How Germany Became the World’s Worst-Performing Economy
Once the uncontested economic powerhouse of Europe, Germany now struggles with stagnation, rising labor costs, and an unsustainable welfare system that supports one retiree for every two workers.
“The welfare state as we know it today can no longer be financed by our economy.”
With this statement, Chancellor Friedrich Merz shattered a long-held political taboo in Germany and Western Europe, openly questioning the viability of the welfare model at a time when its costs are becoming untenable.
From Postwar Miracle to Modern Malaise
For decades, Germany stood as Europe’s model of economic success. Its postwar Soziale Marktwirtschaft, or social market economy, blended market freedom with targeted social support, lifting West Germany from ruin into global prosperity.
That system, once the cornerstone of growth, is now faltering. Growth has stagnated, competitiveness has fallen, and the welfare burden has reached historic levels. The very engine that once drove Europe’s economy is stalling under its own weight.
The Legacy of Ludwig Erhard
Germany’s recovery after World War II was guided by Ludwig Erhard’s vision — a balance between free enterprise and limited welfare within a fair market structure.
- Liberalization of prices and trade opened markets and boosted efficiency.
- Currency stabilization restored trust in the German mark.
- Tax cuts and regulatory reform unleashed business competition.
These measures ignited the Wirtschaftswunder, the “economic miracle” that delivered rapid growth, full employment, and rising living standards.
Author’s Summary
Germany’s once-thriving economy now struggles under its own welfare model, as the balance between social support and market strength unravels.