Most of Europe has been engulfed by a systemic banking crisis for more than four years, even as policymakers and bankers themselves have striven to deny it. Even worse, the continuing banking system’s fragility is increasingly intertwined with the euro area’s sovereign debt crisis, as illustrated by successive patterns of contagion, from sovereigns to banks or conversely, from Greece to Ireland, Portugal, Spain, and more recently to Italy and France.



It is now plain that the crisis will not be resolved by a muddling-through approach that would allow a return to the status quo ante. If the euro is to survive, euro area citizens will have to accept pooling economic policy decision making in unprecedented forms, a redefinition of the political pact that underlies European integration, and significant treaty changes