The re-election of a center-right Swedish government for the first time in modern history and the entry of a hard-right anti-immigrant party into parliament show how far the times have changed, even in social democracy’s north European heartland.

How the center-left should respond, and whether it can regain the ascendancy in Europe at a time when loyalties are shifting across the political spectrum, are now being fought out in internal party tussles in Britain and France in particular.

In Sweden as in Germany, France, Denmark or the Netherlands, the main party of the center-left has hemorrhaged votes in all directions — to the hard left, the ecologist Greens, the populist far right but also to mainstream conservatives.

“Social democracy comes across as a victim of the crisis, when it should appear as a refuge or a hope after years of neo-liberal excess,” French political scientist Laurent Bouvet wrote earlier this year.

Technological change and globalization have shrunk the traditional industrial working class and the trade unions, made jobs more precarious and thrown up new issues such as climate change, population aging, immigration, obesity and drugs.

The mainstream left is torn between trying to reconnect with a lost popular electorate and reaching out to an aspiring new class in the knowledge economy.

Swedish Social Democratic leader Mona Sahlin alienated some centrist supporters by agreeing to a formal coalition with the ex-communist Left party — a move that the German Social Democratic Party (SPD) continues to eschew.

ACCOMPLICE?

In countries such as Britain, France and Germany, where the center-left was in government in the early 2000s, it is regarded by many voters as having been a zealous accomplice in financial deregulation and economic liberalism.

Rising income inequality gave a hollow ring to the left’s proclaimed ambition to redistribute wealth.

Now that most European countries are burdened with high deficits and debt mountains due to the financial crisis, the “big government” left is not seen as offering a credible answer to the question of where and how to shrink the state.

In many countries, public employees are the biggest bloc of socialist party members and constitute a brake on reform.

Socialists’ long-standing support for European unification, religious tolerance and integrating immigrants has made them vulnerable to right-wing populists like the Sweden Democrats, Geert Wilders’ Dutch Freedom Party or France’s National Front.

These dilemmas are the backdrop to the choice of a new leader by Britain’s opposition Labor Party this week, and of a presidential candidate by the French Socialist party next year.

In Britain, the choice is between sticking to the market-friendly New Labor ideology that marked Tony Blair’s decade in office from 1997, or shifting to the left to try to win back disenchanted working class and public sector voters.

“We need to become ‘effective state’ social democrats, not ‘big state’ social democrats,” Roger Liddle, one of the thinkers behind the New Labor project, said in a speech last week.

Former foreign secretary David Miliband embodies Blairite continuity, while his younger brother Ed, former cabinet minister Ed Balls and left-wing stalwart Diane Abbott offer varying degrees of the latter approach.

GREENS RISING

In France, the Socialists face a potential three-way choice between a social-liberal (International Monetary Fund chief Dominique Strauss-Kahn), an old-style socialist (current party leader Martine Aubry), and a left-populist (defeated 2007 presidential candidate Segolene Royal).

Aubry and Royal have vowed to reverse President Nicolas Sarkozy’s pension reform, which pushes back the retirement age from 60 to 62 and makes many work until 67 for a full pension. Strauss-Kahn says retirement at 60 cannot be a “dogma” when people are living ever longer.

An ecologist list ran neck-and-neck with the French Socialist party in last year’s European Parliament elections, siphoning off so-called Bobo voters (the bohemian bourgeois), while ex-communists and Trotskyists split another 10 percent.

In Germany, the Greens are snapping at the heels of the opposition SPD in opinion polls and may get a chance to lead a regional state government for the first time next year.

But the SPD has also lost support to the hardline Left party among working class and elderly voters who felt betrayed by its reduction of unemployment benefits and extension of the retirement age while in government over the last decade.

Where socialists are still in office, in Spain, Portugal and Greece, they risk alienating their core electorate by having to implement austerity measures mandated by the IMF and the European Union in exchange for financial support.

Only Greek Prime Minister George Papandreou has managed to retain his lead in opinion polls so far despite eye-watering spending cuts — perhaps because his conservative opponents made such a shambles of running public finances until last year.

Early reports suggest the required levels of capital will be much lower than feared, and the kinds of assets that can be used to meet the requirements more expansive than earlier proposals suggested.

But there is good reason to worry that far from making the financial system sounder, Basel III may introduce even more systemic risk into global finance.

The problem is inherent and probably unavoidable. Regulators want to achieve a world-wide harmony on bank capital rules. But by reducing the diversity of regulatory regimes, they inevitably increase the costs of regulatory error.

Regulations homogenize. Banks told that certain assets count as regulatory capital will hold more of those assets than they otherwise would. If those assets are less safe than the regulators believe, banks will be more vulnerable and the banking system more fragile than it would be with less homogeneity.

As Jeffrey Friedman has pointed out, it was prior capital requirements that encouraged banks to hold large inventories of mortgaged-backed securities. The financial crisis was a result of what happened when the bursting of the housing bubble met this regulatory-created concentration.

“Bank-capital regulations inadvertently made the banking system more vulnerable to the regulators’ errors,” Friedman explains. “But this is what all regulations do.”

We’re sure the regulators in Basel are well-meaning and striving to implement prudent and informed rules. The problem is that the future is unpredictable. What’s more, any set of regulations that seeks to cover something as complex as the global banking system inevitably will have unintended consequences. Further, even well-wrought regulations cannot easily adapt to changing circumstances.

Markets can cope with uncertainty because they do not require homogeneity. Different companies make different predictions about which businesses will be profitable. The ones that get their predictions wrong lose money; the ones that get them right earn profits. Persistent or outsized predictive failures led to bankruptcy; while persistent or outsized predictive successes leads to growth or at least continued operations. The market process sorts winners from losers without anyone having to determine who made the right predictions.

Regulations lack this discipline. Where a business can see its inventory build or profits fall and change directions, regulatory failures are often invisible until very late in the process. The failure of prior capital rules did not put the regulators out of business. In fact, this round of Basel negotiations has even more countries participating than the earlier round did. Throughout the financial crisis and afterwards, regulators have failed upward. Evaluations of which regulations failed is open to political debate rather than being self-evident.

The rules coming out of Basel will inevitably encourage concentrations of risk management strategies and asset holdings that will make the financial system more fragile. The more detailed the rules are, the more systemic risk-creating homogeneity will be introduced.

All of which is not to say that we don’t need banking capital regulations. For a host reasons-not the least of which is that banks have demonstrated that they can shift losses onto taxpayers-we do. But we shouldn’t be too confident in the efficacy of our new regulations, no matter how swell they might seem to us now.

WASHINGTON (AP) — President Barack Obama insisted Friday that the U.S. economy is digging itself out of the deepest recession in decades but conceded that “progress has been painfully slow” and many voters in November’s elections may blame him.

Facing a rising jobless rate, Obama told a White House news conference: “For all the progress we’ve made, we’re not there yet. And that means the people are frustrated and that means people are angry.”

“And since I’m the president and Democrats have controlled the House and the Senate, it’s understandable that people are saying, you know, ‘What have you done?’”

The president, who also is the leader of the Democratic Party, spent much of his appearance before cameras on the defensive, underscoring his frustration with being unable to convince the public that his economic fixes are working.

At his first formal session with reporters since May, one that lasted nearly an hour and 20 minutes, Obama also appealed to Americans to stand by the nation’s long heritage of religious tolerance.

The Rev. Terry Jones, from a small fundamentalist church in Florida, triggered outrage when he promised to burn the Quran on Saturday’s anniversary of the Sept. 11 attacks. He canceled the plans Thursday but then said he was reconsidering. Obama said he hopes Jones “prays on it and refrains from doing it.”

Declining to mention Jones’ name, Obama referred to him as “the individual down in Florida.”

A debate is also raging over whether an Islamic center should be built near the site of the Sept. 11, 2001, attacks on the World Trade Center in New York.

Obama said people must remember that the country’s enemy is not Islam but al-Qaida and other extremist groups. He said Americans can’t turn on each other and let their fears lead to divisions.

On the eve of the ninth anniversary of the terror attacks, Obama said the U.S. is still hunting for attacks mastermind Osama bin Laden. He said bin Laden had gone “deep underground” but efforts to hunt him down would go on “as long as I’m president.”

He said “the folks who are most interested in the war between Islam and the West are al-Qaida. That’s what they’ve been banking on.” He said the battle was against just a handful of people “who are engaging in hateful acts.”

He counseled respect and inclusion for Muslims in the United States. He said, “They are Americans. We don’t differentiate between ‘them’ and ‘us.’ It’s just us.”

As for continued terror threats against America, nine years after 9/11, Obama said, “There is always going to be the potential for an individual or a small group of individuals, if they are willing to die, to kill other people. … That threat is there, and it’s important, I think, for the American people to understand that. And not to live in fear; it’s just a reality of today’s world that there are going to be threats out there.”

He added, “We are going to have this problem out there for a long time to come, but it doesn’t have to completely distort us and it doesn’t have to dominate our foreign policy. What we can do is to constantly fight against it.”

On the economy, Obama repeated his contention that Republican obstructionism is hampering his ability to steer the nation into a stronger recovery. He renewed his insistence that Senate Republicans drop their stalling of a bill before the Senate to help small businesses.

And he said yet again that Bush-era tax cuts should be extended for individuals earning less than $200,000 a year and joint filers earning less than $250,000. All the Bush tax cuts are to expire at the end of this year unless Congress acts.

Obama said Congress shouldn’t delay extending the middle-class tax cuts any longer.

“Why hold it up? Why hold the middle class hostage?” he said.

Some prominent Democrats recently have suggested temporarily extending all of the expiring cuts, for perhaps a year or two, as a compromise. But so far Obama has dug in and rejected all talk of such a deal.

He said extending tax cuts for the wealthiest Americans “is a bad idea.”

Obama repeatedly sought to justify the high-dollar actions his administration has taken to boost a sputtering recovery. And he blamed Republicans for holding back future progress by uniformly opposing other proposals on the table.

His previous revival effort has worked, Obama said, but “it just hasn’t done as much as we needed to do.” With public opinion sour on the first economic stimulus plan, Obama initially refused to call the three-pronged economic plan he laid out this week a “stimulus” plan but then said: “There’s no doubt that everything we’ve been trying to do … is designed to stimulate growth and additional jobs in the economy. That’s our entire agenda.”

Much of the summer has been marked by one discouraging economic report after another.

Yet, reports so far this month –from manufacturing to new jobless claims to home sales to business activity — have topped most forecasts. That has brightened the outlook somewhat as worries of a “double-dip” recession fade.

Still, there is little that Obama can do that is likely to turn the economy around in the short time before Election Day on Nov. 2.

Facing a possible GOP blowout in November, many Democrats who supported Obama earlier this year on his landmark health care overhaul bill have sought to distance themselves from the unpopular law. Some Democrats have actively criticized it as they campaign.

Asked why this was so, Obama cited a “political season” in which he said every candidate has “their own district, their own makeup, their own plan, their own message.”

With the unemployment rate at 9.6 percent, Obama said that Democratic and Republican candidates alike “are going to make the best argument they can right now.”

“That’s how political races work,” he said.

Obama over the past week has outlined a trio of job-creation ideas designed to prod the economy: $50 billion for roads, rail lines and other infrastructure spending, a permanent research and development credit and upfront 100 percent business write-offs through 2012.

Facing a possible GOP blowout in November, Obama sought to rally his struggling party, casting Democrats as warriors for the hard-pressed middle class and Republicans as protectors of millionaires and special interests.

Asked how he had changed Washington, Obama said the dreadful economy made it hard to demonstrate real progress.

“I think that’s fair. I’m as frustrated as anybody by it,” Obama said.

Obama also:

– Said he was naming White House economist Austan D. Goolsbee to succeed Christina Romer as chairman of the president’s Council of Economic Advisers.

– Said he is encouraging peace talks between Israel and the Palestinians because the alternative is a status quo that puts both parties — and the U.S. — at risk.

– Praised consumer advocate Elizabeth Warren, a Harvard professor and head of a panel investigating the financial meltdown, but said he’s not ready to make an announcement of whether she is his choice to head a new financial consumer protection bureau.

– His administration has fallen short in his goal of closing the Guantanamo Bay detention center after promising to close it within his first year as president. He said he still believes the American justice system is capable of prosecuting, convicting and holding terrorists who have attacked the U.S.

Associated Press writers Liz Sidoti, Anne Gearan, Erica Werner, David Pace, Jim Kuhnhenn, Donna Cassata, Merrill Hartson and Mike Hammer contributed to this report.

By Kate Gibson, MarketWatch

NEW YORK (MarketWatch) — U.S. stocks caved on Thursday, with the Dow industrials making a comeback of sorts from a drop of nearly 1,000 points, as Europe’s financial troubles took hold on Wall Street.

At its height, the major stock indexes were all down 8%, with the Dow Jones Industrial Average (INDEX:INDU) diving almost 1,000 points before halting its decline.

Yields on 10-year treasury notes dropped the most since September 2008 and the euro fell to a new 14-month low, below $1.26.

“The markets have an eerie feeling similar to the timeframe when Lehman went down,” said Andrew Brenner, head of emerging markets at Guggenheim Securities.

“You can go back to Goldman Sachs Friday when the market sold off. Since then the market has been prone to headline risk and looking for a reason to sell off,” said Jay Suskind, senior vice president at Duncan-Williams.

“Is the market now seeing Greece and Europe as the canary in the coal mine for us? We all know we have budget and deficit issues,” Suskind said.

The major U.S. stock indexes gave way shortly after 2 p.m. Eastern, with the Dow Jones Industrial Average (INDEX:INDU) lately off 366.69 points, or 3.4%, to 10,501.43 with all 30 components on the decline, led by Bank of America Corp. (NYSE:BAC) , off 6.9%, and Caterpillar Inc. (NYSE:CAT) , off 4.2%.

The S&P 500 Index (INDEX:SPX) dropped 41.33 points, or 3.5%, to 1,125.07, with financials and utilities down the most among its 10 industry groups.

The Nasdaq Composite Index (NASDAQ:COMP) shed 77.93 points, or 3.2%, to 2,324.36.

More than 10 stocks were falling for every one on the rise on the New York Stock Exchange, where 1.7 billion shares had traded as of 3.10 p.m. Eastern. Composite volume topped 8.1 billion.

Exposed

As Greece looked to a $144 billion rescue from the International Monetary Fund 15 other nations that use the euro to help cover its debt, some questioned if some of the nations helping foot the bill — namely Portugal and Spain — would eventually need to be bailed out as well.

U.S. economic data was mixed, while retailers reported April sales slowed from March’s robust gains, with a majority of those reporting missing expectations.

Gap Inc. (NYSE:GPS) was among the underperformers, its shares down 6.6% after the apparel chain reported same-store sales dropped 3%.

Abercrombie & Fitch Co. (NYSE:ANF) shares declined 11% after the teen-clothing seller after its same-store sales fell 7%.

Ahead of Friday’s jobs report for April, the Labor Department reported initial claims for unemployment benefits fell by 7,000 last week to 444,000.

The government data is expected to show the U.S. economy added between 189,000 to 200,000 jobs last month, while the rate of unemployment held at 9.7%.

Separately, the Labor Department on Thursday said U.S. productivity climbed 3.6% in the first quarter.

In Washington, Treasury Secretary Timothy Geithner and former Treasury Secretary Henry Paulson pitched financial reform, telling a fact-finding panel the economic crisis came in large part because regulators didn’t have the power to limit risk.

Sign at the office door of Dr. Jack Cassell, a Mount Dora urologist. (Photo by Deirdre Lewis / April 1, 2010)

MOUNT DORA — A doctor who considers the national health-care overhaul to be bad medicine for the country posted a sign on his office door telling patients who voted for President Barack Obama to seek care “elsewhere.”

“I’m not turning anybody away — that would be unethical,” Dr. Jack Cassell, 56, a Mount Dora urologist and a registered Republican opposed to the health plan, told the Orlando Sentinel on Thursday. “But if they read the sign and turn the other way, so be it.”

The sign reads: “If you voted for Obama … seek urologic care elsewhere. Changes to your healthcare begin right now, not in four years.”

Estella Chatman, 67, of Eustis, whose daughter snapped a photo of the typewritten sign, sent the picture to U.S. Rep. Alan Grayson, the Orlando Democrat who riled Republicans last year when he characterized the GOP’s idea of health care as, “If you get sick, America … Die quickly.”

Chatman said she heard about the sign from a friend referred to Cassell after his physician recently died. She said her friend did not want to speak to a reporter but was dismayed by Cassell’s sign.

“He’s going to find another doctor,” she said.

Cassell may be walking a thin line between his right to free speech and his professional obligation, said William Allen, professor of bioethics, law and medical professionalism at the University of Florida’s College of Medicine.

Allen said doctors cannot refuse patients on the basis of race, gender, religion, sexual orientation or disability, but political preference is not one of the legally protected categories specified in civil-rights law. By insisting he does not quiz his patients about their politics and has not turned away patients based on their vote, the doctor is “trying to hold onto the nub of his ethical obligation,” Allen said.

“But this is pushing the limit,” he said.

Cassell, who has practiced medicine in GOP-dominated Lake County since 1988, said he doesn’t quiz his patients about their politics, but he also won’t hide his disdain for the bill Obama signed and the lawmakers who passed it.

In his waiting room, Cassell also has provided his patients with photocopies of a health-care timeline produced by Republican leaders that outlines “major provisions” in the health-care package. The doctor put a sign above the stack of copies that reads: “This is what the morons in Washington have done to your health care. Take one, read it and vote out anyone who voted for it.”

Cassell, whose lawyer wife, Leslie Campione, has declared herself a Republican candidate for Lake County commissioner, said three patients have complained, but most have been “overwhelmingly supportive” of his position.

“They know it’s not good for them,” he said.

Cassell, who previously served as chief of surgery at Florida Hospital Waterman in Tavares, said a patient’s politics would not affect his care for them, although he said he would prefer not to treat people who support the president.

“I can at least make a point,” he said.

The notice on Cassell’s office door could cause some patients to question his judgment or fret about the care they might receive if they don’t share his political views, Allen said. He said doctors are wise to avoid public expressions that can affect the physician-patient relationship.

Erin VanSickle, spokeswoman for the Florida Medical Association, would not comment specifically.

But she noted in an e-mail to the Sentinel that “physicians are extended the same rights to free speech as every other citizen in the United States.”

The outspoken Grayson described Cassell’s sign as “ridiculous.”

“I’m disgusted,” he said. “Maybe he thinks the Hippocratic Oath says, ‘Do no good.’ If this is the face of the right wing in America, it’s the face of cruelty. … Why don’t they change the name of the Republican Party to the Sore Loser Party?”