In a familiar pattern, the third act of social democracy was defined by crisis, revisions and retreats. Faced with new demographic, political, economic and electoral challenges, European social democrats decided that the only way to survive as a political force was by diluting (this does not mean abandonment) their commitments to social justice and equality and accepting the primacy of markets over politics (Berman 2006). In short, social democrats stopped believing in the ability of the state to regulate the market with the purpose of achieving social democratic aims. The acceptance of monetarism and of the European Union's (EU) neoliberal turn privileged the pursuit of low inflation through a monetarist approach which entailed a commitment to fiscal discipline, which in turn required the retrenchment of the welfare state and the acceptance that inequalities may rise and that full employment may not be achieved. The nature of this revisionism was so encompassing that many analysts, scholars and activists wondered whether there was anything left of the European left.

To fully understand the third big transformation of European social democracy, the chapter starts by briefly outlining the political and economic context that led to it. Next, it identifies the three key factors that shaped the transformation of European social democracy in the 1990s, namely, demographic changes to the composition of the electoral coalitions of social democratic parties, globalization (and in particular the liberalization of international trade) and the triumph of neoliberalism, the neoliberal turn of the EU and the identity crisis triggered by the collapse of communism in the Soviet Union and in eastern, central and Baltic Europe.

Next, the chapter charts the development of the new revisionism, popularly known as the Third Way, by outlining its main traits and analysing the debates among party intellectuals and the programmatic shifts that most social democratic parties underwent in this period. The chapter explains that this Third Way wave was not uniform across Europe, although, paradoxically, it contributed to a convergence of social democratic practices across the continent. Finally, the chapter shows that although initially it was spectacularly successful at the ballot box, by the early 2000s the Third Way wave started to crumble, paving the way for a new existential crisis of social democracy.