Europe’s Political Nightmare: Why the Christian and Social Democratic Parties Have Surrendered to the Bond Market

As Europe’s debt crisis deepened throughout 2011, it became clear that the Old World had become the bastion of the most hidebound financial orthodoxy, willing to force millions of its citizens to suffer years of reduced living standards in the name of debt repayment. In order to please financial markets, international public lenders engineered a deep recession in Greece as other countries enacted contractionary budget cuts. The rush to austerity—as well as the stubborn persistence in it, even as growth slowed to a crawl in 2011—presented a puzzle for Americans who had believed Europe’s political spectrum to be several notches to the left of their own. Now it seemed Europe was insisting on the suffering of the many in order to save the profits of the few, and even effective popular resistance was lacking. How could this be explained?

Both the choice of austerity and the lack of effective resistance to it had roots in the political and intellectual universe of pre-recession Europe. The issue was not how Europe responded to the recession and financial crisis, but why it lacked the means to respond in any other way. There were four main factors. First, a new type of conservative party, which disavowed postwar Christian Democracy’s concerns about markets, had been in the ascendant for several years and was in power in the main countries. Second, the Socialist and Social Democratic parties had long ago ceased to pay more than lip service to the notions of social justice and the public interest, and had suffered a commensurate loss of credibility and intellectual vigor. Third, national identity and immigration displaced class and social equality as the main political issues. Fourth, regardless of the first three factors, the institutions of the European Union (EU) made progressive change virtually impossible by moving economic governance far outside the reach of popular politics and requiring, by treaty, that member states reduce public deficits and debt. Indeed, Europe’s main institutional response to the crisis was to strengthen enforcement of these rules, making them even more rigid than they had been before.

The Conservative Parties in Charge

The welfare states of postwar Europe were built and sustained by a bargain between conservative Christian Democratic parties on the right and Socialist or Social Democratic parties on the left. Conservative parties in the postwar period were attuned to what they saw as the dangers of exploitation, disruption of family life, and other forms of immorality inherent in capitalism. Far from promoting the commercial ethos as the organizing principle of society, these parties did not deny that there was a tension between that ethos and the parties’ own Christian values. Thus, even if these parties were socially anchored in the business class, they were not “free-market” parties in the contemporary sense. In addition to their programmatic skepticism toward markets, they concerned themselves with preventing a return to the socioeconomic disorders of the interwar period—and the political extremism that followed. As the historian Tony Judt put it, “The very term ‘social security’ . . . became a universal shorthand for prophylactic institutions designed to avert any return to the interwar catastrophe.”¹

This ideology no longer applies to the conservative parties that govern the largest European countries today. Center-right parties like Angela Merkel’s Christian Democratic Union (CDU) in Germany and Nicolas Sarkozy’s Union pour un Mouvement Populaire (UMP) in France have left their hang-ups about the market behind them. In the rhetoric and the programs of these parties, competition and individualism are no longer seen as posing problems for Christian values and social peace. The accumulation and investment of wealth are no longer activities about which one should be, at best, morally ambivalent. Instead, they are celebrated by center-right parties.

Soon after the inauguration of Sarkozy in 2007, Christine Lagarde—then the finance minister of France and now the managing director of the International Monetary Fund—expressed the prevailing ethic of her generation of conservatives before a group of French investors. “Enrich yourselves!” she exclaimed. “It’s no...