Under pressure from debt markets, the euro zone as a whole is turning into a much more balanced and potentially more dynamic economy, a study showed on Monday.
The three-year-old sovereign debt crisis, started by unsustainably high debt in Greece, has forced Athens, as well as Ireland, Portugal, Spain and Italy to embark on ambitious economic reforms to win back market confidence.
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The annual report, prepared by the Brussels-based Lisbon Council think-tank, said Greece was now the leader in economic reforms towards healthy economic fundamentals, followed by Ireland, Estonia, Spain and Portugal.
"Almost all countries in need of adjustment ... are slashing their underlying fiscal deficits and improving their external competitiveness at an impressive speed," the report said.
Greece, Ireland, Portugal and Spain have all applied for euro zone loans to help them cope with the effects of the sovereign debt crisis.
"All of the four eurozone countries that have been granted external assistance - Greece, Ireland, Portugal and Spain - have strengthened their adjustment efforts over the last 12 months," the report said.
"In other words, under the pressure of crisis, the countries that need to shape up fast are doing so. The results reveal no trace of a "moral hazard," that is of a hypothetical risk that outside support could blunt the readiness to adjust," it said.
The report, called the 2012 Euro Plus Monitor, showed that external imbalances, which were one of the reasons for the debt crisis, were diminishing and that wage pressures were converging rapidly within the euro zone.
Real unit labor costs were falling sharply in Greece, Ireland, Portugal and Spain. On the other hand, wage moderation, long seen as holding up internal German demand, has ended.
"More than anything else, this shows that serious structural adjustments can happen - and are happening - within the confines of the monetary union," the report said.
It said that while the euro and its governance structure still needed to be improved further, they were already providing an important framework in which countries can successfully reform themselves.
"If the eurozone gets through the current acute crisis and stays on the reform path, it could eventually emerge from the crisis as the most dynamic of the major Western economies," the study said.
(Reporting By Jan Strupczewski; Editing by Giles Elgood)