The wheels came off the latest EU bailout agreement this morning, at least from the standpoint of the financial markets. European stocks were down sharply in early Monday trading, and the yields on Italian government debt rose as investors priced in new uncertainty about that country’s prospects. The lapdog sector of the financial press spent the weekend chittering excitedly about the prospects (again) of Chinese backing for the bailout; the Chinese (again) politely pointed out that they are only interested in making good investments because they do not think they are rich enough yet to enjoy making bad ones.Europe has two problems. The first is that the set of issues it faces is complicated and difficult, with no easy or obviously attractive solutions. The second is that Europe’s political process moves slowly, while markets move fast. In the absence of an executive who can act for the bloc on an emergency basis, or a single legislature that can pass a single enabling law, Europe cannot respond at the speed markets demand. The European Central Bank could theoretically act quickly and on a large scale, but this involves an agreement among politicians to change the mandates and treaties under which it works.In Europe as in the US, the best and the brightest of the postwar generation have largely failed at governance. Immigration policy is one of Europe’s big honking failures. Economic policy is another. The European elite built a financial system but failed to construct the means by which it could be governed or protected. It was a massive and basic miscalculation. Their successors will have to sort out — and pay for — the mess.In the short term the European crisis holds out serious dangers for the US; a meltdown there would almost surely kill our slowly strengthening recovery. In the medium term, the consequences are more benign. Europe’s failures leave global investors less fixed on our own problems with the dollar. The Europeans are giving us some time; if we put our long term budget picture into sound shape, the US and the dollar will have strengthened their reputations while the Europeans have undermined theirs. At the same time, Europe’s tendency to blame markets and speculators for problems caused by bad government policy is likely to cause Europeans to overload their financial markets with useless and counterproductive regulations that spook investors without making markets more sound. That, again, is an opportunity for the US to outperform Europe at the task of financial reform. If our financial system is both safer and more flexible than Europe’s, we will cement the (currently shaky) position of our capital market as the safest and soundest large market in the world. That would be a good thing.