German Chancellor Friedrich Merz has warned that the welfare system in its current form “can no longer be financed with what we produce in the economy.”
Speaking at a conference of his centre-right CDU party in Osnabrück on Saturday, August 23rd, Merz demanded reforms to social spending while at the same time ruling out tax increases on Germany’s medium-sized companies.
He coupled his appeal with a grim assessment of the economy, declaring Germany to be in a “structural crisis” after three years of recession and slipping industrial competitiveness.
His declaration strikes at the core of a larger dispute between the CDU/CSU alliance and its coalition partner, the Social Democrats (SPD), on how to plug a €172 billion budget deficit while safeguarding Germany’s health insurance, pensions, and unemployment benefits.
The SPD, historically the defender of the welfare state, has insisted that any reforms must protect vulnerable workers, and despite Merz’s insistence, his vice chancellor, SPD leader Lars Klingbeil, has not ruled out tax increases on middle- and higher-income earners.
Both parties want to avoid losing any more voters, as opinion polls suggest the government is immensely unpopular.
According to a new INSA poll, 62% of Germans are dissatisfied with the coalition’s performance, the highest level since Merz took office in May, and an 18-point increase in disapproval since June. Only 26% expressed approval. Merz himself fares little better, with 57% dissatisfied with his leadership.
The so-called grand coalition of the CDU/CSU and SPD would no longer command a majority in parliament if there was an election today: the two political forces would receive 25% and 15% of the votes, respectively.
The right-wing opposition Alternative für Deutschland (AfD) is also polling at 25%.
The chancellor has attempted to manoeuvre carefully, appealing both to his leftist partners and to conservative voters who have drifted towards the AfD.
On the one hand, he stressed on Saturday that Germany will remain a country that protects those in need; on the other, he insists there will be no increase in tax on medium-sized companies.
The formulation, according to conservative outlet Apollo News, left open the possibility of other tax hikes, a fact not lost on critics who accuse Merz of issuing deliberately vague pledges after breaking a series of earlier promises.
Among them is his repeated pledge to adopt a stricter stance on migration. Yet his previous backtracking on migration policy has eroded trust among his conservative base.