With an agreement over a multi-year $146 billion bailout for Greece, the European Union has, for now, staved off disaster.  Problems remain, the worst being that under EU rules, each contributor country now has the right to accept or reject its share of the burden.  Germany, where the public hates the bailout, is the biggest worry, but Angela Merkel’s government seems ready, willing and able to force legislation authorizing Germany’s $29.6 billion share through Parliament through now that Chancellor Merkel has made the bailout more painful for the Greeks.  (This sounds like horrible Teutonic moralism and vindictiveness at its worst, but the Chancellor has a point.  If bailouts are pain-free, then everyone will want one and German taxpayers could end up assisting several more sickly eurozone members before the crisis ends.)

The austerity measures make sense.  The age of retirement will be linked to life expectancy, pensions will be calculated on the basis of average earnings rather than the last year’s pay, the “13th and 14th” monthly paychecks (Christmas and Easter bonuses) for government workers earning more than 3,000 euros (roughly $4,100) per month will end.  Labor markets will be liberalized, with companies able to fire more workers with less trouble and with lower wage scales for young workers and the long term unemployed.  Some of this we could learn from: basing the age of retirement (and Medicare eligibility) on life expectancy would gradually increase the retirement age and save hundreds of billions of dollars over the long run.

There are just three niggling questions left. First, will the Greeks be willing or able to follow through with the plan?  It’s not just the problem of protests and strikes in the short term.  The real question is whether what amounts to a savage combination of cuts in government spending and tax increases on the other (the Greek national sales tax will rise from 21 to 23 percent, ‘sin’ taxes on liquor and cigarettes will rise, and the notoriously lax and corrupt collection system will in theory be made more efficient) will just cripple the economy.  As Steve Erlanger writes in a very useful analysis piece at The New York Times, there are worries that the economic package will push Greece into a deflationary spiral, making debts harder to repay and adding to popular discontent.

The second unanswered question: will the markets now leave the rest of the eurozone’s weak sisters alone?  Will investors now trust Europe to stand behind the debt of countries like Portugal, Spain and Italy — or will they think that European financial authorities lack the discipline, resolution and coordination that could stop new crises from brewing?

And finally, there’s this: now that we see the dangers of the European currency project, do the Europeans have what it takes over the medium term to put their economic house in order and develop the institutional and policy frameworks that can make the euro work over the long term?

The markets will give us preliminary answers to the second question over the next couple of weeks; watch to see what happens to government bond prices in Portugal, Italy and Spain.  If the ‘spreads’–the difference between what Germany pays on its bonds and the rates other countries have to pay to borrow money–go up, that is a sign that the market crisis isn’t over.  If they stabilize and even go down, markets will be giving a vote of confidence in Europe’s current policy mix.

Question three is the real stinker:  dysfunctional as the American political system looks at the moment, compared to the EU we are as disciplined as Singapore and as dynamic as China.  The Europeans have bigger problems with unfunded entitlements than we do, and they are doing less about them.  Wretched as Washington is, Brussels is almost infinitely worse.

There’s only one word you need in order to know what is wrong with Europe these days:  ‘Lisbon.’ If the Greek crisis spreads, Portugal is the likely next victim.  The problem there isn’t government debt; it is private sector debt and a stagnant economy.  Although Portugal has the stability of the euro and the opportunities that come from membership in the world’s largest common market, Lisbon has been unable to develop a strategy for growth and its failures now increase Europe’s vulnerability in the crisis.

But there’s more.  Ten years ago, the European Union with great fanfare unveiled the “Lisbon Agenda”, a ten-year action plan to make the EU “the most competitive and dynamic knowledge-based economy in the world capable of sustainable economic growth with more and better jobs and greater social cohesion”.

It flopped.  Europe is less of a factor today than it was ten years ago in the high-tech world.  Even before the crash the EU lagged behind China, India and the United States when it came to economic growth.  It is emerging from the recession more slowly than the others and there are no signs that Europe has overcome the problems that have slowed its growth.  As for ‘greater social cohesion’, look at the trade union riots in Greece.  Look at the tensions with immigrants; look at the rise of extreme right-wing parties.

Then came the Treaty of Lisbon, the changes in European law that were adopted after voters rejected the EU’s proposed constitution in the Netherlands and France.  The new treaty was supposed to streamline European decision-making, raising Europe’s profile worldwide by giving it a more powerful president and the equivalent of a foreign minister.  Then Europe’s politicians lost their nerve; afraid that the new EU officials would overshadow national leaders, the leading EU powers insisted on filling the new jobs with two of the least-known public servants in Europe:  Herman van Rompuy as president, and Lady Catherine Ashton as foreign minister.  As a Guardian commenter noted, a Europe led by these two “couldn’t threaten the skin of a rice pudding,” while UK politician Nigel Farage openly derided van Rompuy as having the “charisma of a damp rag.”

The Treaty of Lisbon was Europe’s biggest initiative since the establishment of the euro; the effort to amend the constitution hypnotized Europe’s political elite for a full decade.  The results so far are less than nothing.  Since the Treaty of Lisbon went into effect and since Rompuy and Ashton took over their new duties, the EU’s world profile has noticeably fallen.  Not Barack Obama nor Hu Jintao nor Vladimir Putin thinks of Rompuy and Ashton as peers; I doubt that any of the three could recognize Rompuy or Ashton in a police line-up.

Europe has five things it needs to do if it wants the world to take it more seriously.  It must reform its economies to speed up its growth.  Europeans must start making babies to avert a catastrophic demographic transition and a bankruptcy of their pension and welfare systems.  They must learn to assimilate immigrants.  They must increase defense spending by about one percent of GDP.  And they must give Turkey a clear path toward membership so that if Turkey fulfills the conditions its membership is assured.

If the Europeans did all or even most of those things, Europe would be a rising world power today.  But it is becoming increasingly clear that Europe is unable or unwilling to do any of those things, and as a consequence it continues to lose power and influence in this world.

European policymakers respond to this in two ways.  As they did in the Lisbon Agenda, they outline grand plans for sweeping changes which they then fail to implement.  Or, as they did with the Treaty of Lisbon, they expend huge amounts of work, time and political capital on projects that, whatever their merits, will not reverse Europe’s decline.

That is the Lisbon Syndrome: ignoring necessary tasks while distracting oneself with irrelevancies.

Friends of Europe, friends of the west, friends of the high hopes for freedom and peace which at its best the European Union can offer, all need to speak up.  The world has never needed Europe’s ideals and rich culture of humanism and democracy more than it needs them now, but Europeans are making themselves less relevant and less powerful with every year that goes by.

In the twentieth century the suicidal impulses in European culture brought the continent into ruin and disaster three times: the two world wars and the establishment of the communist empire.  These days, an exhausted continent seems less capable of dramatic explosions, but Europe is still sabotaging itself, still making choices that reduce its influence, power and wealth.

Let’s hope that the combination of the financial crisis and the realization that the Lisbon reforms left Europe’s core problems untouched will energize Europe and awaken its politicians and people to the true state of things.  If Europe fails, America’s road in the twenty-first century will be harder and lonelier than any of us would like.