In the late 1990s Germany was considered the great sick man of the EU. And this was because it was struggling with the high cost of the unification of West and East Germany and the strengthening of the mark after the agreement at the Plaza Hotel in New York in 1985. At the beginning of the 21st century, Germany violated the Stability Pact as its budget deficit exceeded 3% of GDP. The Commission was about to impose sanctions, but Germany avoided them with the support of Greece and other countries in Ecofin. However, the Germans did not remain idle. They proceeded with bold labor market reforms from 2003 to 2005 (Hartz) and with the help of the weak euro entered into an almost 20-year virtuous economic cycle.
However, today, the EU’s largest economy is once again in a difficult position. 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 the economic stagnation lie, on the one hand, the high energy cost which hurts its industry, making it uncompetitive, the tariffs imposed by President Trump, and the slowdown of the Chinese economy which results in reduced demand for German products.
With the country determined to invest large sums in its national defense after decades, the various support measures for energy costs, and the stagnation of its economy, the fiscal outcome is not surprising. The budget deficit reached 2.7% of GDP in 2025 and is estimated to increase above 3% of GDP this year and in 2027.
Once again, Germany’s current coalition government is putting the country’s interest above the political cost and is preparing to proceed with reforms to its pension system. These are preventive measures that successive Greek governments did not want to take for two decades before the great economic crisis of 2009-2010.
Recognizing the burden caused by the aging population on the country’s pay-as-you-go pension system, Chancellor Mr. Merz appears determined to proceed with the automatic linking of the retirement age to life expectancy as Greece has done.
It is also incorporating a supplementary funded pillar into the pension system. This resembles the Greek TEKA, which however concerns exclusively supplementary insurance. Enrollment in TEKA is mandatory for new insured persons, while Germany prefers the Swedish model that gives insured persons the right to opt out and invest in the state investment fund or privately.
Furthermore, it gives tax incentives to working pensioners to remain in the labor market along Greek lines by abolishing the pension cut.
It is impressive that Germany, which sought the strict application of the EU’s fiscal rules to Greece in 2010, now appears willing to adopt reforms in its pension system that resemble the Greek ones.
In the end, in fact, it cannot be ruled out that it will be Greece that will not implement in practice one or some of the above reforms due to political cost. We already have a sample of writing. Statements by government officials invoke various excuses to push further back in time the increase in the retirement age due to the increase in life expectancy ahead of elections.
It will not be the first time that Greece leads in something but ends up trailing behind.