Chancellor Friedrich Merz acknowledged that Germany has been living beyond its means in recent years, while experts warn that without substantial reforms, the country risks economic collapse. His statement sparked intense reactions as he emphasized that Germany can no longer bear the burden of the pension system, which has reached 31% of GDP – one of the highest rates in Europe.
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Friedrich Merz warned of a deep radical transformation
Meanwhile, Merz warned of a “deep radical transformation” and the need for “painful” austerity measures, to ensure that young Germans will have some future. For his part, economic advisor Marcel Fratzscher, who also heads the German Institute for Economic Research, stated that the government must address the annual cost of 400 billion euros for pensions, which is expected to increase over the next decade.
It’s worth noting that Fratzscher’s comments follow a Finance Ministry report that stated the German pension system poses a “serious” threat to the economy, predicting that by the mid-2030s, there will be one retiree for every two workers. The statements come at a time when it was revealed that the German economy contracted for the second consecutive year in 2024, according to preliminary data.
Chancellor Friedrich Merz’s speech in the German parliament as part of the general budget debate and his promises for radical reforms, as well as a new social contract for the German welfare state, is reported by DW and commented on by the newspaper Frankfurter Allgemeine Zeitung (FAZ), which notes: “Those who expected the chancellor to provide information about welfare state reform were disappointed once again. Merz’s speech simply further fueled the high expectations he cultivates with statements like ‘we must reform the pension system’,” only to then outline the familiar CDU plans: tax relief for retirees who continue working, early retirement options, and ten euros per month for each child to encourage government support for children and parents to save. “All of this reflects a misunderstanding of the social market economy. These are measures unsuitable for addressing demographics, a burden that the coalition government further increases with additional pension increases. The gap between the chancellor’s words and actions is threatening,” it added.
Court of Auditors: Damning report on the budget
According to an explosive report by German broadcaster ARD, it obtained a report from the Federal Court of Auditors addressed to German Social Democrat Finance Minister Lars Klingbeil. Klingbeil is set to present the 2026 budget draft to the German parliament next week.
According to the Court of Auditors “basic government functions can no longer be financed,” while emphasizing that “structurally, the federal government is living beyond its means. The report on the state of German public finances sounds alarm bells in all directions and notes: “whoever plans to finance almost one in three euros with loans in 2026 is far from a healthy financial system.”
Furthermore, it emphasizes that “taking on new debt is only a short-term solution and reduces pressure for reforms.” The Court of Auditors estimates that “the German government must implement a sustainable resource-saving plan and focus on its basic constitutional responsibilities. Subsidies should be reviewed and priority should be given to investments over expenditures.” “The government must now address its spending problem, and in a structural way,” the report concludes.
