The serial travails of the dying Macron presidency may be dominating the headlines, but the profound dysfunction of Germany’s coalition government holds its own perils for Europe. Although Germany has much greater fiscal headroom than France, it too has an unsustainable welfare state. Chancellor Merz admits as much, yet, shackled to an unhappy agreement with the Social Democrats, he is unable to do much about it. The controversial Bürgergeld scheme introduced in 2023 by then Chancellor Olaf Scholz pays monthly stipends to roughly 5.5 million, of which fully 4.5 million are able-bodied, and 47 per cent of whom are not German citizens. In an agreement hailed as a “breakthrough” this week, Merz and the Social Democrats agreed that any recipient failing to make three consecutive meetings with the unemployment office would lose all benefits. This paltry requirement does little to compel the able-bodied back into the workforce compared to a strict time limit on benefits, and encourages long-term dependence on state benefits. For a country facing a demographic crisis as the boomers continue to retire, paying for millions not to work is economically catastrophic.
Former businessman Merz can see the depressing maths confronting Germany. The massive defence and infrastructure debts incurred at the outset of his chancellorship may not count against formal debt limits, but must still be repaid by German taxpayers. Ongoing support for Ukraine and the enormous annual sums paid by Berlin to keep the EU afloat threaten to crowd out the discretionary cash Germany has employed to paper over disputes at home and across Europe. Generous state retirement benefits are a primary driver of government spending, but trimming them will generate a political backlash from pensioners who don’t have the tax-deferred savings accounts popular elsewhere. To his credit, Merz is sounding the alarm well before Germany faces the fiscal calamity that threatens to wreck France’s Fifth Republic. But unless the SPD embraces cuts to social programmes, his plans to avoid a similar fate remain hostage to coalition politics.
It is a political truism that only the Left can reform social welfare programmes. Bill Clinton imposed work requirements on welfare recipients; Gerhard Schroeder imposed the Harz reforms that restored German labour competitiveness. But once out of power, or confined to a junior coalition role, the Left finds its purpose in defending social programmes from miserly conservatives. The SPD agreed to consider welfare reforms as part of the coalition agreement struck with the Christian Democrats, but now see blocking such reforms as the only means to revive their flagging party fortunes.
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