GERMANY – S&P has warned that unless Germany addresses its reform programme, which includes pensions, it could face “increasing pressure” on its credit rating.

The German social security ministry declined to comment specifically.

“Failure to push reforms further, or a more expansive fiscal stance, could put increasing pressure on the ratings,” the ratings agency said, as it confirmed Germany’s AAA/A-1+ status with a stable outlook.

Germany was given top credit ratings for its “modern” and “competitive” economy, but S&P said the Schroeder government has not “systematically” addressed the issues of pension, health and labour market reforms.

The implementation of Agenda 2010, the set of reforms focusing on the labour market, the pension and health system, had fulfilled S&P’s expectations, according to S&P’s “The Reform Flurry in Germany” report.

“The coming decade is the last chance to mitigate the longer term fiscal implications of Germany’s ageing population,” it said.

The government should do more, S&P analyst Moritz Kraemer said in an interview. Steps expected to help in 2004, have been taken but “what they the_government chose falls short of a real structural reform to fix the underlying problems.”

He added: “We believe it is only a first step in a long reform process.”

The German Health and Social-welfare Ministry welcomed the high rating but declined to comment on S&P’s warning on pensions.

A spokesperson pointed out that four short term measures were launched by the government in 2003 and will be implemented throughout 2004 to tackle the “pension deficit” before the implementation of the reform.

She explained that the social security system was funded by pay-roll taxes. “In the last months the number of workers shrank , that means the number of people supporting the welfare system also shrank but the number of pensioners remained the same, hence the deficit.”

To even the deficit there will be no linking of pensions to the national average wage, from July 1. The minimum reserve, which every Rentenkasse is required to have, is to be reduced. Pensioners will also pay the full cost, instead of 50%, of the care-insurance, Pflegeversicherung.

Workers who retire after April 2004 will be paid their pensions at the end, rather than the beginning of the month, while those already retired or to retire before the set date will continue to receive pensions at the beginning of the month.

Meanwhile S&P also confirmed its AAA rating on France, citing the government’s commitment to structural reforms, which are expected to reduce the vulnerability of the French economy to ageing.

“The longer-term positive effects of a well-implemented structural reform agenda will support the ratings of France”, S&P said.