M A Hossain,
Germany, the country that once branded itself as Europe’s welfare haven and a model of the social market economy, is entering a new and unsettling phase. Several days ago, Chancellor Friedrich Merz announced what can only be described as a radical departure from Germany’s postwar social contract. “The welfare state that we have today,” he said bluntly, “can no longer be financed with what we produce in the economy.”
This was not the usual language of German politics, where leaders often tiptoe around difficult truths with bureaucratic vagueness. Merz cut to the chase: pensions, healthcare, unemployment insurance, and housing benefits—the very pillars of German social stability—are no longer sustainable. And why now? Because Germany is committing itself to a costly rearmament program and unwavering support for Ukraine in its war with Russia. The government postponed announcing the cuts until it had secured public approval for military spending. Billions are flowing into defense, while welfare is being quietly chipped away.
The Social Market Economy Under Siege
Postwar West Germany, under Konrad Adenauer and Ludwig Erhard, forged what was called the “Soziale Marktwirtschaft,” or social market economy. It married capitalism with a strong welfare state, ensuring that prosperity was shared across classes. This system wasn’t simply economic policy—it was a moral promise, a bulwark against both fascism and communism.
That promise is now in retreat. Germany’s statutory health insurance, once solvent, is drowning in red ink. A deficit of €1.9 billion in 2023 ballooned to €6.2 billion in 2024. By 2025, estimates suggest the gap could hit €27 billion. Worker contributions are rising sharply—sometimes above 4% of income—even as inflation eats away at purchasing power. Germany’s pension reserves, after decades of stability, are evaporating. A €2 billion deficit in 2024 is expected to triple in 2025, with reserves gone by 2027.
This is not just a matter of economics; it is a political earthquake. Germany’s elderly—one in five already at risk of poverty—are being told to tighten their belts. Ten million pensioners live on less than €1,100 per month, below the poverty threshold. Meanwhile, the government refuses to impose new taxes on the wealthy or corporations. Instead, it is floating the Orwellian idea of a “baby boomer solidarity surcharge,” in which pensioners who managed to save privately will see their benefits reduced to subsidize those who did not. Privatized gains, socialized losses.
Military Commitments Above All
Merz’s announcement was followed, almost symbolically, by Finance Minister Christian Lindner’s surprise trip to Kyiv to pledge more aid to Volodymyr Zelensky. The message could not be clearer: Germany will sacrifice its social welfare in order to sustain Ukraine.
There is precedent here. Throughout modern history, nations at war have often reallocated resources from social spending to military commitments. Britain during World War II slashed domestic consumption to fund the war effort. America in the 1960s chose “guns and butter,” attempting to sustain both Lyndon Johnson’s Great Society and the Vietnam War—only to find itself with inflation and unrest. Germany, it seems, is choosing guns over butter, hoping that the public will quietly endure the sacrifice.
But Germany’s case is unique. Unlike Britain in 1940 or the United States in Vietnam, Germany is not itself at war. Its support for Ukraine is framed as both moral and strategic—a defense of European security against Russian aggression. Yet the costs are being borne not by the elites or defense industry, but by ordinary citizens, especially the vulnerable.
Political Fractures
The governing coalition is straining under the weight of this new reality. Vice Chancellor Lars Klingbeil of the SPD insists that tax hikes on higher earners must remain an option, a view that clashes sharply with Merz’s refusal to consider them. SPD youth leaders warn that cutting benefits alone would be intolerable. And yet even the SPD admits that reforms are unavoidable. The debate has now shifted from whether cuts will come to how deep they will go.
This exposes a deeper truth: Germany’s political consensus, forged after 1945, is unraveling. The welfare state was not merely economic redistribution—it was part of Germany’s identity, a moral corrective to the nation’s brutal past. Now that identity is being hollowed out, replaced by austerity and militarization.
The Economic Squeeze
The underlying numbers are grim. Inflation has outpaced wage growth for years. Energy prices remain volatile after Germany’s rushed decoupling from Russian gas. Industrial output is sluggish, with Germany’s famed automotive sector under pressure from both electric transition costs and global competition. The result is a shrinking tax base, mounting deficits, and rising debt obligations.
Meanwhile, defense spending has surged. Berlin pledged to meet NATO’s 2% of GDP target, and has earmarked €100 billion for rearmament. That money is not being raised through new taxation; it is being financed by squeezing welfare. This is not simply a budgetary adjustment—it is a values shift, privileging military readiness over social security.
The Historical Warning
Germany has been here before. The austerity measures of Chancellor Heinrich Brüning in the early 1930s, imposed in the name of fiscal discipline during the Great Depression, deepened social misery and helped pave the way for Hitler’s rise. To be clear: Germany today is not Weimar Germany. Institutions are stronger, and democracy is not collapsing. But the political lesson remains. Prolonged austerity, imposed without fairness, erodes public trust and fuels extremism.
Already, far-right parties like the Alternative für Deutschland (AfD) are gaining traction, particularly in eastern Germany. Their message is simple: stop funding foreign wars, restore domestic welfare, and put Germans first. When mainstream parties adopt policies that leave ordinary citizens worse off, extremist movements thrive.
A Crisis of Priorities
The German government insists that supporting Ukraine is a moral imperative, a defense of democracy against autocracy. That argument is not without merit. A Russian victory would destabilize Europe and embolden other authoritarian powers. Yet morality is not divisible: what does it mean to defend democracy abroad while eroding social stability at home?
The broader danger is that Germany, in choosing to prioritize geopolitical commitments over domestic welfare, may be sacrificing long-term stability for short-term alignment with NATO and Washington. History shows that empires often overextend themselves not through military defeat, but through domestic exhaustion.
What Comes Next
The road ahead for Germany is fraught. Protests are likely, especially from trade unions and pensioners. Strikes could paralyze key industries. The SPD faces a credibility crisis: will it defend the welfare state, or will it capitulate to austerity? Merz, meanwhile, has bet his political future on an appeal to fiscal realism and military resolve.
Germany stands at a crossroads. One path leads to a leaner welfare state, greater defense commitments, and likely social unrest. The other would require higher taxation, particularly on the wealthy, to preserve social stability. Both paths are politically perilous.
But one truth is unavoidable: this is not just a budget crisis. It is a crisis of values. Germany must decide whether its postwar identity—as a nation that built prosperity on both economic strength and social justice—still holds. Or whether it will be discarded in the name of war and austerity.
For now, the government’s answer is clear: the cannons come before the bread. But history has a way of punishing nations that forget the needs of their own people.
This article published at :
1. Eurasia Review, USA : 03 Sep, 25
2. The Nation, Pak : 04 Sep, 25
3. Daily Lead Pakistan, Pak : 05 Sep, 25
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