Towards the end of last year, there was only one subject that anyone wanted to talk about. From Brussels to Beijing, the euro was the sole topic of conversation. Would the eurozone survive? Would Greece leave? Would Germany leave?

Then, life in the eurozone became a lot easier, thanks mostly to extra money provided by the European Central Bank. Its long-term repo operations - now simply called LTROs - have provided cheap funds to banks, some of which found themselves in deep trouble as 2011 was drawing to a close.

The liquidity was much needed, not only by the banks themselves but also, indirectly, by governments. Banks were able to borrow at one percent per annum for a three-year period. In some cases, they used these funds to invest in government bonds.

It wasn't quite the quantitative easing pursued by the US Federal Reserve and the Bank of England. But the result was the same: Sovereign yields came down and the immediate funding crisis went away.

So are we now out of the woods? No, not yet. There are three big challenges that haven't yet been resolved:

Growth

Imbalances

Fiscal union

Let's kick off with growth. The German economy may be as solid as a rock, but many other eurozone countries are wilting under the pressure of continued austerity.

In some cases, the process has been self-defeating: austerity leads to lower growth, lower growth leads to lower tax revenues, lower tax revenues lead to a rising budget deficit, default risk rises… and more austerity is required.

Yet there are few, if any signs, that growth in the peripheral economies - from Italy and Spain to Portugal and Greece - is going to return any time soon. For all these countries, recession is in danger of becoming a way of life.

The second big challenge is imbalances. Members of this audience are very familiar with the global version of this story - China's trade surplus and America's trade deficit. And you'll know very well that the deficit nation spends a lot of its time and energy blaming the surplus nation for the imbalance.

Eurozone imbalance

The same imbalance exists within the eurozone: Germany with its trade surplus - bigger than China's, by the way - Italy, Spain and others with their deficits. In the eurozone, the blame flows in the other direction: the surplus nations berate the deficit nations. The eurozone's imbalances either need to be recycled more effectively or they need to be reduced.

How can the eurozone's imbalances be recycled more effectively? It might be better, perhaps, for Germany's excess savings to be invested at home or, instead, in southern European factories, not just in pieces of paper.

In the pre-crisis period, too much of Germany's investment abroad went into US mortgage-backed securities and southern European government debt. That needs to change.

Reducing the eurozone's imbalances will be no easy task. All the focus at the moment is on Europe's borrowers. They're the ones having to deliver austerity. But what of Europe's lenders?

Germany's trade surplus can come down in one of two ways: either imports rise or exports fall. If Germans chose to spend more of their export revenues on imports, the German surplus would then fall. And if the imports came from southern Europe - it doesn't matter if they're goods or tourism receipts - then German domestic demand growth could then give southern European economies some much needed support.

The alternative is not so pleasant.

Germans are rightly proud of their tremendous export success. A lot of people have talked about the impressive inroads German exporters have made in this part of the world. And they're right: six percent of German exports last year went to China alone.

Yet Germany is still incredibly dependent on trade with southern Europe. Ten percent of its exports head south to Italy, Spain, Portugal and Greece. Their problems are quickly in danger of becoming Germany's problems too. Contagion is in danger of running northwards over the Alps into Germany, the Netherlands and other creditor nations. A southern European recession could also become a northern European recession.

Finally, fiscal union. It's difficult to think of any monetary union that's survived without some form of fiscal union. The Latin Monetary Union came to a sticky end. The Scandinavian Union fell apart. And, following the break-up of the Soviet Union, the trouble area survived for only a handful of months as newly formed nation states headed off in different fiscal directions.

Some monetary unions have flourished. We often forget that the US is a monetary union. And with the prospect of a referendum on Scottish independence looming large, it's increasingly obvious that the United Kingdom, too, is a monetary union.

Monetary unions work partly because both labour and capital can move around unimpeded. But they also work because they make use of fiscal safety valves. Taxpayers in wealthier parts of the union are called upon to provide support to those in disadvantaged parts of the union.

Old principle

This only works if all those involved have a say. In the eurozone, that isn't yet happening. Europe needs to establish an old - but revolutionary - principle: "No European taxation without European representation."

In other words, for the monetary union to succeed, it's not enough to rely on the ECB's printing press or specific help for Greece. There needs also to be a fiscal union.

This will not be easy. It involves sacrifices from both creditors and debtors.

Yet the stakes are high.

Should the eurozone project fail, the costs will be felt far and wide: Lehman was bad enough… eurozone failure could be even worse. European leaders know this. And they also know their history.

Since the end of the Second World War, European integration has strengthened. There have been numerous setbacks, but each time they have been overcome. The euro crisis is perhaps the biggest challenge so far.

Europe now faces a stark choice. I fully expect it to make the right choice.