{"id":150760,"date":"2025-09-17T16:38:09","date_gmt":"2025-09-17T16:38:09","guid":{"rendered":"https:\/\/www.newsbeep.com\/ca\/150760\/"},"modified":"2025-09-17T16:38:09","modified_gmt":"2025-09-17T16:38:09","slug":"germany-faces-ruin-without-reform-of-welfare-state-warns-economist","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/ca\/150760\/","title":{"rendered":"Germany faces ruin without reform of welfare state, warns economist"},"content":{"rendered":"

Germany is heading for significant job losses and a \u201cmassive\u201d rise in old age poverty unless it can curb the runaway costs of its pensions system, according to one of the government\u2019s economic advisers.<\/p>\n

The ruling coalition is locked in a tetchy dispute about the scale of the welfare state after the finance ministry identified a \u20ac172 billion hole in its spending plans for the rest of the decade.<\/p>\n

Friedrich Merz, the conservative chancellor, caused uproar when he declared that the country had been \u201cliving beyond its means for years\u201d and could no longer afford the costs of the system, which have increased to more than 31 per cent of GDP, one of the highest levels in Europe.<\/p>\n

Merz warned of a \u201cprofound epochal break\u201d and the need for \u201cpainful\u201d austerity measures to ensure that younger Germans would have any hope of future prosperity.<\/p>\n

B\u00e4rbel Bas, his Social Democratic Party labour and social affairs minister, publicly dismissed the chancellor\u2019s speech as \u201cbullshit\u201d. <\/p>\n

In a speech on Tuesday, President Steinmeier, a fellow Social Democrat, hailed the welfare state as a \u201ctreasure\u201d and a \u201cresource that has made our country what it is\u2019. However, he acknowledged that the \u201csystem is creaking\u201d and in dire need of modernisation. <\/p>\n

The coalition partners<\/a> are now wrangling over what is billed as an ambitious \u201cautumn of reforms\u201d to the economy, with the B\u00fcrgergeld \u2014 basic unemployment benefit \u2014 first in the firing line. <\/p>\n

\u2022 Friedrich Merz\u2019s trillion-euro gamble with the German economy<\/a><\/p>\n

However, Marcel Fratzscher, head of the German Institute for Economic Research (DIW) and an adviser to the economics ministry, said the most pressing task was to rein in a public pensions bill that has reached more than \u20ac400 billion a year and is projected to rise substantially in the decade to come.<\/p>\n

\"Marcel<\/p>\n

Marcel Fratzschern said: \u201cThe first worst-case scenario is that this burden of contributions leads to a severe weakening in the economy and the loss of many good jobs,\u201d<\/p>\n

BERND VON JUTRCZENKA\/ALAMY<\/p>\n

Last week the ministry published a white paper by four other economists that described the \u201cdysfunctional\u201d pensions system as \u201csocial dynamite\u201d and a \u201cgrave\u201d threat to the economy.<\/p>\n

It cited forecasts that by the middle of the next decade there will be one pensioner for every two people of working age. By 2070, when today\u2019s youngest Generation Z workers would notionally be entering retirement, the ratio is forecast to be one to one. <\/p>\n

The document also said that the average 65-year-old in Germany today could expect to live for another 22 years, up from fewer than 18 in 1990 and fewer than 14 in 1950. <\/p>\n

Katherina Reiche, the economics minister, said the analysis pointed to a \u201cprofound and urgent need for reform\u201d to ensure that the country could afford its pensions.<\/p>\n

Unlike in Britain, the German system is supposed to be financed through workers\u2019 and employers\u2019 contributions to a national pension insurance system that guarantees the average pensioner will receive 48 per cent of their previous salary. <\/p>\n

\u2022 Why is Germany\u2019s economy in such a poor state?<\/a><\/p>\n

Yet the money coming in cannot keep pace with the pensions payments that are going out, meaning the taxpayer will chip in an additional \u20ac121 billion this year to make up for the shortfall. That figure is about 3 per cent of GDP, or significantly more than the current annual defence budget. <\/p>\n

At the same time, the contributions to the pensions, health, old age care and other social insurance funds \u2014 which are split evenly between the worker and their employer \u2014 have reached 43 per cent of the average person\u2019s salary and are expected to approach 46 per cent at the end of this decade.<\/p>\n

\u201cThe first worst-case scenario is that this burden of contributions leads to a severe weakening in the economy<\/a> and the loss of many good jobs,\u201d Fratzscher said. \u201cThe second is a massive increase in old-age poverty.\u201d<\/p>\n

A recent poll for the public broadcaster ZDF suggested that 94 per cent of Germans feared the pensions system would face serious problems but 72 per cent had no confidence in the government to fix them. <\/p>\n

\"Mercedes-Benz<\/p>\n

One suggestion is that better paid workers retire later<\/p>\n

CHRISTOPH STEITZ\/REUTERS<\/p>\n

Fratzscher, who is also professor of macroeconomics at the Humboldt University of Berlin, said that younger generations are already buckling under the financial weight placed on their shoulders.<\/p>\n

In his latest book, After Us, the Future, he wrote: \u201cSince the age of Enlightenment and the industrial revolution, hardly any other generation has robbed its children and grandchildren of so many chances for a good and self-determined life as the baby boomers are doing today.\u201d<\/p>\n

Fratzscher\u2019s proposals for a new \u201csocial contract\u201d between the generations have upset many on the right. They include a \u201cboomer solidarity tax\u201d under which the richest 20 per cent of baby boomer households would pay an additional levy amounting to 3 or 4 per cent of their retirement income, which would subsidise poorer pensioners at no additional cost to the workforce.<\/p>\n

The economist has also made the case for forcing baby boomers, roughly those born in the two decades after the end of the Second World War, to do a year of social service. <\/p>\n

An obligatory spell of caring for the elderly, minding small children or similar work immediately after retirement would, Fratzscher suggests, be a \u201csmall step to bring a bit more balance back to the solidarity in our society\u201d.<\/p>\n

\u201cPeople don\u2019t want to understand problems that they can\u2019t see or directly feel,\u201d he said. \u201cThere is a certain denial of reality and often that means politicians will put off reforms until they can no longer be avoided, but at that point they are maximally painful.\u201d<\/p>\n

He added: \u201cThe dilemma is further exacerbated by the fact that for the parties in the current government \u2026 their main voter base is older people, the over-fifties or even the over-sixties.<\/p>\n

\u201cSo in principle they would have to act against the interests and explicit wishes of their own electoral constituencies, and that\u2019s what makes it so tricky to implement reforms.\u201d<\/p>\n

\"Senior's<\/p>\n

One economist fears there will be a big increase in poverty among the elderly<\/p>\n

JAN TEPASS\/GETTY IMAGES<\/p>\n

The economics ministry is now flirting with the idea of automatically linking the retirement age to life expectancy. In Denmark, this mechanism recently compelled the government to phase in an increase from 67 today to 70 by 2040.<\/p>\n

In Germany, however, sporadic proposals to lift the standard age threshold, which is just over 66 but due to be frozen at 67 in 2031, have been unanimously rejected by political parties. <\/p>\n

Fratzscher proposed that the retirement age be staggered according to hourly wages, so that better-paid people would start drawing their pension later while lower earners, who are more likely to do physically demanding jobs, would do so earlier. <\/p>\n","protected":false},"excerpt":{"rendered":"Germany is heading for significant job losses and a \u201cmassive\u201d rise in old age poverty unless it can…\n","protected":false},"author":2,"featured_media":150761,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[45,49,48,46],"class_list":["post-150760","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-business","tag-ca","tag-canada","tag-economy"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/150760","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/comments?post=150760"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/150760\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media\/150761"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media?parent=150760"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/categories?post=150760"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/tags?post=150760"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}