Coalition agrees on jobs-focused reforms after economic slump
Germany’s coalition government, led by Chancellor Friedrich Merz, has announced a series of urgent measures aimed at stabilizing the economy and reversing two years of contraction. After intense overnight negotiations, officials presented reforms that target long-term unemployment, job retention, and incentives for retirees to remain in the workforce.
Facing political and economic pressure, the coalition between Merz’s conservative alliance and the center-left Social Democratic Party (SPD) pledged swift action. “The economy is under pressure, and everything we decided yesterday reflects this pressure,” said Labor Minister Bärbel Bas. The government forecasts a modest 0.2% growth in 2025, with expectations rising to 1.3% in 2026.
Job cuts mount as unemployment hits decade high
Germany’s unemployment reached 3.02 million in August — the highest in ten years — as iconic firms like Bosch, Volkswagen, and Commerzbank announced massive job cuts. Bosch alone plans to eliminate 13,000 positions by 2030. The decline in manufacturing, long the engine of Germany’s economic strength, has added urgency to the reform agenda.
To combat job losses, the government plans to offer financial incentives for pensioners to continue working and to tighten rules around long-term unemployment benefits. The Cabinet is set to adopt the pensioner incentives next week, while legislative work on unemployment reforms will begin immediately.
Stricter rules to overhaul welfare system
Under the agreement, beneficiaries of long-term unemployment aid will face a 30% reduction in benefits if they miss two consecutive employment office appointments. A third missed appointment would result in a full suspension of benefits. The goal, according to SPD co-chair Bärbel Bas, is to encourage 100,000 people to reenter the labor market, saving an estimated €1 billion annually.
“Our common goal is to get people into work. Then we will make real savings,” Bas emphasized. The reforms are politically sensitive for the SPD, which traditionally defends Germany’s expansive welfare system, but the party now supports a more pragmatic approach to address the country’s economic challenges.
