German Chancellor and former BlackRock executive Friedrich Merz now states that the country can no longer afford to finance its current welfare system. At the same time, he rules out tax increases for medium-sized companies and promises to defend their interests.

— The welfare state that we have today can no longer be financed with what we produce in the economy, Merz said at a party conference for the Christian Democratic Union (CDU) in Osnabrück on Saturday.

The statement comes as Germany has sent nearly 40 billion euros in aid to Ukraine since the war began in 2022. The country has also received millions of migrants since the turn of the millennium, which has resulted in very high costs for the public sector.

Merz’s message aligns with what several European actors have argued for in recent years – that Europe must cut welfare spending in order to invest in military rearmament instead. The Chancellor himself has previously made clear that continued support for Ukraine is something he prioritizes very highly.

The Financial Times wrote a few months ago that the Europeans will have to abandon their welfare states to become warfare states
– Chancellor Merz has received his marching orders and tells the Germans there is no money for welfare, only warfarehttps://t.co/uJWQAHBAnA pic.twitter.com/U4tWDvOyRj

— Glenn Diesen (@Glenn_Diesen) August 25, 2025

Already 40-50 years ago, immigration critics warned that mass immigration would eventually lead to overburdened welfare systems. They predicted that ordinary people in general, and particularly vulnerable groups, would in practice be forced to pay the highest price for the consequences and enormous costs of mass immigration.

Demands reforms – but no corporate taxes

Merz’s demands for comprehensive welfare reforms are expected to lead to increased tensions with coalition partner the Social Democrats (SPD). The Chancellor acknowledged that welfare cuts will be difficult for the center-left party to swallow, but still called for cooperation.

At the same time, he made clear that companies should be protected from tax increases.

— There will not be any increase in income tax on medium-sized companies in Germany with this federal government under my leadership.

This despite the fact that SPD deputy party leader Lars Klingbeil previously opened the door to tax increases on middle and high earners to finance welfare.

SPD warns against cuts

The Social Democrats signal resistance to pure cuts in the welfare system, and Klingbeil emphasizes that any reforms must contain “imaginative solutions” rather than just savings that affect workers.

— We will remain a country that helps people who have fallen onto hard times, who have gotten sick and need help, it states.

Philipp Türmer, leader of the SPD’s youth organization Jusos, is even more categorical. If the purpose of the reforms is just to cut benefits, “the SPD cannot give an inch”, he tells the daily newspaper Stuttgarter Zeitung.

Pressure from AfD

The coalition parties have already agreed on the need to drastically cut the social insurance system – which includes health insurance, pensions and unemployment benefits. This is due to rising costs and budget deficits.

Merz’s comments on Saturday can be seen as an attempt to win back voters who have switched to the immigration- and EU-critical party Alternative for Germany (AfD), and the Chancellor himself admitted that he is not satisfied with the government’s results so far.

— I’m not satisfied with what we have achieved thus far. It has to be more. he told the audience in Osnabrück.

The SPD, which has traditionally seen itself as the defender of the welfare state, finds itself in a difficult position after the party’s voter support collapsed in the latest election. The party is therefore expected to be reluctant to back overly large cuts that could further alienate their core voters.