU law, potentially removing a major hurdle to finishing the ambitious project.
Padoan said that while pursuing structural consolidation in 2014, euro zone countries should allow automatic economic stabilisers - budget items like social spending and tax cuts which ease fluctuations in economic growth - to work, as they focus on fighting high unemployment rates.
"There is no doubt that policy priority number one in the euro area is fighting unemployment. Let's not fool ourselves and expect unemployment to come down in a stable fashion," he said.
But despite the warnings of a slow recovery and risks, he said the systemic risk and the chances of a fragmentation of the single currency bloc were both falling and that growth should return to many countries including Portugal next year.
"There is no doubt the Portuguese economy is improving," he told reporters.
He declined to say whether Portugal may need a second bailout after its current EU/IMF rescue programme ends in the middle of next year, but said Lisbon was going in the right direction with its economic adjustment programme.
Although its bond yields are higher now than a few months ago, he said they were still declining on a longer scale.
"Portugal should capitalise on these gains of confidence," he said.