BERLIN

German Chancellor Friedrich Merz on Wednesday warned that Berlin and its Western allies today face what could be their "greatest test" amid global tensions and economic challenges.

"We stand as a country in one of the most challenging phases of our recent history," Merz said during a budget debate in the parliament. "The entire Western community of values faces what may be its greatest test."

The conservative leader indicated that global challenges, such as threats posed by Russia and unpredictable policies of US President Donald Trump, have direct consequences for the German economy, which relies heavily on global markets.

“A world without rules also damages our economy and thus our ability to fund all the tasks we want to finance in infrastructure, education, and social security. Only in a growth-oriented economy can we generate the funds we need to finance infrastructure, foster solidarity, and ensure social security in the long term,” he said.

The chancellor defended his coalition government's reform agenda against opposition criticism, rejecting claims that his administration is dismantling Germany's social welfare system.

"The goal of the reforms we are initiating is not the dismantling of the welfare state, but the preservation of the welfare state as we really need it," the conservative leader told lawmakers.

Merz emphasized the need for change amid Germany's economic slump and reform backlog, saying the country requires "agreement on the inevitability of changes" to enhance its competitiveness and reinvigorate its economy.

"We need genuine reforms so that we can continue to fulfill the social promises that we have made to each other as a country in the future," Merz said. "This is not about distribution, this is about generating a higher gross domestic product for everyone,” he added.