The situation in Europe has developed from a financial and banking crisis to a sovereign debt crisis, and from there to an institutional crisis, as the European Union’s collective inability to make effective decisions becomes an ever larger part of the problem. These three components of the predicament feed each other: they also threaten international financial stability.

The banking component can no longer be separated from sovereign and institutional developments. This is why today’s publication of stress tests results, while useful, is unlikely to be the game-changer it could have been two years ago. The London-based European Banking Authority has led the tests with a firmer hand than many anticipated. But even with these disclosures, individual member states remain in charge of ensuring that the weaker banks raise the capital they need, or are properly sold or restructured if they cannot. On past experience, many will be reluctant to do so, allowing Europe’s banking system to remain fragile.

In this, the stress tests exemplify the frustrating and unstable hybrid that is European financial integration. Financial services in the EU are more integrated than in any comparable set of countries, with related economic benefits. But in most of the eurozone, cross-border bank ownership remains limited: only 5 per cent to 13 per cent of banking assets in France, Italy, Germany, the Netherlands and Spain are foreign-owned, so market power and systemic risk are concentrated.