Europe’s ‘two weak links’—guess who?

France and Italy were named and shamed as in need of "significant" reform by a senior Barclays analyst on Thursday, despite having largely escaped market scrutiny.

"I think there are two weak links in Europe, at different points of that weakness. I think France and Italy both need to see significant structural reform," Jim McCormick, head of asset allocation research, told CNBC.

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He added that markets had failed to pressure the two countries into making necessary improvements. "These are very large countries—they are much bigger than Greece, Portugal and Spain—so there is still a big problem out there that you need structural reform in two very large economies in the euro zone."

The French economy was worth around 2.06 trillion euros ($2.81 trillion) in 2013, or around one-fifth of the overall euro zone economy of 9.60 trillion euros.

Italy's economy stood at 1.56 trillion euros, constituting 16 percent of the euro zone economy.

Following the publication of Barclays' quarterly global outlook report, McCormick advised investors to shift towards a more defensive portfolio, since fixed income and equity returns were likely to be weaker in the second half of the year.

In particular, he flagged that Barclays had exited its long-standing overweight in European peripheral bonds and re-entered an underweight on euro foreign exchange allocation.

"If you look at these bonds, it is very hard to imagine there is much more value to squeeze," he told CNBC.

No more value to squeeze from peripheral bonds: Pro

Yields on Italian 10-year bonds peaked at over 7 percent in 2011, but have since fallen to around 2.7 percent—much closer to the 1.3 percent yielded on "safe-haven" German bunds.

French 10-year bonds yielded a mere 1.60 percent on Thursday, down from highs of over 3.5 percent in 2009 and 2011.

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However, McCormick said: "If you look at the long term, there are still plenty of question marks around debt sustainability. If you look at the short term, you have had some disappointment around growth."

Euro area GDP grew by 0.2 percent in the first three months of 2014, down from the 0.9 percent growth seen in the first quarter of last year.

Nicholas Spiro of Spiro Sovereign Strategy said that a major difference between France and Italy was that investors had never seriously doubted France's creditworthiness, even at the height of the euro zone crisis.

"This has allowed the French government to hide behind its deep, liquid and relatively safe debt market which has acted as a second-best alternative to Bunds," he told CNBC via email.

"What's particularly worrying, however, is that even intense pressure from the bond markets didn't lead to meaningful reforms in Italy—unlike Spain. From a reform standpoint, Italy has 'wasted its crisis' while France has yet to suffer one."

—By CNBC's Katy Barnato