How to lift Europe out of its unemployment crisis

The European economy is in the doldrums. The countries on the periphery are already threatened by sky-high youth unemployment, stricken banking systems and economic stagnation – all before a possible breakup of the euro that would make matters still worse. Even countries at the centre are being affected by loss of confidence and fear of the future. What we need from European leaders and policymakers now is initiative – not just to stabilise the euro, but to use the opportunity to recast the whole framework of economic policy so that it permits member states to put their public balance sheets behind their banking systems, reframe innovation and investment policy and redesign their social contracts so they offer crucial security – but also more flexibility. This is a moment to act.

Perhaps the worst aspect of the current crisis is the way it is killing faith in the notion of European integration – the idea that Europeans acting in concert can make their economies and societies stronger rather than weaker seems to have lost its force. Political leaders in both France and Germany genuflect to the idea of "more Europe" – but with no agreement about what more Europe could mean. There is well-meaning intent, but no intellectual content that goes beyond national agendas – in Germany the well-known commitment to budgetary discipline and in France, under its new leadership, to government-inspired "growth". What is needed is a common analysis driven by practical realities and intellectual energy, some joint giving of ground and then decisive action in the name of Europe.

First, Germany must begin to recognise that asking all eurozone countries to commit to incredible economic policies, especially in the wake of a financial crisis and overhang of enormous private debt, is simply incredible. Financial markets do not believe that Greece can stay in the euro if the price is mass unemployment and privation, even if to a degree the Greeks are the architects of their own ruin. Nor do they believe that Spain can solve its banking crisis with no support from the rest of Europe, even if again Spain is in part the architect of its own folly. Credibility is not served by incredible policies.

Read more: How to lift Europe out of its unemployment crisis | Will Hutton | Comment is free | guardian.co.uk