Rating agency Moody's has said the euro zone sovereigns' ratings will likely remain stable in 2016-2017 but fading fiscal consolidation, limited progress on structural reforms and rising political risks limit upside potential and create longer-term risks.
The rating agency's caution come after European Central Bank President Mario Draghi warned European leaders yesterday that monetary policy alone would not be enough to jump-start the economy and that governments needed to do their job by pushing through structural reforms.
Even as debt loads remain stubbornly high, the deleveraging process has been hampered by a combination of low growth and low inflation with progress on structural reforms limited at both a national and a euro area level.
"Given low inflation and reduced structural consolidation, Moody's expects only a very gradual reduction in euro area sovereigns' debt levels in the years prior to 2020," the rating agency said.
Britain's potential exit from the EU could create further obstacles to reform within the EU and also the euro zone, the rating agency added.
Growth across the euro zone is expected to be around 1.5% of GDP in 2016, Moody's said.
The refugee crisis is a further source of disunity in the euro zone impairing the currency union's capacity to absorb shocks by increasing political tensions within and between member countries, according to Moody's.
