News of the eurozone’s demise is exaggerated, but that may not offer much comfort to stock investors.

Italy’s ongoing budget battle with the European Union finally reverberated across the rest of the eurozone last week, when Spanish, Portuguese and Greek debt joined the selloff in Italian bonds. Late Friday, Italy’s debt was downgraded another notch by ratings agency Moody’s , but the cut was minor enough that the bonds actually rallied Monday morning. Italy is still in investment grade territory.

The spread of contagion to other Southern European bond markets superficially makes sense: If investors truly thought Italy would defy European officials to the point of a forced default, the future of the entire eurozone would be seriously at risk.

However, this default scenario looks highly unlikely. Even though the EU has rebuffed Italy’s budget plans, the Italian antiestablishment government can’t push things too far because it lacks popular support to leave the euro. Long-term investors may profit from scooping up eurozone government bonds, clipping the coupons and waiting for the political noise to subside.

Yet when it comes to eurozone stocks, which are more tightly linked to economic prospects, this latest political spat should give investors pause.