The End of Europe's Welfare State: Net Zero, Debt and Decline

Friedrich Merz has warned that Germany's welfare state is "no longer sustainable" as France and the UK teeter on the brink

A flurry of headlines over the past week paints a grim picture of Europe’s leading economies and the United Kingdom. German Chancellor Friedrich Merz warned last weekend that the German welfare state is "no longer financially sustainable". The Chancellor called for a fundamental reassessment of the benefits system as spending continues to climb past last year’s record of £40 billion.

On the same weekend, UK Chancellor of the Exchequer Rachel Reeves was urged by leading economists to drastically cut public spending in order to avoid Britain needing a 1970s-style International Monetary Fund bailout. The Chancellor was warned that her looming tax rises risk a return to high borrowing costs that forced a previous Labour government to go with a begging bowl to the IMF.

On Tuesday, French finance minister Eric Lombard warned that France may need assistance from the IMF if the economic crisis of high debt, budget deficits and borrowing costs cannot be brought under control. “I cannot assure you that the risk of IMF. intervention does not exist,” he said in an interview on French radio. Fears of a new political crisis swept through France as the minority government of Prime Minister Francois Bayrou appeared likely to be ousted in a confidence vote next week.