EUROPE – Standard & Poor’s has warned that spending related to population ageing could undermine the sovereign ratings of France and Spain.

Indeed, the rating agency warned they faced becoming “speculative-grade”.

S&P said that “without concerted policy and fiscal reforms”, the ageing populations of the two countries would lead to “intense pressure” on public finances and sovereign ratings.

"Absent further reforms, total age related public expenditures in France will rise to 27.4% of GDP in 2050, up from 22.8% in 2005," said credit analyst Moritz Kraemer. "In this scenario, general government deficits and net debt would rise sharply from the mid-2020s to reach 16% and 223% of GDP, respectively, by 2050."

Such a deterioration “would not be compatible” with France’s AAA rating. And it made similar remarks about France’s neighbour.

S&P said: “In 2030, France's fiscal indicators would have weakened to an extent that they would be more typical of performances currently associated with speculative-grade sovereigns.”

But it said it was in reality “highly unlikely” that governments would allow debt and deficit burdens to spiral out of control.

“Once governments are confronted with unsustainably rising debt burdens they do react, however reluctantly, by tightening the fiscal stance and/or reforming expenditure programs.”