Until the Cyprus crisis hit last month, things had seemed much calmer recently in the euro zone.
Since last summer's European Central Bank pledge to "do whatever it takes to preserve the euro", market panic had receded and the situation of the countries on the periphery had appeared to improve a little.
But now, despite getting a €10 billion (Dh48bn) bailout, Cyprus will go bankrupt and be booted out of the single currency unless it can find an extra €6 billion, on top of the €7 billion it has already agreed to raise. The collapse of its two biggest banks has left the country with a bill of about €23 billion - no less than 130 per cent of its national annual output.
Cyprus represents just 0.2 per cent of the entire euro area's economy, but sheer financial interdependence would produce a domino effect, with neighbouring Greece the next to fall.
Athens will need another major round of debt restructuring if it is to avoid insolvency. Failing that, Greece would be forced out of the euro, which would trigger a panic wave no euro member can afford, financially or politically. Meanwhile Italy and Spain - too big to bail out - are in a growing recession that paradoxically requires ever more austerity and makes default more likely, not less.
The damaging effect of austerity is impossible to ignore. Only last week euro-zone finance ministers reluctantly granted Ireland and Portugal more time to pay back the bailout money they received in 2010 and 2011 respectively. The extension is needed because the recession that followed the financial crisis has been greatly exacerbated by draconian spending cuts - which were a condition for the bailout in the first place.
By now the whole euro-zone periphery seems mired in a deepening depression, and the effect on growth is fast spreading to the core, with stagnation in France this year and a sharp slowdown in the Netherlands, Finland and even Germany, the euro's economic powerhouse.
Thus the Cyprus bailout does not signal the beginning of the end of the euro-zone crisis. On the contrary, it is merely the end of the beginning.
The next stage is either a split within the core between France and Germany over austerity, or a populist insurgency in Italy against austerity - or both at once.
In any case, politics not economics will ultimately determine the fate of the common currency and of the European project.
But the lack of imagination and courage among euro-zone leaders does not bode well for either. Beyond debates on austerity, there is precious little being proposed to make Europe more competitive, more innovative and more politically credible.
Growing tensions with France don't help. Traditionally the engine of European integration, Franco-German relations are now marked by mutual suspicion and a lack of shared vision. Berlin and Paris disagree as much about the diagnosis - was the crisis caused by fiscal profligacy or the recession? - as they do about the prescribed solution - more austerity or higher taxes on finance?
The threat of a British exit from the European Union also hangs over the rest of Europe.
While Germany and others, such as the Netherlands and Scandinavia, are keen to keep the UK involved, France seems to be seeing Euro-sceptical Britain as "perfidious Albion" - determined to divide and rule by destroying the European project.
In the end, Europe has a habit of muddling through, doing just about enough to avert a collapse of the edifice but failing to stop the rot that slowly eats away at its foundations.
In the past, periods of political crisis and stagnation in Europe have led to great leaps forward in integration and enlargement, creating the single market and establishing a political union in the 1980s and 1990s while rapidly expanding from 9 to the current 27 member states.
But in recent years Europe has been showing signs of acute integration and enlargement fatigue. With the euro crisis, disillusionment and discontent about integration have given way to alienation, anger and a hardening hostility that is slowly undoing the reconciliation and peace achieved after the Second World War.
Unless there is radical change, both economic and political, Europe will unravel, and with it a unique experience of transnational cooperation.
Economically, the short-term solution is not more austerity but rather substantial investment, by governments and businesses of the core countries, in the periphery. That would interrupt the vicious circle of debt and begin to create jobs and growth.
And over time, euro-zone members will need to pool some of their national debt via European bonds. That would lighten the interest-rate burden and allow peripheral countries to escape the death spiral of austerity and recession.
Politically, Europe needs greater coordination at the supranational level and more effective implementation at regional and local levels. Currently, the entire EU suffers from a centralisation of power and a concentration of wealth. Devolving power and channelling savings into areas of underinvestment would help create a more dynamic economy.
The woes of the euro have accelerated and amplified the deeper crisis, which threatens Europe's political and social models. Tempted by technocracy or populism, leaders seem unable to craft a European project that works for the citizenry.
Adrian Pabst is lecturer in politics at the University of Kent and visiting professor at the Institut d'Etudes Politiques de Lille
