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Europe needs to show what it’s made of

In the media of June 29, 2016

This article by Marcel Fratzscher was originally published in Handelsblatt Global Edition on June 28, 2016.

The Frenchman Jean Monnet, one of the founding fathers of today’s Europe, wrote that the process of European unity will “be accomplished in crises.”? The Brexit decision is a catastrophe for all Europeans. It is coming at a high price in political, social and economic terms.

But it is also a crisis that can make Europe significantly stronger - if politicians, especially in Germany, recognize and use it as such. What is positive is that this crisis is an “announced crisis.”? It provides politics with the chance to act proactively and preventively. This requires Europe to have a post-Brexit plan. Four elements are particularly important.

First, panic must be prevented on the financial markets. Central banks, above all the European Central Bank so denigrated in Germany, have already promised to do their part to assure stability. Politics now must follow suit and voice binding commitments to do everything necessary to support the economy. It must not repeat the mistake of waiting until the child has fallen into the well.

“The British referendum was less about Europe than about fear and what many consider to be far too extreme social inequality.”

The second element of this post-Brexit plan should be a common European fiscal package in which all E.U. member countries commit themselves to a investment offensive for education, infrastructure and innovation over the coming two years, for example one amounting to 2 percent of economic output. This would not only compensate for the downturn in trade and investments, but would also provide a desperately needed impulse for economic growth in Europe.

Southern Europe continues to be in a deep crisis. So it’s not surprising that the stockmarket declines in southern Europe were even more pronounced than in Great Britain, and that the euro lost almost 3 percent against the U.S. dollar in a single day.

What is important in this investment offensive is that all E.U. countries - Germany most of all - participate and that these expenditures stimulate public and private investment. In that way, they will strengthen growth in Europe also over the long term.

The goal of the third element should be an effort to redress social inequality. The British referendum was less about Europe than about fear and what many consider to be far too extreme social inequality. The problem of social inequality exists not only in Great Britain, but also in almost all European countries. The fear of poverty in old age, insufficient social security and precarious employment is extensive - also in Germany.

What is required to address this issue is not only an investment offensive creating more equality of opportunity, but also labor-market policies giving more people a chance to provide for themselves through their own work along with tax policies offering breathing space especially for an increasingly burdened middle class.

The fourth element of the plan must be a reform of Europe and its institutions. The most important arguments of the British opponents of the E.U. - social inequality, integration of immigrants and insufficient social services - have little to do with Europe but are the responsibility of the British government.

Europe needs a stronger identity, and its institutions must become more transparent and accessible. Europe must not be allowed to intervene more and more in the affairs of individual citizens but must internalize the principle of subsidiarity. Europe must develop a deeper social awareness, so that solidarity both within and among member states is actually achieved. In short: Europe has need of a common social market economy.

In spite of all anxieties and risks, the Brexit decision offers an opportunity that Europe should eagerly embrace. Europe is at a crossroads where the decision will be made whether the continent once again breaks up into rival nationstates or a stronger, more socially just Europe arises.

As an economically strong and politically stable country with the largest population, Germany carries a special responsibility. The federal government ought to approach its partners with a concrete plan. This requires courage and brings great political risk, but it is the only way to assure prosperity and chances for the future to Europe and Germany.