Time and time again over the past 18 months, European leaders have pledged to do “whatever it takes” to preserve the single currency. Just as often their subsequent actions, or lack of them, have belied these fine words.

The failure to fill in the gap between rhetoric and reality has taken the eurozone, and the world, to a perilous place. Fear about the ability of states to service their debts has become self-reinforcing. Absent a radical shift in market psychology, the very core of the eurozone is at risk. The break-up of the single currency, once dismissed as unthinkable, is now openly spoken of as a possibility.

In a currency area where the money supply has been collectivised but fiscal policy and banking systems remain national, sovereign fragility has infected the banks. Across much of the eurozone, banks are both undercapitalised and facing a growing funding shortfall, making them unhealthily dependent on costly funds from the European Central Bank. This vulnerability is forcing them to pull money back from around the globe. Such is the size of the European banking sector that credit rationing on this scale could tip the world back into recession.