Germany risks ruin as Merz admits living beyond its means

Germany risks ruin if it does not reform, Chancellor Friedrich Merz warned Sunday, saying the country has been "living beyond its means for years" as economists warned that without action the economy and welfare systems could falter. The comments, issued amid mounting concern over Germany’s growth and welfare burden, mark a rare acknowledgment from the conservative leader that past spending levels may be unsustainable.

Merz framed the moment as a "profound epochal break" and signaled that painful austerity measures may be required to secure a future for younger workers.

The economy ministry’s assessment, and remarks by independent economists, underscored the scale of pension liabilities. Marcel Fratzscher, who heads the German Institute for Economic Research, said the government must tackle a €400 billion-a-year pensions bill that is expected to rise in the next decade. The economics ministry last week described the pension system as "dysfunctional" and a "grave" threat to the economy, projecting that by the middle of the next decade there will be one pensioner for every two workers. Economics minister Katherina Reiche added that there was a "profound and urgent need for reform" to ensure that Germany could afford its pensions.

Bärbel Bas, a Social Democratic Party labour and social affairs minister, dismissed Merz's claims as "bulls**t". President Frank-Walter Steinmeier, while praising the welfare state as a "treasure" and a "resource that has made our country what it is," acknowledged that the system is cracking.

Earlier this year, preliminary figures showed Germany's economy had shrunk for the second year in a row in 2024, with the Federal Statistics Office reporting a 0.2% contraction. The country has faced a mix of external shocks and domestic headwinds, including bureaucratic hurdles and a shortage of skilled labor, weighing on growth.

The remarks come as Germany’s status as Europe’s largest economy remains tethered to reforms that many economists say are long overdue. While top officials insist the welfare state remains a cornerstone of German society, the convergence of aging demographics and rising pension responsibilities has intensified pressure on public finances and prompted renewed debates about the pace and scope of reform.