'Politics in the advanced capitalist world has rarely been held in lower esteem. Whether measured by opinion polls or by the rise of protest parties, the ­formal institutions of politics, and the politicians who populate them, are held in low regard. At best, they are seen as impotent in the face of economic complexity and social change; at worst, they are part of a conspiracy to defraud the general public."

The words are those of David Miliband. But he did not write them this week. They come from 1994, a year which now appears like a moment of some hope and innocence for the chastened social democratic centre-left. Miliband's words are a reminder of two things. First, that, after a political defeat like the one Labour suffered in 1992 and now again in 2009, things sometimes look bleaker than they are. And, second, that the attempt to rebuild the centre-left in the 1990s, in which Miliband was and is an important figure, is back at square one. The intervening years were a good try, but they turn out to have merely deferred the moment of deeper reckoning which has now been reached.

Loose talk about general cross-border crises should always have the historically minded on their guard. Politics in Europe is still in the main locally shaped. Yet after the June 4 elections, and in the wake of the convulsions in the Labour party which both preceded and succeeded them, it is also clear that we are witnessing a wider crisis of the European social democratic left.

Most of the major social democratic parties in Europe have been sliding into decline for years. The reverses of­­ June 4 did not come out of the blue. But they offer a strikingly similar picture. Labour's 16% share of the poll in Britain was matched by the Parti Socialiste's 16% in France, the SPD's 21% in Germany, the Polish Socialists' and Dutch Labour's 12% and the Swedish and Austrian social democrats' 24%. Italy's Democrats managed 26% and Spain's socialists a dizzying 38%, but both of these parties, like their colleagues, were well beaten by the centre-right. The reckoning for the left is Europe-wide.

It is important to understand that this is a long-term process not a sudden spasm. Immediately after the collapse of communism, it seemed as though the hour of social democracy had finally arrived. Yet even before the financial crisis and the recession, most centre-left parties in Europe were already failing to attract big enough coalitions of voter support to continue in government. As recently as 2000, there were 11 centre-left governments in the EU. Today, nearly a decade a later, there are just three, all of which were defeated on June 4. Since the European economies went over the edge, the centre-left's predicament has got far worse. As a result, the left's enduring belief that it speaks for the majority is mocked by the fact that it is lucky to speak for a quarter of them any longer.

As in the 1930s, recession has hurt the parties of the left rather than strengthened them, while benefiting a range of parties of the right. National paranoias have not sprung up again in the virulent form they did in the fascist era, any more than communism has, but they are prospering modestly in new ways. The frequently expressed hope, including by Miliband, that the financial crisis ought to generate a "centre-left moment" has proved elusive. If anything, this is a centre-right moment. The social market, with a dash of protectionism, is today's winning formula.

The decline of the centre-left is ­indiscriminate. Its optimistic view of humanity sits uneasily with straitened times. Parties that tack more to the left, like the French and the Spaniards, have been humbled as surely as those which tack more to the centre, like the Italians and the British. In most of Europe, the centre-left project is fragmenting without regard to local conditions. Parties based on the industrial working class remain the largest of the surviving fragments in most places, as here, but there is a historic move to the greens, to the old left and to the racist right, among others, from parts of all the old centre-left coalitions.

The question facing all these parties, including Labour in Britain, is a large one. Adapt and prosper? Or stay the same but marginal? With the industrial working class and the labour movement in decline, can these parties reinvent themselves to find what Eric Hobsbawm, in G2 this week called a new constituency? Or do they remain essentially rooted in the inherited political culture? If the former, then they must re-examine their ethos and objectives to become plausible majority parties of a new type. If the latter, they must accept that their future lies as a minority not a majority and must reconcile themselves to oppositional politics, to local or regional defensive politics or to governing, at national level, only in coalitions, if at all.

Tony Blair took the first of these two routes. He believed that Labour needed to build a larger coalition of support in order to win a parliamentary majority. He was prepared to make major policy changes in pursuit of that goal. He succeeded brilliantly at first, but then squandered his advantage. Labour has now lost that ability altogether, and it is an open question whether it has the will to find it again. That, rather than a plot, is what the arguments of the past 10 days have really been about.

The alternative, however, is to stay in the comfort zone. There are lots of respectable reasons for doing this. There is nothing inherently wrong with doing what makes you feel right. A lot of life consists of doing just that. But it does not necessarily make a priority out of making the compromises and building the coalitions and new parties which win elections, whatever the voting system. This a lesson which the revived centre-right has now learned.

Labour must make its own decision. But the last two weeks suggest it is now a party that prefers, in the end, to turn its back on the voters without whose support it cannot win, rather than to engage with and for them. It is both too weak and too strong. In this, Labour is behaving in the same historically demoralised way as most centre-left parties across Europe. Blair's solutions to this fatalism belonged to a different conjuncture from ours. He produced no eternal programmatic template. But in the end, New Labour was far more right than wrong. The centre-left will have few days in the sun over the next decade unless and until it rediscovers the instinct for creative adaptation that Blair taught it.

martin.kettle@theguardian.com