I have yet to see any meaningful steps taken by the PIIGS to rein in the size and scope of government, and thus I don't think the Eurozone crisis is a thing of the past. But the Eurozone, with the help of the ECB, has made great progress in reducing the risk of a near-term blowup. Markets everywhere are breathing a sigh of relief for what should prove to be more than a temporary, if not a complete, reprieve.
U.S. swap spreads remain quite low, signifying that systemic risk is low, the financial system has plenty of liquidity, and the outlook for the economy is likely to be improving, if only modestly. Eurozone swap spreads are still somewhat high, but they have declined significantly so far this year.
Euro basis swap spreads have been good leading indicators of this improvement, since they show that Eurozone banks are no longer having much difficulty in accessing dollar liquidity. This may also signify that capital flight out of the Eurozone is moderating. Taken together, these spreads show that liquidity in the Eurozone financial system has improved remarkably, and systemic risk has declined significantly. The likelihood of a near-term disaster is thus much lower. The Eurozone has bought itself a good chunk of time to work out its problems.
Zeroing in on individual countries, we see that 2-yr Spanish and Italian yields have dropped considerably in just the past week or so. They are not out of the woods yet, but the market is judging that near-term default risk has declined quite a bit.
5-yr CDS show a somewhat different story, since they are driven by the longer-term outlook. We don't see a whole lot of improvement of late, and that makes sense because these countries haven't yet fixed their underlying problems, even as they have made great strides towards remaining solvent for the near-term. Note how French 2-yr yields are almost zero, but French CDS are trading around 150 bps—even the long-term outlook for France remains somewhat suspect. For reference, I've included the current rate on generic 5-yr high-yield corporate CDS, which is trading around 550 bps. Spain, Italy, and Ireland are all considered to be about as risky as the typical junk bond. That sounds a lot worse than it really is, since junk bonds have been excellent investments in recent years, almost matching the total return on the S&P 500 since the rally started in early March 2009 (98% vs. 121%).