The most acute phase of debt crisis in eurozone is over, claimed the European Commission in a working report issued on Wednesday.

Citing a "dangerous feedback loop between sovereigns, the banking system and the deteriorating economic outlook" as the symbol for the most acute phase of debt crisis, the report noted several positive signs of the overall economic situation.

The headline government deficit in the eurozone has fallen by 2.1 percentage points to 4.1 percent of GDP in 2011, while the cyclically adjusted budget balance improved by 1 percentage points to reached 3.4 percent of GDP in 2011, said the report.

However, the EC report said that consistent policy effort is still needed to address looming challenges.

The annual analysis on the 27-member bloc called for a closer integration among the eurozone countries in supervisory structures and practices, in cross-border crisis management and burden sharing.

Despite the optimistic tone adopted by the report, investors seemed unpersuaded as German 10-year borrowing rates fell to a record low level while Spain's borrowing risk premium rises to new high earlier in the day.

Fears of economic chaos in Spain and a possible Greek exit from the eurozone have dragged down stock markets around the world and sent the euro crashing to its lowest level since July 2010.