The Floodgates Are Breaking In Germany’s Welfare State, by Thomas Kolbe

Unlike the U.S., Germany can’t just print money and inflate away its obligations. From Thomas Kolbe at zerohedge.com:

Germany’s social insurance system is coming under increasing pressure from demographic shifts and a stagnating economy. Long-term care insurance is no exception. The political class attempts to sedate the symptoms.

It confirms what demographers and economists have warned about for years: Germany’s social security structure is not built to withstand demographic change or recession. It is a fair-weather construction—a luxury that prosperous societies afford themselves in times of surplus, only to pare it down in times of crisis. That crisis, anticipated by economists such as Stefan Fetzer and Christian Hagist, has now arrived. In a widely discussed study, they predicted that without fundamental reforms, the German welfare state would reach a tipping point by 2030. By then, the total contribution rate to social security would rise to 44.5% of gross wages—suffocating the private sector in the process.

A String of Alarming Headlines

Germany is on a direct path toward that horror scenario, as confirmed by a recent series of alarming reports regarding the financial health of its social systems. Deficits are everywhere: the public pension system will require at least €123 billion in federal subsidies this year. The recently revealed shortfall in the long-term care fund stands at roughly €1.7 billion. Simultaneously, statutory health insurance faces a gap of €13.8 billion. Importantly, these numbers are based on projections that assume a stable economic environment. Meanwhile, the relentless waves of Germany’s prolonged recession continue to batter the increasingly fragile hull of the welfare state.

In long-term care insurance specifically, developments are accelerating. According to a report from the Federal Audit Office, the deficit will likely double next year to €3.5 billion. By 2029, the shortfall is projected to grow to €12.3 billion. The impression is growing that Germany has drastically overextended itself with its generous welfare model – Europe’s largest migration magnet..

The numbers speak for themselves: expenditures for long-term care insurance have exploded over the past decade—from €24 billion in 2014 to over €40 billion by 2019, and €57 billion in 2023. Last year, spending rose again to €63.2 billion. This spending avalanche is driven by an aging population, rising personnel costs, and an ever-expanding benefit catalog that now reads like a political wish list—our means are assumed to be limitless.

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