What began as a financial market crisis and continued as a debt crisis in individual member states has now become a crisis of confidence that threatens the EU to its very core. The EU urgently needs to find new ways to respond – but to do so it must understand how the crisis took hold.

At present there is too much of a one-sided understanding. The centre right in Europe, led by the German chancellor, Angela Merkel, points the finger of blame solely at the excessive indebtedness of individual states.

No one doubts that this is part of the problem. States do need to bring their finances back into line. But the real root of the crisis does not lie with profligate governments. Rather, it was excessive speculation and the resulting crash that forced many states to go massively into debt to bail out their banks.

Moreover, from the social democratic standpoint this financial crisis is not a temporary malfunction in an otherwise functional system. It is a systemic crisis that has laid bare the fatal errors of market fundamentalism.

It follows that changes to the financial sector must not be limited to a few cosmetic corrections. Instead there should be fundamental reform, restoring the sector to its proper role of servicing the productive economy.

To achieve this rebalancing we need to reassert the primacy of politics, and thus of democracy, over unrestrained financial capitalism. And we can best do that by using the united political weight of the EU. If this is not done, Europe could drift apart, not only economically, but also politically.

For the Social Democratic party in Germany, which I lead, how we bring about a better social balance to restore social justice and social cohesion is the key issue in the upcoming election campaign.

Fair wages for decent work, especially by means of a general minimum wage; fairer taxation by means of higher income taxes for the richer members of society and the taxation of large assets; establishment of proper childcare facilities throughout the country; investment in free education from kindergarten to college and university; protection against poverty in old age – all these are needed to achieve greater social justice.

History teaches us that without a certain level of solidarity and social justice the foundations on which freedom, democracy and even peace rest collapse all too easily. Implementing a balance of interests in a social market economy at home but also across Europe is not therefore a matter of starry-eyed, "feel-good" idealism. It is an essential precondition for maintaining a stable and prosperous future.

First and foremost, we need to do much more to harness the financial markets and subject them to sensible regulations. The SPD and its European partners are committed to introducing a financial transaction tax in order finally to get financial market actors to pay their share of the costs of the crisis and the financing of public welfare.

We want to improve financial institutions' resilience by means of stricter equity capital requirements. We also aim to end the liability of the state for speculation: instead of socialising further losses and privatising profits, risk and liability have to be brought together again. Taxpayers must not be held hostage by banks and speculators. The larger a bank is, the better its risk management must be and the higher its equity capital requirements.

For the same reason we want a significant reduction in proprietary trading and a clear separation of investment and commercial banking business. We are also calling for the establishment of a European resolution authority and a bank-financed European restructuring fund for large systemically important banks.

These are only the first steps, however. A specific effort must also be made to combat long-term and excessive economic imbalances in the eurozone. The birth defect of the euro – introducing a common currency without initiating a co-ordinated economic policy – must be corrected. We want therefore to expand the recently agreed European fiscal pact into a growth and social pact that ensures that all states contribute to reducing economic imbalances in the eurozone. Economic policy must be co-ordinated at European level in a more binding way, with the common goal of getting Europe on to an innovation-based and sustainable growth path.

As an immediate response to the challenges of the crisis and to counterbalance the current austerity policy we urgently need a real European growth and employment programme, one which is worthy of the name and not merely a ragbag of isolated measures. There is a particular need for a kind of Marshall plan for growth and jobs for the next 20 to 30 years for the crisis-hit states of southern Europe. Besides revenues from the financial transaction tax, the resources of the European Investment Bank and the EU structural funds should be used for a European reconstruction programme that invests in the real economy and really helps people.

To achieve these goals, we will require an enhanced level of solidarity across Europe. Those who confine themselves to getting the best possible deal for themselves out of the EU and are not ready to invest in the European community weaken the EU overall and thus, in the long-term, harm their own interests. In the 21st century, Europe will only succeed in the global competition of ideas and values, politics and economy if it acts in concert.

Neither Germany, France, nor the United Kingdom is in a position to pursue their interests at a global level as effectively alone as together. And for this reason it is so important that the UK continues to see its place in a united Europe. If Europe is to haul itself out of the current crisis it urgently needs the UK to lend its political and economic weight to the process of recovery and renewed success.

This is an edited version of an essay in the latest edition of IPPR's journal Juncture