Europe has nothing to fear but fear itself

The eurozone will not break up. The price of departure is simply too great for any one country. Indeed, when Mario Draghi announced on 6 September that the European Central Bank (ECB) would undertake unlimited purchases of government bonds, the continent crossed the bridge to its future.

Europe's leaders must see that the drawbridge has been lifted behind them. They cannot back out of this, and thus must steel themselves for the journey ahead. Moreover, they must also realize that for the European project to succeed – which it must – monetary union must be accompanied by four other kinds of union: a banking union; a fiscal union; a "competitiveness" union, or convergence; and, to all intents and purposes, a political union. And to be sustainable over the long term, the continent's political economy must be capable of reintegrating its youth and present an ideal worth fighting for.

This is a long and ambitious list, but the deeper one thinks about the European situation, the more inevitable these conclusions become.

Ever closer European integration, since Belgium, France, West Germany, Italy, Luxembourg and the Netherlands signed the Treaty of Paris in April 1951, has been of enduring benefit to generations. Can we imagine a European history without the development of institutions designed to bring European countries together under shared values and common ideals? It is unthinkable.

The euro itself has provided major economic rewards: it eliminated exchange risk, lowered inflation, increased trade across the eurozone, and more tightly integrated European financial markets. More generally, the single currency has contributed to an underlying culture of monetary stability and predictability within the eurozone, a critical point often forgotten in today's discussions.

The crisis, however, surfaced critical flaws in the eurozone's structure. Europe lacked a strong and common fiscal policy; divergence in competitiveness between the northern and southern economies created a risk of default that had gone unrecognized; and the absence of a banking union created intolerable systemic risks. Adding fuel to the fire, the complexity of European political institutions, and the increasing democratic deficit that it represents in the view of the public, has led to an "executive deficit": an inability to make real decisions.

What is clear is that the euro must survive in more or less its current form, but the deficiencies in the institutions that surround it must be addressed. The first is a banking union: an absolute prerequisite for a monetary union to succeed. A robust banking union must have shared bank supervision, a shared bank recapitalization mechanism and a shared bank deposit guarantee. The good news is that the first of these was put in place on 12 September with the proposal of a single supervisory mechanism under the ECB. The two other items are destined to follow, with the ever present caveat in Europe that negotiations will be complex and will take years to resolve.