It's hard to keep abreast of the unfolding economic crisis in Europe. Banks are teetering. Investors are fleeing. The London FTSE-100 is down 8.5 percent, the German DAX is down 7 percent, and the Paris CAC-40 is down 9.8 percent. A big part of the problem is the lack of a continental response. Over the weekend the heads of Europe's major economies met to discuss the continents' growing financial crisis; nice words were spoken, and no actions were taken. Meanwhile, only days after Ireland caught flak for guaranteeing the liabilities of six of its banks, Germany, Iceland, Italy, and the Benelux nations have all bailed out financial institutions, while Germany and several others have guaranteed consumer bank deposits.

The problem is that none of this is coordinated, and already, commentators are asking whether the crisis signals the end of the EU experiment as we know it. Financial Times columnist Wolfgang Münchau writes, "A systemic banking crisis is one of those few conceivable shocks with the potential to destroy Europe's monetary union." An open letter to policy makers from some 200 European economists sees things even more darkly: "Every European knows what happened when financial markets seized up in the dark years of the 1930s. It is not an exaggeration to say that it could happen again if governments fail to act."

No one yet expects a calamity of 1930s proportions. But there are several reasons for being bearish on Europe's ability to successfully respond to the crisis. The first is that after years of calling out American-style "predatory capitalism" and weeks of schadenfreude over Wall Street's woes, continental policymakers seem incapable of accepting the extent of their own problem. French President Nicolas Sarkozy proposed a 300 billion euro emergency fund for EU institutions, only to be accused of aping the Bush administration. In response, he and his surrogates stepped back quickly. "This is not an idea for some kind of Paulson plan because we don't have the same magnitude of toxic assets as the US," one French official told the Irish Times. That remains to be seen, however, and Europe has its own problems: Many of its largest banks, for example, are already woefully undercapitalized.

More significant is the obvious flaw in the EU financial structure. During the heyday of the 1990s, the EU bored ahead with currency unification and the establishment of the European Central Bank (ECB)--and the euro's rise against the dollar during the 2000s seemed to vindicate its strategy. But the union never put in place the policymaking institutions that could take over in a crisis: The ECB, modeled after the Bundesbank, is good at one thing--managing inflation--while there is no equivalent of the U.S. Treasury to make quick, coordinated decisions. So, while the EU is a great team in the good times, so far it seems that in a crisis, it's every chancellor for himself. This creates a perfect storm: Commentators and investors are demanding collective action, but the union is unable and unwilling to provide it.

This is, to put it mildly, an extremely bad thing. The crisis confronting the EU is infinitely more complex than that facing the United States. True, a lot of the fundamentals are the same. But trying to coordinate finance policy across borders, even Europe's porous frontiers, is a tremendous challenge. Much of the EU financial architecture was constructed at a time when there were few banks with international operations; thanks to denationalization and deregulation, the largest European banks have subsidiaries across most of the continent, creating a regulatory spaghetti bowl. Moreover, while even the biggest US banks pale in comparison to the size of the U.S. government, in Europe, 14 banks are larger than their home countries' GDP. (UBS, based in Switzerland, is an astounding 484 percent of Swiss GDP.) Should one of these banks fail, it would be impossible for their country to bail them out.

What to do? Daniel Gros and Stefano Micossi of the Center for European Policy Studies have a short paper up with some suggestions: an EU-wide charter for banks operating transnationally; an EU-run contingency fund to handle bailouts; and an EU-led public recapitalization of the banking sector. Europe has the advantage of watching the Paulson plan unfold and learning from its success or failure, and it should work those lessons into an eventual continent-wide policy.

The problem is, there is no "it" right now. The fiction of a politically unified Europe is unraveling, even as the realities of an economically interdependent Europe become apparent. If national and EU policymakers can't act quickly to resolve their differences, the cost of the American meltdown will pale in comparison to Europe's.

--Clay Risen