The greatest danger facing Europe today is the inflexible determination of European elites to save the euro. While it is still possible that Greece will exit with unpredictable consequences, fears that the currency could collapse have retreated since the head of the European Central Bank, Mario Draghi, committed himself in July to doing "whatever it takes" to shore up the rickety structure.

By creating money in unlimited quantities, the ECB may be able to ensure that the nexus of insolvent banks and governments remains intact. But this does nothing for jobs or growth, and the euro continues to function as a 21st-century version of the interwar gold standard – an engine of destruction crushing economic activity and shredding the fabric of society. If this fatally flawed project has been given another lease on life the result can only be a more dangerous backlash, deepening divisions between and within countries.

Vince Cable, the business secretary, has echoed the dignitaries who awarded the EU the Nobel peace prize in claiming that a collapse of the euro would be a danger to peace. It is true that, founded in the 1950s after the defeat of fascism, the European Economic Community (the EU's forerunner) helped – along with Nato and other institutions – avoid war for a generation. But the EU has never been able to act as the unified state of which its promoters always dreamed.

In the conflicts that followed the disintegration of Yugoslavia, the EU proved incapable of any effective intervention and failed to prevent ethnic massacres. The Nobel committee, warning this month that the break-up of the EU would lead to a return of "extremism and nationalism", passed over the rise of neo-nazism in Greece and mounting separatist forces in Spain and Belgium. It lauds the role of the EU in bringing democracy and human rights to post-communist countries, but says nothing of how the politics of xenophobia and antisemitism have returned in Hungary and other parts of post-communist Europe. Propping up the eurozone is fuelling the very evils the Nobel worthies tell us the EU was designed to prevent. The idea that without the euro the continent would be at war is mere hysteria.

Partisans of the European project have always recognised that it would advance through crisis. They failed to anticipate that the crisis would become one of legitimacy. For all the empty chatter about combining austerity with growth, policies that might deliver growth in the eurozone will continue to be the stuff of dreams. The reason is simple: Europe's governments will not transfer their power to tax and spend to European institutions.

Economists will tell you that the euro could work if complemented by fiscal union; but fiscal union requires a single government, and that is politically impossible. However one views the nation state – and I am no great fan – it has proved to be the upper limit of democratic accountability. Even in a medium- to long-term perspective, there is no prospect of a European government with the authority needed to engineer a continent-wide reflation. Equally, there is no realistic possibility of European elites changing course. The engine will grind on.

The reality is that the eurozone cannot be reformed. With the mechanism of adjustment provided by floating national currencies removed, economic disparities between countries can be evened out only by "internal devaluation" – in other words, slashing wages and welfare benefits.

In peripheral countries this could mean a drop in living standards of around a third – a recipe for social breakdown. Even in Germany, which has benefited handsomely from the euro, the result will be economic slowdown, and then – as the ECB's electronic money-printing takes effect – inflation. The eurozone that is coming into being will be defined by large swaths of poverty, chronic stagflation and endemic unrest.

Writing in 1919, the poet Paul Valéry asked: "Will Europe become what it is in reality – that is, a little promontory on the continent of Asia? Or will it remain what it seems – that is, the elect portion of the terrestrial global, the pearl of the sphere, the brain of a vast body?"

Thirty years later, in the aftermath of the second world war, the visionaries who launched the European project were bent on restoring the continent to what they imagined was its rightful position – equal or superior to the US and a model for the world. It was a vain and backward-looking vision; but if the project had been less hubristic and the euro confined to a few closely similar countries, the productive and prosperous society that was achieved in half of Europe during the postwar period might have continued and expanded.

As it is, Europe looks like floundering in crisis and stagnation for years and possibly decades to come, while Asia and the world move rapidly on.