The reform that could make or break Merz

The Chancellor and the SPD have unexpectedly united behind a Swedish-style pension overhaul. Their next challenge begins when it reaches parliament.

Dear Reader,

Good news from Berlin at last.

A few weeks ago, I argued that Germany should stop obsessing over the ever-expanding fortune of the super-rich and start asking how ordinary workers could benefit from the same forces that have made them so wealthy. My answer was a Swedish-style pension system that allows workers to build wealth through the stock market.

Now, unexpectedly, Germany seems set to do just that.

On Tuesday, a government-appointed commission tasked with drawing up a plan to overhaul the pension system unveiled its recommendations. At the heart of them is a proposal for a mandatory funded model based explicitly on Sweden’s example.

The idea might just save a system that has been dragging Germany into economic ignominy.

The current model remains overwhelmingly dependent on an arrangement developed in the nineteenth century. Workers and employers pay contributions into a common pot, which is then used to finance current retirees.

This transfer-based system worked when a la…