Markets are focused on the European growth model, which is suffering after Russia’s invasion of Ukraine. The damage caused by the loss of access to cheap Russian energy is material, but there is a deeper, structural reason why Europe lags the U.S. in the post-COVID recovery. Lack of fiscal union and debt overhangs mean countercyclical stimulus is insufficient after every adverse shock, which is why Europe also lagged the U.S. recovery after the global financial crisis. Fiscal union will require hard compromises on debt and transfers, without which the risk is high that the eurozone heads for Japanification, where high debt is sustainable—amid low growth—only due to central bank yield caps. […]