U.S. Markets close in 5 hrs 57 mins

EU's Barroso leans on France to step up reforms

PARIS (Reuters) - The European Commission and rating agency Standard & Poor's piled pressure on France on Sunday to overhaul its finances more rigorously after the EU gave the Socialist government more leeway to meet targets.

French Finance Minister Pierre Moscovici has said the euro zone's second-biggest economy cannot be reformed any faster, fending off criticism that it is dragging its feet on measures its European Union partners consider vital.

President Francois Hollande's government amended labour laws earlier this year and outlined an overhaul of the indebted pension scheme last month.

"France is going in the right direction but more ambition wouldn't do any harm, especially on the question of France's competitiveness," Commission chief Jose Manuel Barroso said in an interview on Europe 1 radio.

S&P said France had yet to demonstrate that it can consolidate spending. France has revised its public deficit forecasts, acknowledging it would take advantage of an extra two years granted by the EU to put its finances back on track while preserving fragile economic growth.

"In the short or long term the government will have to face this issue," Moritz Kraemer, S&P's chief sovereign ratings officer said in an advance extract of an article due to be published in German newspaper Die Welt on Monday.

"There is no reason to assume that France is not also able to deal with its public expenditure but that would require a broad consensus and so far there has been no pressure that would encourage that," Kraemer added.

Barroso said France could not expect to get further leeway if the deficit was not at the 3 percent ceiling in 2015.

As its labour costs rose faster than in neighbouring Germany over the last decade, France's share of international export markets has declined, costing hundreds of thousands of jobs in the industrial sector.

The government raised its deficit forecasts on Wednesday, putting the 2013 shortfall at 4.1 percent of economic output, up from a previous estimate of 3.7 percent and above a target of 3.9 percent the Commission recommended in May.

Barroso called the forecasts "a bit of a disappointment" and said the Commission would have preferred to a pension reform that raised the retirement age.

Though the reform will lengthen the number of years worked, it does not change the legal retirement age of 62 years for a full pension, one of the lowest in Europe.


S&P's Kraemer said major euro zone debtor Italy, which has been in recession since 2011, was primarily facing a "growth problem" rather than a "deficit problem".

"But is this being tackled decisively? That can be called into question," he was quoted as saying.

A Senate vote on Wednesday on whether former prime minister Silvio Berlusconi should be expelled from parliament after a conviction for tax fraud could provoke the breakup of Erico Letta's fragile government.

The Commission's Barroso told Italian business daily Il Sole 24 Ore it was "of paramount importance to keep political stability" to nurture an economic recovery and avoid spooking debt investors.

"Given the favourable conditions on the capital market, Italy is apparently able to afford a long government crisis at the moment. But Italy's reform policies are based on the shaky foundations of a society tired of crisis," S&P's Kraemer said.

(Reporting by Leigh Thomas; Additional Reporting by Michelle Martin in Berlin; Editing by Ruth Pitchford)