July 2, 2012

AMERICANS HAVE been justifiably transfixed by the outcome of the historic health-care case at the Supreme Court. But when it comes to the near-term economic and political outlook for the country, the ruling was not necessarily the most important event of the last few days. That honor may belong instead to the summit meeting of European leaders in Brussels. With unemployment in the 17 nations that use the euro as a common currency now at 11.1 percent, and the risk of global spillover effects mounting, the whole world’s prosperity depends on the ability of Europe’s fractious governments to manage the crisis and forge a long-term solution.

Alas, the meeting ended Friday with what was, by now, a familiar blend of tantalizing promises and ominously unresolved questions. First, the hopeful part: At the urging of France and Italy, Germany agreed to assure investors who buy Spain’s sovereign debt that they will get paid back on equal terms with the backers of European bailout funds — that is, Germany and its taxpayers. In addition, German Chancellor Angela Merkel allowed the $633 billion bailout fund known as the European Stability Mechanism to capitalize Spain’s troubled banks directly, rather than through the Spanish government. Finally, the Europeans agreed to set up a continent-wide bank supervision authority by the end of 2013, which also could help restore confidence in shaky financial institutions. Spain’s debt crisis represents the most critical short-term threat to Europe’s economic stability, and, taken together, these steps should help that country access the capital market at lower cost. Many expect the European Central Bank to cut interest rates later this week to help spur growth, as a reward of sorts for what was agreed.

Now, the ominous bit: In deference to anti-bailout opinion at home, Ms. Merkel continues to rule out the one measure that could re-establish confidence on a more permanent basis: joint eurobonds. Pooled responsibility for debt would once again enable the likes of Spain and Italy to fund themselves on more favorable terms, since the debt would enjoy Germany’s partial backing.

What’s more, Ms. Merkel’s government has not fully signed off on the modifications to the bailout fund, since that apparently requires a favorable ruling from Germany’s constitutional court. Meanwhile, Britain is worried about what a European bank supervision authority would mean for its financial center in London; and there is still no plan for European deposit insurance to prevent bank runs.

In short, for all the talk of “more Europe” from Ms. Merkel and others, there is still not enough Europe, in the sense of an irrevocably united political body, with free cross-border movement of labor and capital, to support a stable single currency. As it happens, the creation of such a polity was one of the signal achievements of the Constitution that the U.S. Supreme Court interpreted in the health-care case last week. Europe is still a long way from achieving that. And time is running out to prevent its inability to do so from impoverishing both that continent and its partners around the world.