(MENAFN) German Chancellor Friedrich Merz has warned that the country’s welfare state is financially unsustainable, pointing to rising costs and a slowing economy.

Speaking to fellow Christian Democratic Union (CDU) members in Osnabrück on Saturday, Merz said: “The welfare state as we have it today can no longer be financed with what we can economically afford,” urging a fundamental review of Germany’s benefits system.

Welfare spending reached a record €47 billion ($55 billion) in 2024 and is projected to rise further this year due to an aging population, higher unemployment, and increasing demand for social support. Germany’s welfare programs cover housing, child benefits, unemployment payments, family allowances, and subsidies for healthcare and elder care. While most recipients are German citizens, a notable portion are foreign nationals.

Merz also described Germany as being in a “structural crisis,” not just a temporary downturn. Once Europe’s economic engine, the country’s growth has lagged since 2017, with GDP increasing only 1.6% compared to 9.5% for the rest of the Eurozone.

The warning came alongside official data showing that Germany’s economy shrank 0.2% in 2024 after a 0.3% contraction in 2023 — the first back-to-back decline since the early 2000s. Industrial output weakened under former Chancellor Olaf Scholz and continues to falter, with GDP slipping another 0.3% in the second quarter of 2025. The downturn is being fueled by high energy prices, elevated interest rates, and a shortage of skilled workers.

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