The much-hyped European Union summit concluded at the weekend with a deal that solves nothing. Europe's leaders have somehow contrived to escalate both the political and the economic crisis. Britain's "No" to a new EU treaty has reinforced Europe's deep divisions, making it even less likely to correct the productivity differential and the trade imbalances that threaten to bring down the common currency.
Agreement among the euro-zone members on economic reform will probably be sufficient to prevent the euro's sudden death, as Friday's upbeat mood on global stock markets suggests. But the absence of a proper plan for investment and growth perpetuates the chronic disease that could still kill the patient.
Without a strong and united Europe, the world economy moves closer to a "double dip" recession - unless there is coordinated action by the United States and China. However, the Sino-American skirmishes over currency and trade look set to trigger a confrontation in 2012 when a new Chinese leadership and US presidential elections will fuel the flames of economic nationalism.
In the meantime, the markets will test the euro zone's grand bargain that wasn't. The 17 euro-zone members have agreed to strict fiscal rules, notably balanced budgets and draconian sanctions in case of non-compliance.
Economically, the new "fiscal compact" transforms the euro zone into not so much a stability union as an austerity club that imposes permanent spending cuts and will make it harder for countries with a trade deficit to emerge from recession. There will be pressure on countries with a trade surplus (mainly Germany) to reduce imbalances but the enforcement will be toothless. As such, the agreement looks lopsided and unfair.
Curing the cancer of sovereign debt with a permanent dose of austerity will kill the patient but not the disease. Euro countries have once again failed to come up with an investment and growth strategy that eliminates the competitiveness imbalance by raising productivity in the deficit countries on the periphery.
Politically, the "fiscal compact" enshrines more powers for the supranational European Commission to scrutinise budgets before they are adopted by member states' parliaments, a practice that undermines national sovereignty.
The existing fiscal rules, set out in the so-called Stability and Growth Pact, already impose similar limits on budget deficits but they have never been enforced. The trouble is that the new sanctions regime lacks democratic legitimacy and will further erode popular support.
In the medium term, the euro zone could collapse under the weight of its inner economic contradictions or political tensions.
In the short term, euro countries will hope to contain the sovereign debt crisis. At Friday's summit, European leaders sought to bolster the firewall that is aimed at preventing contagion from Greece and Italy spreading to Belgium, Spain and the rest of the West.
However, neither the size of the rescue fund nor the immediately available firepower is sufficient to shield cash-strapped countries from speculative attacks in global markets. European leaders admitted as much by planning to lend an extra €200 billion (Dh985 billion) to the International Monetary Fund. That is a belated recognition of the euro zone's failure to attract investment from China and other emerging markets by its own bailout mechanism.
The same lack of clear, decisive action is true for the problem of Europe's undercapitalised banks that threaten a second global "credit crunch". In 2008, the money markets froze when the subprime bubble burst. Now it's the euro-zone crisis that is pushing banks to the brink. The prospect of the current downturn mutating into another recession adds to the sense of panic.
That is why all European eyes are ultimately on the European Central Bank. It will have to buy the bonds of distressed euro-zone members and inject more liquidity to avert a sovereign debt default and the collapse of the European banking system. The "fiscal compact" makes ECB intervention politically easier but shifts yet more power to unelected technocrats who are forced to get politicians out of a hole.
As such, the euro members' grand bargain will limit future sovereign debt but fails to resolve the current crisis.
Governments have managed to create a political crisis that has the potential to break up the EU as a whole. By not joining the "fiscal compact" and vetoing a new treaty, the traditionally euro-sceptic United Kingdom is further retreating from its main trading partners. By agreeing closer integration outside the formal EU treaties, the other 26 Union members have set up parallel arrangements that risk supplanting existing EU institutions. All this weakens the European internal market.
To prevent a sovereign debt and banking crises, the euro zone will have to pursue much greater financial integration with a single regulatory and supervisory authority. To make the currency union work, euro members will also have to harmonise tax and labour market policies. In these and other areas, the EU and the euro zone will clash legally and politically.
With the euro-zone crisis unresolved and the EU weakened, the world economy will increasingly depend on the US and China, which are moving towards currency and trade wars. All this foreshadows a protracted period of economic turmoil and recession.
Adrian Pabst is a lecturer in politics at Britain's Kent University and a visiting professor at the Institut d'Etudes Politiques de Lille, France