Vice into virtue? Progressive politics and welfare reform in continental Europe.

For over half a century, the development of the welfare state has served as the principal means by which left-progressive governments have reconciled the pursuit of efficiency with the pursuit of equity. From a Keynesian perspective, welfare spending—and the taxes that financed it—provided an “automatic stabilizer,” smoothing aggregate demand in the face of fluctuations in the business cycle. From a corporatist perspective, welfare spending greased the wheels of “political exchange,” compensating powerful, mobilized labor movements for their acceptance of wage restraint. And even during the initial years of neoliberalism, welfare spending helped secure popular acquiescence to market reform, making intensified international competition and job loss more acceptable to the masses. In the 1990s, however, in the age of globalization, heightened concerns about budget deficits, and retiring baby boomers, welfare spending has come under intense pressure. The fact that the left is in power in an unprecedented number of European countries—France, Italy, Britain, the Netherlands, Sweden, and now Germany—is not necessarily grounds for celebration. As luck would have it, leftist electoral planets have entered into alignment at precisely the moment when fiscal constraints have become extremely tight. With welfare expansion giving way