Here's a quick update on some key measures of systemic risk in the Eurozone. Swap spreads in Europe have been declining all year, and although they remain somewhat elevated, they tell us that the ECB has managed to restore a good deal of liquidity to the banking system. Liquid markets are essential to an economic recovery. U.S. swap spreads remain very low, a testament to how much the U.S. economy has avoided Eurozone contagion.
The Eurozone has yet to solve its underlying problem (excessive spending), but as this chart of 2-yr sovereign yields shows, the risk of large and potentially disruptive defaults has receded significantly.