Friedrich Merz plans a broad reform push targeting Germany's welfare state and tax code to stimulate growth amid a stalled economy. The economy faces a third consecutive year without GDP growth, demographic pressures strain welfare and pension systems, and the federal budget faces a roughly €172 billion shortfall for 2027–2029. The reform agenda risks fracturing the governing coalition, with the center-left SPD likely to push back. Merz's combative approach and warning to coalition partners appeal to CDU conservatives, and previous moves such as suspending the debt brake to finance loans have already provoked discontent.
Chancellor Friedrich Merz's "autumn of reform" could turn into a season of coalition strife as he plows ahead with his ambitious plan to reform Germany's welfare state, while bringing in tax reforms to boost the economy. The challenges are significant: The German economy now faces a third year without GDP growth, the welfare state and pension system are failing to keep up with demographic challenges, and the federal budget has a hole of some 172 billion ($200 billion) for 2027 to 2029.
Merz is all too aware that every coalition rift, such as the one over the supreme court judge earlier this summer, makes his government resemble the eternally riven, much-denigrated government under Olaf Scholz, which collapsed last year before its first full term was complete. But compromise is not really the chancellor's style. He unleashed his more combative instincts at a state party conference for his center-right Christian Democratic Union (CDU) in Lower Saxony last weekend, where he flung a warning at his coalition partners:
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