This chapter investigates what happens when Th ird Way social democrats are confronted with a left-socialist challenger under a pr system. The case is that of Germany, where the social democrats (SPD) engaged in pathbreaking labour market reforms and faced the Left Party as a new competitor due to this policy change. The latter party fits the type of ‘dangerous left challenger’, as this chapter will illustrate. We also examine the competition from a mainstream Christian democratic party, as the SPD's biggest competitor. Hence, the chapter examines the electoral consequences of the welfare state reforms introduced by social democratic governments in Germany from 1998 to 2009.

As with the Labour Party in Britain, the German spd (Sozialdemokratische Partei Deutschlands) returned to power in the late 1990s with a new label that accentuated the party's move towards the centre, ‘Die Neue Mitte’ (the New Centre). However, the reform trajectory was different from that of New Labour, as the spd-Greens coalition only implemented moderate reforms in its first electoral term (1998-2002). The second term (2002-05) saw the introduction of the path-breaking Agenda 2010 reform package, including the highly controversial Hartz labour market reforms. This was a remarkable departure from the SPD's traditional position on social policy (e.g. Kemmerling & Bruttel 2006; Fleckenstein 2008; Debus 2008). The spd was largely consistent in its adherence to its reform agenda in the Grand Coalition with the Christian democratic parties (CDU/ CSU) from 2005 to 2009, which also was responsible for sweeping pension reforms.

During the first years in government, the spd lacked a left-wing challenger, as the post-communist Party of Democratic Socialism (PDS) was relatively marginalised and its electoral importance restricted to the eastern part of Germany. This changed after the Hartz reforms and Agenda 2010, when the PDS merged with a couple of SPD dissidents to form the Left Party. This new party turned into a nationwide left-wing challenger to the SPD: the party easily surpassed the 5 per cent threshold in the 2005 election, which was called after the implementation of the Hartz reforms.