The Contract We Didn't Sign

The situation

Since late September, students across Europe have been protesting. It began with a high school walkout in the eastern suburbs of Paris. By 13 October more than 160,000 students and trade unionists had marched in France. Students in Belgium protested tuition and funding cuts, in Madrid housing, in Vienna university funding. On 16 October, students in Berlin blocked three high schools in solidarity.¹

The complaints are about schools, teacher shortages, rent and cost of living. In Germany, young people are currently expected to:

• pay into a pension system that the chancellor says will only provide a basic safeguard by the time they retire,
• accept that about a quarter of the federal budget subsidises that system, while schools, housing and the energy transition get what is left,
• repay the debt that finances rearmament,
• and be drafted if too few of them volunteer.

The underlying reason

Pension entitlements are fixed by law and grow on their own. Schools, housing and infrastructure get decided every year, and they are what gets cut when the entitlements grow. And a large, growing share of voters is on the receiving end. Young people vote almost as often, but there are far more retirees than there are 18-year-olds.

German boomers stored most of their wealth in claims (deposits, insurance, pay-as-you-go pension rights) rather than in assets with a market price (On Lost Decades). When a large generation retires, asset prices fall. Claims don't. In Germany the demographic cost shows up as higher contribution rates and a larger tax subsidy instead.

The numbers

Pension subsidy in the federal budget

That is +59% from 2020 to 2026, nominal. German prices rose about a quarter over the same stretch. The rest is real.

• The pension subsidy (€132.0bn) is larger than all net new borrowing in the core budget (€118.7bn).
• From 2026 to 2027 the pension subsidy grows by €4.2bn (+3.3%). The housing ministry shrinks from €7.7bn to €7.5bn (−2.6%).
• Defence rises to €109.7bn in the core budget plus ~€30bn from the special fund. Including all special funds, new federal debt in 2027 is just over €200bn.⁵

Pay for 48%, get the minimum

Young contributors currently fund a pension level of 48% for today's retirees. That level is guaranteed until 1 July 2031; the DRV projects 46.4% for 2040.⁷ For their own retirement, the chancellor told them what to expect. Friedrich Merz on 20 April 2026, at the Bundesverband deutscher Banken:

"Die gesetzliche Rentenversicherung allein wird allenfalls noch die Basisabsicherung sein für das Alter."
— Friedrich Merz, 20 April 2026⁸

He added it won't be enough to keep one's standard of living. The social association VdK read this as cutting the statutory pension back to the level of Grundsicherung, the minimum the state pays to anyone regardless of contributions.⁹ In fairness to Merz, he's the first chancellor to say it out loud. The others just let the Rentenniveau do the talking.

Standard pension: 45 years at average wage × €42.52 per earnings point (July 2026), gross, in today's money.¹⁰ Existential minimum: Grundsicherung im Alter, the €563 standard rate plus rent, about €1,000 to €1,200 in most cities.

Young people pay for a full pension and will receive half of one.

They pay 18.6% of gross wages today and 21.1% by 2040,⁷ plus the taxes that fund the €132bn subsidy. Holding the level at 48% costs taxpayers another ~€111bn by 2040.¹¹

Invested in a global equity index at 5% real return, the same contributions would fund a replacement rate of about 186% instead of 48% (Performance of the German Pension System).

Another way to read it: a global equity index can be expected to return about 7% a year, or 5% after inflation. If the statutory pension ends up at Grundsicherung level (€1,000 to €1,200, about 25 to 30% of the average wage), the public system returns about +0.5% to +1.2% a year to the currently young generation, or −0.8% to −1.5% after inflation ASSUMPTION. Nominal figures assume 2% inflation. The model's 25.9% contribution rate includes the tax-funded share of the pension, spread as a flat share of labour income. A portfolio returning 7% a year is also generational wealth if it is used without consuming it, living only off the returns and leaving the base capital to the heirs. The public pension ends with the pensioner.

What to fix

The young never agreed to a 48% pension level. The people receiving it set it. The level was scheduled to fall under the 2001 reform, and the boomer cohort used its size at the ballot box to stop that in 2018 and again in 2025. Now it uses its dependence on the result as leverage against the young. That's not negotiating, that's a hostage situation.

1. Cut the pension level to what contributions finance, now, and let it move with them

In 2025 the general pension insurance spent €421.3bn. Contributions brought in €321.0bn; the federal subsidies (general and additional Bundeszuschuss) added €93.2bn, 22% of spending.¹² Take the subsidy away and pensions fall by about 22%.

Gross per month, in today's money; a proportional cut across all pensions, ignoring second-round effects.

And not with new debt, which just hands the bill to the young again, with interest. The cut happens now. After that the level is whatever contributions pay for. It falls as workers per retiree fall.

Anyone who wants more than that should save for it in a portfolio, as young people are told to do. People who chose to live above their means can't expect others to pay the difference. A safety net is not for people who put themselves in need of one on purpose. Those who end up below the existential minimum get Grundsicherung, which is means-tested, so it goes to people who need it rather than to everyone with a pension claim.

2. Let young people opt out

Forcing people to pay into a system that's expected to hand back the existential minimum makes no sense. New entrants should be allowed to put their contributions into a private, capital-funded account instead. Germany is even building the vehicle for it. The Altersvorsorgedepot starts on 1 January 2027, state allowances included, with a 1% cost cap on the standard product.¹³

Opting out already exists, just not for the young. Civil servants have never paid in, doctors, lawyers and architects have their own funded Versorgungswerke, and many of the self-employed aren't compulsorily insured. Somehow the lawyers got out first.

The other option would be guaranteeing 48% to everyone paying in now. That doesn't work. Pay-as-you-go can only pay out what current workers pay in, there will be fewer of them per retiree, and with an opt-out fewer still.

3. Spend the freed money on the young, without new debt

The pension subsidy takes money that could go to school renovations, renewable energy, housing or relief from the cost-of-living crisis. The 2027 draft puts €132bn into the pension insurance, while the core budget borrows €119bn. That borrowing is possible because since 2025 the debt brake no longer counts defence spending above 1% of GDP,¹⁴ and the 2027 budget makes full use of that. The Bundeszuschuss that point 1 removes, €93bn in 2025, would cover about three quarters of that borrowing.

Conscription

Since January 2026, every man born in 2008 or later has to fill in a Bundeswehr questionnaire; for women it is voluntary. Whole birth cohorts are being screened again (Musterung).¹⁵ If too few volunteer, the Bundestag can introduce a draft with a separate law (Bedarfswehrpflicht). If more men are fit than needed, the law allows a lottery as a last resort, with the details left to yet another law.¹⁶

The chart is what a year should pay, in war at the front and in peacetime, against what Germany pays. Start from what a soldier's capability profile pays in civilian life, no degree and weeks of training, estimated with a wage model that prices education, training and abilities and nothing else. Scale that to 84-hour war weeks and add a 3.5% yearly chance of dying, plus wounds and PTSD, priced with the value of a statistical life, which comes from what people accept for small risks.

By that measure a man at the front is owed between 5 and 62 times what Germany pays him, which no country pays and a country at war couldn't if it tried. Conscription is how the state avoids paying it, by taking the difference by force. But if the build-up works as deterrence, only the peacetime wage is relevant. Counting free meals, discharge pay and the social insurance the Bundeswehr pays, and pricing in a 5% chance that a war breaks out during service, when nobody can leave, it is about 1.8 times what is paid ASSUMPTION. A draft only happens when too few volunteer at this pay, so it is the state not paying the price. Taking the difference with its monopoly on violence is a policy decision.

"In individuals insanity is rare; but in groups, parties, nations and epochs it is the rule."
— Friedrich Nietzsche, Beyond Good and Evil (1886), §156²⁹

Every modern human rights instrument bans forced labour, meaning work exacted under threat of penalty and not offered voluntarily. That is Wehrpflicht as Germany plans it. And every one of those instruments carves out an explicit exemption for compulsory military service, the ILO Forced Labour Convention (1930), the European Convention on Human Rights (Art. 4) and the UN Covenant on Civil and Political Rights (Art. 8).³⁰ You don't write an exemption for something that doesn't fall under the rule.

Objections

• Opt-out shrinks the contribution base further. If new entrants leave, their contributions leave with them while current pensions still have to be paid. Under point 1 nobody fills that gap with debt or taxes, so the pension level drops. The retirees who voted for the system end up carrying it themselves. How many leave depends on the deal. Make staying in competitive and people will stay. Compulsion is only needed as long as the system takes more than it gives back and depends on people who would otherwise leave.
• The share of the budget used to be higher. By the BMAS definition, federal pension subsidies fell from 21.6% of the budget in 2004 to 18.4% in 2023.³¹ That definition counts only the Bundeszuschüsse. The €127.8bn above is all federal money paid into the system.
• Schools are not a federal responsibility. School buildings are financed by the Länder and municipalities, and most infrastructure and climate investment runs through special funds. So the pensions-versus-schools trade-off runs indirectly, through fiscal space and federal transfers to the Länder.
• Many current pensioners have no other income. About 52% of retirees live only on the statutory pension, around 74% in the East.¹¹ After a 22% cut, many low pensions fall below the existential minimum and are topped up by Grundsicherung. Still tax money, but only for people who actually need it, after their own income and assets are counted.

Conclusion

Young people are being ripped off by design. They pay for a full pension and are told to expect the minimum, which returns less than they put in once inflation is counted. They are asked to carry the debt behind rearmament, and if volunteers fall short, to serve for a fraction of what the job is worth. The people who made these rules mostly don't live under them.