In August 2025, Friedrich Merz stated at the party congress that Germany's current welfare state is no longer financially viable. This issue is a matter of economics, not rhetoric, and affects the entire EU, as Germany accounts for 25% of the eurozone's economy and is a key donor to European funds.
The ruling coalition lacks a mandate for radical reforms, making the adoption of unpopular decisions difficult. Social expenditures reach €1.35 trillion a year—over 27% of GDP, while the OECD average is 21%. Key spending areas: pensions (€315 billion), healthcare (€270 billion), elderly care (€95 billion), alongside housing, child, and unemployment benefits.
Demographic challenges worsen the crisis: by 2036, about 16.5 million workers will retire, while only 12.5 million young people will enter the workforce, leaving a deficit of 4 million. The pension system is already running a deficit, with reserves expected to run dry by the end of 2028, forcing increases in contributions and retirement age.
Proposed reforms—raising the retirement age to 70 and introducing mandatory private pension schemes—meet significant political resistance. Social benefits are also to be cut, but drastic changes are hard to implement due to constitutional guarantees of the minimum subsistence level and coalition resistance.
The tax burden on wages is rising: social contributions account for up to 39% of wages, with predictions reaching 50% by 2030. This increases labor costs and encourages companies to relocate abroad.
Gradual reforms will help the system survive, but with less generosity and universality. Failure to act risks a chronic fiscal crisis with consequences for the entire EU’s stability.
The Merz government plans to reduce welfare payments and gradually raise the retirement age in the coming years. Germany’s welfare model will transform, and Europe’s response will be crucial for the stability of the European project as a whole.
