German top economists urge Merz to enact painful reforms to revive growth

The intervention by a leading council of experts heaps fresh pressure on a chancellor already suffering from record-low approval ratings. Friedrich Merz receives the Council of Experts' report on the German economy from council chairwoman Monika Schnitzer in Berlin on Nov. | Sean Gallup/Getty Images BERLIN — Leading German economists warned Chancellor Friedrich Merz on Wednesday to rein in soaring social spending, saying the costs risk plunging Europe’s largest economy into prolonged stagnation.

The German Council of Economic Experts, an influential panel of economic advisers, will discuss its economic outlook with Merz later in the day. Their findings are poised to increase pressure on the chancellor, who is already racing to assemble sweeping reforms to tax, health insurance, and pension systems that can secure backing from his ideologically divergent coalition of conservatives and center-left Social Democrats. Monika Schnitzer, a member of the council, warned that without sweeping reforms, combined contributions to Germany’s social insurance programs would climb to nearly 50 percent of employees’ gross pay by 2040 — a level she called unsustainable. “We know what negative consequences this will have," she said, "It means less take-home pay. People will be able to consume less, have fewer incentives to work — that's bad for the economy. Labor costs for businesses will rise — that's bad for the economy. The pressure to act is immense.” Germany’s weak economic performance has fueled growing public frustration with the government, driving Merz’s government to record-low approval ratings even as many of the forces driving the country's economic malaise lie beyond the chancellor’s immediate control. The population is aging rapidly, with the retirement of the baby boom generation sending pension and health care costs soaring. At the same time, the country’s export-dependent economy is under mounting strain from persistently high energy prices linked to the U.S.-Israeli war with Iran, intensifying Chinese competition in core manufacturing sectors, and pressure from U.S. The economic council cut its growth forecast for this year to 0.5 percent — in line with the government’s own forecast — down from 0.9 percent, citing the expected economic fallout from the war in Iran. The economists also expect inflation to rise to 3.0 percent. “Tariffs and the energy crisis are hitting the German economy particularly hard, as it is a net exporter of goods and a net importer of fossil fuels,” said economist Gabriel Felbermayr.

Key points

• The German Council of Economic Experts, an influential panel of economic advisers, will discuss its economic outlook with Merz later in the day.
• Their findings are poised to increase pressure on the chancellor, who is already racing to assemble sweeping reforms to tax, health insurance, and pension systems that can secure backing from his i…
• Monika Schnitzer, a member of the council, warned that without sweeping reforms, combined contributions to Germany’s social insurance programs would climb to nearly 50 percent of employees’ gross p…
• “We know what negative consequences this will have," she said, "It means less take-home pay.
• People will be able to consume less, have fewer incentives to work — that's bad for the economy.