Once Europe’s economic engine, Germany now faces stagnation, soaring labor costs, and a crushing welfare burden of one pensioner for every two workers.

“The welfare state as we know it today can no longer be financed by our economy.”

With that single sentence, Chancellor Friedrich Merz broke one of Germany’s and Western Europe’s greatest political taboos, daring to question the welfare state’s sacred status at a time when its economic costs can no longer be ignored.

For decades, Germany was celebrated as Europe’s economic success story. Its postwar Soziale Marktwirtschaft — the social market economy — combined free-market dynamism with a limited welfare for those truly in need, powering West Germany’s rise from postwar devastation into one of the world’s most prosperous nations.

Today, however, that model is faltering. Germany faces stagnating growth, declining competitiveness, and the heaviest welfare burden in its history — signs that Europe’s economic engine is seizing up under the weight of its own system.

From Economic Miracle to Welfare Trap

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