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Financial crises tend to start abruptly and end by surprise. Three years ago, the euro crisis began when Greece became a cause for concern among policymakers and a cause for excitement among money managers. Since the end of 2012, a sort of armistice has prevailed. Does that mean that the crisis is over?

By the usual standards of financial crises, three years is a long time. A year after the collapse of Lehman Brothers in September 2008, confidence in the United States’ financial system had been restored, and recovery had begun. A little more than a year after the 1997 exchange-rate debacle triggered Asian economies’ worst recession in decades, they were thriving again. Has the eurozone, at long last, reached the inflection point?

Many battles were fought in the last three years – over Greece, Ireland, Spain, and Italy, to name the main ones. The European Union’s financial warriors are exhausted. Hedge funds first made money betting that the crisis would worsen, but then lost money betting on a eurozone breakup. Policymakers first lost credibility by being behind the curve, and then recouped some of it by embracing bold initiatives. Recent data suggest that capital has started returning to southern Europe.

The current change in market sentiment is also motivated by two significant policy changes. First, European leaders agreed in June 2012 on a major overhaul of the eurozone. By embarking on a banking union, which will transfer to the European level responsibility for bank supervision and, ultimately, resolution and recapitalization, they showed their readiness to address a systemic weakness in the monetary union’s design.

Second, by launching its new “outright monetary transactions” scheme in September, the European Central Bank took responsibility for preserving the integrity of the eurozone. The OMT program was a serious commitment, and markets interpreted it that way, especially as German Chancellor Angela Merkel backed it, despite opposition from the Bundesbank. Moreover, Merkel visited Athens and silenced the voices in her coalition government who were openly calling for Greece’s exit from the euro.

Unfortunately, however, there remain three reasons to be concerned about the future. For starters, politics lags behind economics, which in turn lags behind market developments. Sentiment on trading desks in New York or Hong Kong may have improved, but it has deteriorated on the streets of Madrid and Athens.

Indeed, the economic and social situation in southern Europe is bound to remain grim for several years. As things stand, all southern European countries are facing the prospect of a true lost decade: according to the International Monetary Fund, their per capita GDP will be lower in 2017 than it was in 2007. As long as sustained economic improvement has not materialized, political risk will remain prevalent.

Political upheaval in any of the southern countries would be sufficient to reignite doubts about the eurozone’s future. Furthermore, French competitiveness, and the gap between its performance and that of Germany, is a growing cause of anxiety.

The second reason to worry is that there is limited consensus in Europe on what, exactly, is needed to make the monetary union resilient and prosperous again. Banking union is a positive development, but there is no agreement on additional reforms, such as the creation of a common fiscal capacity or a common treasury.

In particular, northern Europe continues to interpret the crisis as having resulted primarily from a failure to enforce existing rules, especially the EU’s fiscal-stability criteria. Southern Europe is more inclined to view the crisis as having resulted from systemic flaws. Furthermore, northern Europe regards austerity as the mother of all reforms, while southern Europe fears that governments may not have enough political capital to do everything at the same time.

Finally, the last three years have revealed a clear pattern in the management of crises: Almost no decision results from serene deliberation, with most taken under financial-market pressure in an attempt to avoid the worst. Each time the pressure abates, plans for policy reform are put off – an attitude best captured in Merkel’s famous ultima ratio: action is undertaken only if it is indispensable to the survival of the euro. In other words, Europe displays a strong sense of survival, but not a strong sense of common purpose.

None of this means that the euro will collapse. The widely held conviction that letting the monetary union break up would amount to collective economic suicide provides a strong motivation to weather storms and overcome obstacles. Moreover, the results achieved so far may well prove sufficient to contain risks in the near future, while plans for a fiscal capacity, common bonds, and the creation of a European treasury are still being sketched. So, in practical terms, the difference between reforms that could be implemented and those that are being or will be implemented is less significant than it seems.

But, by consciously eschewing discussion about which reforms would make membership in the eurozone less hazardous and more beneficial for all, European leaders are missing an opportunity to signal that the euro is a stepping stone toward a prosperous, resilient, and cohesive union; and they are missing an opportunity to signal that the harsh economic adjustment that continues to dominate the policy agenda for much of the continent is not an end in itself.

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