€500 billion — and still not enough

Germany’s pension system is swallowing the federal budget

Dear Reader,

There is a simple and unavoidable truth about modern life in Germany: working lives are too short, and retirements are too long — far too long. The imbalance between the two is structural — and it is widening.

As life expectancy rises, the gap between what is paid into the pension system and what is taken out inevitably widens. That is not ideology; it is arithmetic. Governments have two ways of closing that gap. They can raise contribution rates, reducing disposable income and increasing labour costs. Or they can hold contributions steady and quietly transfer ever larger sums from the federal budget to prop up the system.

In times of surplus, the second option is politically irresistible. And so that is the path Germany chose.

During the 2010s, the demographic time bomb had not yet detonated. The baby boomers were still in work, and the high tide of globalisation was delivering large gain…