nice view from Deutsche Bank:

"We show that on a PE and ERP basis, European equities look historically cheap on an absolute basis and relative to the US, which in turn looks on the rich side of average valuation relative to its own history if you cyclically adjust earnings. This European ‘cheapness’ is especially true on an ERP basis due to ultra low bond yields in the core and still relatively low bond yields compared to their long-run histories in Spain and Italy. However earnings numbers in the periphery have collapsed since the Sovereign crisis began and it’s difficult to know what the trend level of earnings is for countries embarking on large adjustment programs and with uncertainty as to their long-term economic futures. The conclusion is basically that without an aggressive ECB, peripheral European equity markets would likely go from cheap to extra-ordinarily cheap. If the ECB is about to commit to a long-term Euro- saving mission then one would have to say there’s a large amount of potential upside in European equities, especially in the periphery. For the more risk adverse, German equities may represent a better risk reward profile as we enter unknown territory."

ERP – Equity Risk Premium
PE - price/earnings ratio