The stability of the German social system is increasingly becoming one of the sensitive points of the European economy. In Berlin, the government led by Friedrich Merz is trying to balance weak growth, increased defense spending, and fiscal discipline, but the new report from the Council of Economic Experts – the so-called wise economists (Wirtschaftsweisen) – issues a warning that is hard to ignore. If structural interventions on welfare do not arrive, the experts explain, the burden of social contributions could rise from the current 42% to about 50% by 2040, with direct effects on household spending capacity and the competitiveness of German companies.
ECONOMIC SLOWDOWN AND ENERGY UNCERTAINTY
The document presented to the Chancellor outlines a more fragile economic picture compared to a few months ago. Growth expectations continue to be revised downward: GDP is expected to halt at 0.5% this year, while in 2027 the projected growth would not exceed 0.8%. In the last report, the estimates were significantly more optimistic.
According to the Council’s chairwoman Monika Schnitzer, the pressure mainly comes from rising energy prices. The war in Iran and tensions in commodity markets are pushing up oil and gas prices, with consequences that quickly affect industry and consumption in Germany. Inflation also continues to move at levels higher than expected: 3% in 2026 and 2.8% in 2027. Even more significant for German economists is core inflation, which excludes energy but remains close to 3%.
Berlin’s economic circles are particularly concerned about the alternative scenario developed by the experts. If oil were to reach $120 per barrel due to a prolonged crisis in the Strait of Hormuz, Germany could face a new phase of stagnation. In that case, growth would nearly drop to zero and price increases would accelerate further.
Gabriel Felbermayr noted that each day of blockage in the Strait increases the likelihood of this scenario. Veronika Grimm instead drew attention to indirect repercussions: possible fuel shortages, fertilizer price hikes, and new difficulties for the European manufacturing sector, already under pressure for months.
SOCIAL SPENDING BECOMES THE CENTRAL ISSUE
The most delicate part of the report concerns social security. According to the Council, the current system will not withstand the impact of demographic aging without significant adjustments. Contributions allocated to healthcare, pensions, assistance, and unemployment could exceed 45% by the end of the decade and approach 60% by 2080.
For the experts, the level of labor charges in Germany is already among the highest internationally. This, they argue, reduces households’ disposable income and curbs consumption and investment. The real estate market could also be affected, while companies would face increased employment-related costs.
Christian Ochsner, Secretary General of the Council, estimates that within ten years GDP could be 0.9% lower, while consumption would drop by about 2%. In the background also emerges the issue of intergenerational balance: for those born in 1960, the average contribution burden is estimated at 39.4%; for the 2020 generation, it would rise to 56.8%.
HOSPITALS, HEALTHCARE, AND COST CUTS
The recommendations of the “wise economists” far exceed the measures so far proposed by Health Minister Nina Warken, which have already caused discomfort among the Social Democrats. The idea is to intervene simultaneously on prevention and the structure of the public healthcare system.
Among the proposals are limits on advertising sugary products, minimum prices for alcohol, and a revision of the criteria by which non-self-sufficiency is classified. But the most sensitive chapter concerns hospitals. The economists call for a more specialized network, stricter quality standards, and a financing system less dependent on the number of services provided.
According to the Council, the reduction of duplicated facilities will be inevitable. Not all hospitals should continue to offer the same services, especially the more complex ones. The prevailing orientation, now also within federal ministries, is to concentrate specialist interventions in centers with greater experience and more advanced technological equipment.
While politically even this government seems unable to impose a radical shift and the far-right AfD continues to break records in polls (it is now consistently credited as the leading party in the country), a clear alarm comes from the most influential economists. Germany is therefore preparing for a difficult political debate, destined to affect not only welfare but also the economic model that for years has represented the main point of balance for continental Europe. It will not be a quiet summer.
