Riots, debts and the creeping fear of a looming Lost Decade – no wonder there is pessimism in Europe. But what we are seeing is not just “financial crisis, part two”; it is “sustainable growth challenge, part one”. The difference has implications for policy. Get the diagnosis wrong and the wrong treatment will follow.

The €750bn ($944bn, ￡652bn) package to defend the euro buys time. But it is not enough. So far, the world has focused on fiscal contraction and debt, but these are only half the story. The world and Europe also need a return to robust growth. Without it the fiscal adjustments will be more painful and the politics more unmanageable.

In the 1980s, when Latin America was overwhelmed by huge debts, the work-out involved rollovers of bank loans, fiscal tightening, funding from the International Monetary Fund and World Bank and policies to invigorate sustainable growth. Eventually, some debt was restructured. Some developed economies now face a similar problem: living beyond their means. But we face the added complication that weaknesses in parts of Europe can infect the European Union's monetary, credit and even fiscal systems, with dangerous consequences.