German Chancellor Friedrich Merz has warned that the country’s welfare state is no longer financially sustainable due to mounting financial constraints. In a speech to Christian Democratic Union members in Osnabrueck, Merz stated that the current benefits system can no longer be afforded, citing a record €47 billion in welfare spending last year. This amount is expected to rise further this year as Germany’s population ages and unemployment increases.
The German welfare state provides a wide range of support measures, including housing and child benefits, unemployment payments, and subsidies for the care of the sick and elderly. However, with the economy stagnating under structural and cyclical pressures, the burden on the system is growing. While most benefit recipients are German citizens, a significant share are foreign nationals.
Merz also acknowledged that Germany is experiencing a “structural crisis” rather than a temporary weakness, making it more challenging to put the country’s economy back on track. The EU’s largest economy has slowed sharply since 2017, with GDP rising just 1.6% compared to 9.5% for the rest of the Eurozone. Official data shows that Germany’s economy contracted by 0.2% in 2024, marking the first time since the early 2000s that the country’s economy has shrunk for two consecutive years.
The downturn has been driven by high energy prices, elevated interest rates, and a shortage of skilled labor. Industrial production has continued to weaken, with GDP dropping 0.3% in the second quarter of 2025, according to the latest data from Germany’s statistics office. Merz’s warning highlights the need for a fundamental reassessment of the benefits system to ensure its long-term sustainability. As the German economy continues to face challenges, the government must find ways to balance its financial constraints with the need to support its citizens.
