German social democrats have alienated their base and fractured Europe

Because
it embodies timeless values of equality, fairness, and respectful debate, social
democracy bears a dual promise: domestic social justice and European unity. The
postwar struggles of Germany’s Social Democratic Party (SPD) illustrate the
difficulty in translating these admirable values into political practice. In a
bid to keep itself electorally relevant, the SPD adopted policies that left
many Germans behind. And once the euro was introduced, the SPD pursued a narrow
national interest. Germany’s dominance in eurozone governance induced other
European social democratic parties to follow the SPD’s lead. Inevitably, Europe’s
social democrats lost domestic support and European solidarity eroded.

In the closing years of
the nineteenth century, the SPD’s Eduard Bernstein was in the vanguard of
defining social democracy as a political movement that sought to achieve both material
progress and social justice. The ground for such a political philosophy became
particularly fertile after the upheavals of the Great Depression and World War
II. But while other European social democratic parties, notably in Sweden, created
national alliances and acquired political authority, after the war the SPD
struggled for nearly a quarter century to gain the German chancellorship.
Briefly, between 1969 and 1982, the SPD’s Willy Brandt and Helmut Schmidt were
chancellors.

But buffeted by two oil
price shocks, in 1973 and 1981-82, and unable to stem the rapid rise in
unemployment, the SPD lost electoral favor. For 16 years, from 1982 to 1998,
the SPD was consigned to the political wilderness while Chancellor Helmut Kohl of
the rival Christian Democratic Union (CDU) reigned supreme. Kohl also lured SPD
supporters by adopting some of the social justice agenda: more generous unemployment
benefits and new a child-rearing allowance.

In 1998, the SPD
experienced a modest revival under Gerhard Schröder as chancellor. In his
second term, between 2002 and 2005, Schröder changed course. With little new to
offer to promote social justice, he sought to attract the winners of rapidly
spreading globalization, believing that traditional working-class supporters
would never desert his party. Schröder announced this die neue Mitte (the new center) approach with
British prime minister Tony Blair (who
called it the Third Way). Together, they promised to “modernize” their
economies by allowing more room for the operation of market forces.

Germany's “Hartz reforms”

Schröder’s major
initiative was the so-called Hartz reforms, which reduced benefits for
unemployed workers and so pushed them harder to look for new jobs. As a result,
workers who could not retain their privileged positions in Germany’s
best-performing firms accepted low-wage temporary and part-time “mini”
jobs in the low-productivity services sector. Such
workers fell into a trap of low earnings and increasing economic insecurity. Unsurprisingly,
they steadily transferred
their allegiance from the SPD to other parties, including what now is called
the Left Party, which promised to work harder
for workers’ protections and rights.

By creating divisions
among different categories of workers, the SPD fractured the sense of “social
solidarity and sense of shared national purpose,” crucial for the political
success of social democracy, as the political theorist Sheri Berman has pointed
out.
By creating
divisions among different categories of workers, the SPD fractured the sense of
“social solidarity and sense of shared national purpose”.

The Hartz reforms, nevertheless,
acquired a crucial narrative strength, and its variants spread throughout
Europe. Such reforms, German and other European leaders asserted, helped
Germany strengthen its export competitiveness. Nothing, however, was farther from
the truth, as I explain in my book, EuroTragedy: A Drama in Nine Acts.
German manufacturing
companies remained internationally competitive because they deployed
time-honored methods of innovation while outsourcing parts of their production
to Eastern Europe. But the mythology of the
Hartz reforms’ magic took hold. Social democrats throughout Europe felt obliged
to pursue the same politically divisive strategy and, inevitably, their own
sense of collective national purpose steadily frayed.

The “neue Mitte/Third Way” declaration also made a bold claim to
pursue European solidarity (“We share a common destiny within the European
Union”). Schröder, for his part, chanted a fuzzy mantra of European “political
union” to lay claim to European credentials. Schröder’s vice chancellor,
Joschka Fischer of the Green Party, called for a bold but completely
unrealistic European vision. European nations, he proposed, should sign a
constitutional treaty to create a European
federation.

But Schröder aggressively
promoted a narrow German national interest in European affairs. He fought for
national voting rights in the Council of Ministers. To protect the German
automaker Volkswagen, he blocked a European Union proposal for the reform of
corporate takeover legislation. Schröder’s parochial interest was motivated by
his allegiance to Volkswagen, on whose supervisory board he had sat as governor
of the state of Lower Saxony. And while Schröder
rightly opposed the European Central Bank’s excessively tight monetary policy
and the European Commission’s mindless pursuit of fiscal austerity, he sought only
a German exemption rather than a constructive change in rules. To protect the German automaker Volkswagen, he blocked a
European Union proposal for the reform of corporate takeover legislation.

Having alienated its
domestic base, the SPD lost electoral ground in the 2005 election, and returned
as the CDU’s junior partner in a grand coalition under Chancellor Angela Merkel.
When the global financial crisis erupted in 2007, nations of the Eurozone – those
sharing Europe’s single currency, the euro – were faced with a crucial test of European
solidarity. Tied together by the single currency, would the strong nations
support the weak?

The SPD’s Peer
Steinbrück, as German finance minister, nixed proposals to create European
financial firewalls to limit the spread of financial crises. Moreover, by then,
Germans had overcome their temporary turn-of-the-millennium economic funk, and Steinbrück
returned to the traditional German insistence on fiscal austerity. At the height
of the global financial crisis in 2008, he mocked
British prime minister Gordon Brown’s impassioned plea for globally coordinated
fiscal stimulus. So poor was Steinbrück’s judgment that Merkel overruled him
and joined the essential stimulus effort.

In the 2009 election,
with nothing to offer by way of either national or European ideas, the SPD’s
vote share plummeted to a historic low of 23 percent. With
nothing to offer by way of either national or European ideas, the SPD’s vote
share plummeted to a historic low of 23 percent.

Austerity across Europe

As the eurozone’s
never-ending crisis dragged on, weary citizens in member nations looked again to
social democratic parties to jump-start an equitable growth process. Thus, the
2012-2013 election cycle gave Europe’s social democrats an opportunity for
political revival. In a wave that started in France and then continued into Italy,
the Netherlands, and Germany, social democratic parties either gained
government leadership or emerged as important coalition partners. Besides
promising domestic economic relief, social democratic leaders – French president
François Hollande, Italian prime minister Enrico Letta, and German vice chancellor
Sigmar Gabriel – stirred the hope that they would help reinvigorate an agenda
of European unity.

But notwithstanding
their rhetoric, the social democrats did not deliver. The SPD’s failure is
noteworthy. At home, in coalition with the CDU, the SPD did little to bring
back its former supporters, many of whom, feeling abandoned, had stayed away
from the polls. Although the German economy performed much better than other
eurozone economies, real wages stagnated for too many Germans and economic
inequality increased inexorably.

On European matters, the
CDU-SPD coalition remained an unrelenting advocate for fiscal austerity. French
president Hollande and Italian prime minister Matteo Renzi did put up a brave
fight against the grinding austerity, but they fought for minor concessions
rather than challenging German orthodoxy. With the European Central Bank
offering only grudging monetary policy relief, the overall policy squeeze
delayed economic recovery, which severely hurt Europe’s most vulnerable
citizens.

The SPD’s intellectual
influence was particularly insidious in the area of “labor market reforms.” In
October 2014, Renzi announced what was to be his singular achievement: the Jobs
Act. Much like the Hartz reforms, the act weakened workers’ rights and, despite
claims of protective provisions, reinforced the tendency toward jobs with insecure
tenures. Italian governments before Renzi’s had implemented similar reforms,
which indeed increased employment. But the evidence from the past reforms was
that they dulled
the incentives for employers and employees to increase productivity
and, hence, contributed to the steady decline in Italian productivity growth.
Renzi’s Jobs Act seems destined to prolong Italy’s near-zero productivity
growth.Renzi’s Jobs Act seems destined to prolong
Italy’s near-zero productivity growth.

Social democrats thus
threw away the opportunity presented to them in the 2012-2013 electoral cycle. They
failed to promote a domestic agenda that brought hope to globalization’s
losers, especially those who lacked necessary education and skills. Unsurprisingly,
social democratic parties were clobbered at the polls in 2017-2018. They lost
to protest parties that spoke more directly to voters’ economic and cultural
anxieties.

European “solidarity”?

The social democrats’ European
promise also continued to prove false. In a particularly jarring instance, in March
2017, the Dutch Labor Party’s Jeroen Dijsselbloem gave voice to a growing
north-south divide in the eurozone. He reprimanded
governments and citizens in southern eurozone countries for their profligacy:
“You cannot,” he told them, “spend all the money on women and drinks and then
ask for help.” In the ensuing outrage over the
words he had used, Dijsselbloem defended
himself. European “solidarity,” he insisted,
required adherence to budget rules on debt and deficit limits.

March, 2017. Greek Finance Minister Euclid Tsakalotos talking with Pierre Moscovici and the Dutch Minister of Finance, President of the Council Jeroen Dijsselbloem before a Eurogroup meeting. Thierry Monasse/ Press Association. All rights reserved.In Germany, the SPD
leader Martin Schulz flaunted an eccentric pro-Europeanism. In December 2017,
he pledged
that, as a key member of a prospective Merkel-led coalition government, he
would enforce adoption of a European constitution by all member states. Not
only was Schulz’s idea absurdly unrealistic, he misunderstood his domestic
constituents, whose priorities lay in actions at home. When, at a party
gathering, Schulz spoke of his conversation with French president Emmanuel
Macron to promote a grand European strategy, the members groaned.
Schulz’s plans and political fortunes nosedived.

The SPD’s Olaf Scholz, the
new German finance minister in the latest CDU-SPD coalition, has repeatedly
reaffirmed his party’s commitment to unify Europe. But he has acted in the mould
of the previous SPD finance minister, Peer Steinbrück. Domestically, Scholz has
doubled
down on the need for continued budget surpluses,
negating any hope that government investment and social spending will spur a
broadly inclusive domestic growth process. On the call for a eurozone budget by
French president Emmanuel Macron, Scholz has bluntly stated that a German finance
minister – no matter the party affiliation – must protect German taxpayer money
from fiscally irresponsible eurozone member country governments.

Throughout Europe,
social democrats are gripped by an intellectual laziness that risks turning
into a terminal stupor. They can have little hope of retrieving lost support in
new domestic alliances without an energetic agenda for national revival that
creates more opportunities and fosters a sense of fairness. They need new ideas
to raise taxes to pay for extending the reach and quality of education and
health care to economically vulnerable citizens.

This history also makes it
clear that social democracy cannot be a unifying European force. Social
democrats across Europe do share common values of fairness, justice, and an
open society. But today, such values are subordinated to the requirements of
economic policy coordination in support of the euro. And given Germany’s
economic dominance, the de facto focal
point of European policy coordination is German policy preferences. As such,
the euro’s guiding ideology requires weaker workers’ rights and protections
alongside a commitment to fiscal rectitude. This
history also makes it clear that social democracy cannot be a unifying European
force.

The euro

The euro has proved to
be fundamentally at odds with social democracy. In its most successful Swedish
version, social democracy has been a nationally legitimate social contract to
redistribute resources among those who share historical and cultural ties. The straitjacket
of the euro ideology, however, places the burden of national competitiveness on
lower workers’ wages; and it enforces ill-timed and excessive fiscal austerity measures
that limit options in domestic economic policymaking. The euro, therefore,
prevents the formation of domestic alliances that could create “a sense of
national purpose.” The policy straitjacket is reinforced by the presumption
that each national ship must face the risk of sinking to its own bottom, a
presumption that undermines the Blair-Schröder call for a “common destiny within
the European Union.”

April, 2018, Wiesbaden: Andrea Nahles, the new SPD party leader, presents former party leader Martin Schulz with a picture. Bernd von Jutrczenka/ Press Association. All rights reserved.European social
democrats have continued to haemorrhage support. The conclusion seems sadly
inescapable. On its current course, unable to generate a domestic consensus and
powerless to counter the narratives and priorities dictated by the euro, the
political practice of social democracy will continue to fail at home while divisions
among member nation states deepen.