In late 1990, Germany was considered the EU’s “sick man.” This was because it was grappling with the high costs of unifying West and East Germany and the strengthening of the mark following the agreement at the Plaza Hotel in New York in 1985. In the early 21st century, Germany violated the Stability Pact as its budget deficit exceeded 3% of GDP. The European Commission was set to impose sanctions, but Germany avoided them with the support of Greece and other countries in the Ecofin Council. However, the Germans did not sit idly by. They implemented bold labor market reforms from 2003 to 2005 (Hartz) and, aided by the weak euro, entered a virtuous economic cycle that lasted nearly 20 years.
Today, however, the EU’s largest economy finds itself in a difficult position once again. The German economy contracted slightly in 2023 and 2024 by 0.87% and 0.50%, respectively, but stabilized last year, returning to a marginally positive growth rate of 0.2%.
Behind this economic stagnation lie, on the one hand, high energy costs, which are hurting its manufacturing sector and making it uncompetitive, the tariffs imposed by President Trump, and the slowdown in the Chinese economy, which is leading to reduced demand for German products.
With the country determined to invest heavily in its national defense for the first time in decades, coupled with various measures to offset energy costs and the stagnation of its economy, the budget outcome comes as no surprise. The budget deficit reached 2.7% of GDP in 2025 and is projected to rise above 3% of GDP this year and in 2027.
Once again, Germany’s current coalition government is putting the country’s interests above political costs and is preparing to implement reforms to its social security system. These are precautionary measures that successive Greek governments were unwilling to take for two decades prior to the major economic crisis of 2009–2010.
Recognizing the strain that an aging population places on the country’s pay-as-you-go pension system, Prime Minister Merz appears determined to proceed with automatically linking the retirement age to life expectancy, as Greece has done.
He is also incorporating a supplementary funded pillar into the social security system. This resembles Greece’s TEKA, which, however, applies exclusively to supplementary insurance. Enrollment in TEKA is mandatory for new insured individuals, whereas Germany prefers the Swedish model, which grants insured individuals the right to opt out and invest in the state investment fund or in private funds.
Furthermore, it provides tax incentives for working retirees to remain in the labor market, in line with Greek standards, by eliminating pension cuts.
It is striking that Germany, which sought the strict enforcement of EU fiscal rules in Greece in 2010, now appears willing to adopt reforms to its own pension system that resemble those in Greece.
In the end, in fact, it is not out of the question that Greece will be the one that fails to implement one or more of the above reforms in practice due to the political cost. We’ve already seen a preview of this. Government officials are making statements that cite various excuses to delay raising the retirement age—a move justified by increased life expectancy—in the run-up to elections.
It would not be the first time that Greece has taken the lead on something only to end up bringing up the rear.