GERMANY -  The Organisation of Economic Co-operation and Development (OECD) foresees further budget consolidation may be necessary in Germany, despite major pension reforms.

The OECD said today in its Economic survey of Germany 2008 despite the recent overhaul of the German pension system, "some further budget consolidation may still be needed to pre-fund future budget pressures related to population ageing."

This recommendation comes just as chancellor Angela Merkel's cabinet has backed a plan to raise state pension by 1.1% this year, and by as much as 2% in 2009.

The proposed hike from July 1 has drawn an angry response from employers, who say the rise would be too expensive and result in job cuts.

Dieter Hundt, president of Germany's employers' federation (BDA), issued a statement, commenting the move would mean pensions would rise at a higher rate in 2009 than the wages and salaries of employees.

"If we do not decide against this extraordinary pension increases intended for 2008 and 2009, pension schemes are loaded until 2013 with additional costs of around €12bn," he said.

The proposed rise would also go against the restrictions on pension increases set out in a formula adopted under previous chancellor Gerhard Schroeder, which was designed to reduce the strain caused by population ageing on Germany's social security system.

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