Once again the euro has been saved, but the eurozone continues to stumble towards disaster. The distinction matters, even if European finance ministers emerged from their late-night negotiations talking proudly of having kept Cyprus inside the euro and – though they didn't say this explicitly of course – of having stiffed Russian fatcats. For while southern European debtors are the problem for the euro, it is northern European creditors who are the problem for the eurozone.
In technical terms, the ministers have reason to be pleased. With the Cyprus deal, they have achieved two things. They have proved that member countries will do almost anything to stay inside the single currency, rather than suffer the ignominy and economic cardiac arrest that an exit would bring. If neither Greece nor Cyprus will leave, then no one will, short of revolution.
Second, they showed that the German-led emphasis on running the euro through tough love still works. And toughness is right when faced with banking crises, which is what Cyprus's troubles amounted to: ever since the great Walter Bagehot coined the phrase "lender of last resort" in the 1860s, it has been evident that financial rescues must be mixed with punishment.
In 2008-09, amid panic after the Lehman collapse, there was too little punishment of bankers, shareholders and creditors who had let their institutions take reckless risks. Rescuing the financial system took priority. The same was true during the European bailouts for Ireland and Spain. The Cyprus deal improves on that, and sets a helpful new precedent.
Those who deposited large sums in Cypriot banks were not just tax-evaders in their home countries, though often they were that; they were also lenders to these banks who enabled them to act recklessly in Greece and elsewhere. A bank deposit is the same as a loan. So making depositors of €100,000 or more pay for part of the rescue is just the same as defaulting on debt.
Nevertheless, the Cypriot deal is a sensible reinforcement of tough love. The real problem with it at least as a focus of eurozone policy and politics, or as a cause of back-slapping satisfaction, is that it misses the bigger point. It is all about tough, and not at all about love. For the love part is what the eurozone now needs to focus on. Not for Cyprus, specifically, but across the whole single-currency area.
A currency can be saved, rather as in the 1920s the gold standard was preserved, but it is the countries that really matter. If the eurozone economies spiral further into in recession, their politics are going to turn nastier and nastier. The 25% vote in Italy's election for the anti-establishment Five Star Movement led by the former comedian, Beppe Grillo, is a foretaste. And Italy may well have a second election in the next few months, in which the rebellion against austerity, the euro and above all Germany is likely to intensify.
Banking crises in countries such as Greece, Cyprus and Spain do pose genuine dangers. But a never-ending recession, with youth unemployment at 36% in Italy and over 50% in Spain, is a much greater hazard. And the tragedy is that it is avoidable – if only Germany and the other northern Europeans would drop their insistence on fiscal austerity for all and in every circumstance.
This week the International Monetary Fund advised the Netherlands that it really did not need to keep on cutting its budget deficit. It was good advice, and the same applies to Germany. They should be stimulating demand, not repressing it in a fit of sado-masochism.
The hope has to be that German policy will change once the federal elections are safely out of the way in September. Yet by then, Italy, the zone's biggest sovereign debtor and its third-largest economy, might have elected a vehemently anti-German government, led either by Grillo or by the man he calls "the psycho dwarf", Silvio Berlusconi. If the prospect of that doesn't make the northern Europeans see sense, then nothing will.
Bill Emmott is a former editor of the Economist and narrator and co-author, with Annalisa Piras, of a new documentary about Italy Girlfriend in a Coma. His website is here.