THE escalating debt crisis in Europe has claimed the political career of one prime minister, George A. Papandreou of Greece, and threatened that of another, Silvio Berlusconi of Italy. Despite popular resistance, governments are racing to stay ahead of the bond markets by slashing their budgets. The drama of meetings, proposals, counterproposals and popular unrest seems destined to end in tragedy.

But the theatrical atmosphere of these negotiations within the European Union has overshadowed an event that may prove to be far more significant in the long run than the Greek referendum. It has also sustained a narrative about the sovereign debt crisis that is deeply misleading.

According to this narrative, the crisis shows the impossibility of managing a common macroeconomic policy in a system where decisions require the agreement of 27 member states, including the 17 that share the common currency, and a vastly diverse Continent with different countries that face different growth and consumption patterns and have different business cycles.

These are real problems. But they are not the reason for the systemic failure of the European financial system. Overwhelmingly, this failure has been caused by the policy choices of one of the few European institutions that has the capacity to act unilaterally and decisively: the European Central Bank.