Germany admitted that the 'welfare state' is financially unsustainable.

In a well-crafted speech, the German chancellor, Friedrich Merz, confessed and warned that Germany's economy can no longer sustain the financing of the "welfare state."

Merz issued this warning during a conference of his party, the Christian Democratic Union (CDU), held on August 23 in Osnabrück, Lower Saxony. In his remarks, he indicated that the German welfare state is financially unsustainable, highlighting the growing economic pressures that put the country's extensive social assistance scheme at risk.

The chancellor emphasized the urgency of implementing reforms to reduce spending and the deficit. "The welfare state as we have it today can no longer be financed with what we can afford economically," Merz stated. He also called for a "essential reassessment" of the social assistance system, something that marks a turning point compared to previous governments in his country.

Merz also acknowledged that he is not satisfied with the results achieved by his government so far. "I'm not satisfied with what we've accomplished so far," he declared before the Osnabrück audience, adding that "it has to be more."

The current partners in the governing coalition had already agreed on the need to reform the social security system, which includes health insurance, pensions, and unemployment benefits, due to rising costs and deficits in the federal budget.

Merz acknowledged that reducing the benefits of the social assistance system will be a complicated task, especially for his coalition partner, the Social Democratic Party (SPD), but he called on both parties to work together.

The CDU and SPD remain at odds regarding possible tax increases for middle- and high-income citizens. Merz assured that "under my leadership, this federal government will not increase the income tax for medium-sized companies in Germany," while the SPD did not rule out a tax increase.

Germany's economy

The German economy, once considered Europe's powerhouse, showed signs of stagnation: GDP contracted by 0.3% in 2023 and 0.2% in 2024, marking the first consecutive years of decline since the early 2000s.

Industrial production, a pillar of Germany's economic strength, continues to weaken, affected by high taxes, high energy costs, elevated interest rates, and a shortage of skilled workers. In the second quarter of 2025, GDP fell another 0.3%, confirming that Germany is in recession.

The chancellor highlighted the steady increase in social program spending, which reached a record 47 billion euros in 2024 and is expected to continue growing in 2025.

The German welfare system, which includes housing and child subsidies, unemployment benefits, family allowances, and aid for the elderly and the sick, faces growing pressure due to the aging population and rising unemployment.