By Mike Peacock
LONDON (Reuters) - A crushing election defeat for Britain's Labour party has laid bare the dilemma facing Europe's centre-left.
The left could have expected to capitalise on the 2007-2009 financial crisis when lax regulation allowed banks to catapult the world into chaos.
It didn't happen.
Now, the mainstream is leaching support to populists with working class voters feeling most vulnerable to immigration and facing endemic job uncertainty.
In an age when austerity still holds sway, the centre-left faces a choice of embracing painful structural reforms or trying to protect traditional supporters from the economic winds blowing across the world.
Those that look best-placed are trying to combine the two.
One lesson from the British election is that parties must appeal to people's aspirations rather than just promise to shield them from the new world order.
"We were sent out ... to make an argument, if you can call it an argument, which basically said we're for the poor, we hate the rich, ignoring completely the vast swathe of the population who exist in between," was former Labour cabinet minister and EU commissioner Peter Mandelson's ferocious election post-mortem.
Tony Blair, Mandelson's former boss, governed from the centre and delivered three big election wins, keeping Labour's core vote onside with high levels of public spending.
Now, to paraphrase the note left by treasury minister Liam Byrne for his successor when Labour lost the 2010 election, the money has run out.
The rise of new parties across Europe has also shattered the calculation that the moderate left could take its traditional supporters for granted as they had nowhere else to go. Now they do -- to Syriza, the National Front, UKIP and Podemos to name but a few.
Labour discovered that to its cost on May 7.
"The 'you don't count because you already vote for us' school of leadership won't work in the new era of multi-party politics," said David Clark, founder of the political blog Shifting Grounds who was special adviser to Labour foreign minister Robin Cook.
The centre-left has shown itself able to take tough decisions. Gerhard Schroeder's Hartz labour reforms a decade ago were strongly opposed but helped Germany shed its "weak man of Europe" tag and reclaim economic dominance.
Schroeder's story demonstrates the problem the left faces. He lost the following election to Angela Merkel.
More recently, Spanish Socialist premier Jose Luiz Rodriguez Zapatero administered necessary but unpleasant austerity medicine to his debt-laden country and paid the electoral price, getting ousted in 2011. The economy is now growing fast.
Socialist President Francois Hollande's reform programme, although it is seen as timid by many outside France, has delivered him record low popularity ratings.
"The political game has changed from a fundamental left/right contest over the role of the state in the economy to a question of how much and in what ways to protect the losers of globalisation through the welfare state and limits on migration," said Heather Grabbe, Director of the Open Society European Policy Institute in Brussels.
"This has left plenty of space for populists to blame all mainstream parties for being self-serving and deaf to the concerns of the people."
ITALIAN EXCEPTION
The harder left's banner movement is Syriza in Greece. Its efforts to reject the austerity imposed by its creditors appear to have failed and left the country on the brink.
The similarly positioned Podemos in Spain has faltered. Latest opinion polls give it about 16 percent support, more than 10 points below its peak. The ruling centre-right People's Party is back in front with elections due in November.
The starker example in Greece is centre-left PASOK, which governed for a large chunk of the last 30 years but, having presided over the country's collapse into bailout, is now reduced to a handful of parliamentary seats.
Matteo Renzi appears to be the exception, driving through reforms that no other Italian leader has dared try, while remaining popular.
He faces an opposition in disarray and has mixed reforms with tax cuts for the lower paid and pensioners. More profoundly, the youthful Renzi has tapped into a national sense that this is the last chance to pull Italy out of a deep malaise.
The agonising now going on within the Labour party about where it went wrong will be watched by centre-left parties across Europe. For Labour it is particularly tricky since it was outflanked on the left by nationalists in Scotland but looked too left-wing for middle class voters in England.
"After a result as awful as this, there has to be real deep soul-searching, and honest analysis about how we have gone from being ... the dominant force across UK politics over a decade and more, to where we are today," Alastair Campbell, who was Blair's press secretary, wrote the day after the election defeat.
"These are not questions that can, or should, be answered in a hurry."
