By Mark John and Andreas Rinke
PARIS/BERLIN (Reuters) - President Francois Hollande pledged on Thursday to carry out long overdue reforms of France's pension system and labor markets but said it was up to Paris, not the European Commission, to determine how they are implemented.
At a joint news conference with visiting German Chancellor Angela Merkel, Hollande defended his comment that the EU executive cannot "dictate" reforms to member states - a defiant, nationalist tone that angered Germany's ruling conservatives.
The two leaders agreed to propose that the 17-nation euro zone appoint a full-time president and hold more frequent summits to coordinate economic policy. They also promised to speed up the disbursement of 6 billion euros in EU funds to fight youth unemployment.
Hollande said France would stick to its objective of balancing its budget in structural terms by 2017 and meet new interim targets set by Brussels, but he bristled at detailed suggestions from the Commission at what to do or avoid.
"The details, procedures and way of going about this are the responsibility of the government and the state, otherwise there would be no national sovereignty," the French leader said.
"There must be sovereignty over the implementation. The Commission makes recommendations, it does not say in place of the member states what they must do."
Merkel, who referred to Hollande as "Francois Mitterrand" before correcting herself, did not comment directly on the controversy but said France had been given two extra years to meet its deficit reduction target in return for implementing reforms.
"These go hand in hand," she said, noting pointedly that Spain, Italy, Greece, Portugal and Ireland had already undertaken deep structural changes.
Unveiling reform recommendations for the 27-nation European Union on Wednesday, the Commission urged Hollande to rein in French public spending, revamp pensions and cut labor costs in return for a two-year reprieve on budget deficit targets.
With concern growing in EU economic powerhouse Germany that the euro zone's second largest economy is slipping deeper into decline, Merkel allies warned that Hollande's attitude could undermine efforts to bolster the euro zone economy.
On the day of her Paris visit, new figures showed French unemployment had risen to a record 3,264,400 in April after two unbroken years of monthly rises. Hollande stuck to his promise to reverse the trend by year end despite economists' skepticism.
"It can't work when a big country like France says it can do what it wants," said Michael Fuchs, deputy parliamentary leader of Merkel's Christian Democrats.
"If a country in the EU and euro zone thinks it needn't keep promises, that is worrying," he added.
Norbert Barthle, the party's spokesman on budgetary matters, accused Hollande, whose poll ratings have fallen faster than for any modern French president as the economy has slid into recession, of playing to a domestic audience.
He said the EU Commission had already been too generous in giving France a further two years to bring its deficit below the bloc's 3 percent ceiling after Paris conceded it would miss the target this year.
"France won't be able to bank on such indulgence again," he said.
Paris says it expects to bring its deficit back under the upper limit well in time for the new 2015 deadline and is already preparing to reform its generous pension system.
Wary of upsetting negotiations on the issue, Hollande said this month the French people should expect to have to work "a bit longer". In Merkel's presence, he said the reform would be pushed through this year.
However, he appeared to rule out a new overhaul, urged by the EU executive, of special early retirement deals for groups such as train drivers, saying they had already been reformed.
French officials were also irked that the Commission warned Paris against raising pension contributions to balance the system by 2020 on the grounds that it would make high French labor costs even less competitive.
Hollande is looking to increase the contribution period for a full pension, and possibly the rate, rather than lift the statutory retirement age or cut final benefits.
The Commission specifically listed an increase in the retirement age as a measure that France should examine.
RELATIONS "AS NORMAL"
Merkel and Hollande were at pains to insist that Franco-German cooperation, one of the historic drivers of EU integration, is working well.
A joint paper on future euro zone governance to be sent to fellow leaders ahead of next month's EU summit went somewhat further than expected, while remaining within the limits of the current EU treaty.
Officials on both sides had played down expectations of any major European policy initiative before Germany's September election when Merkel will seek to win a third term.
Merkel said the currency area needed more economic policy coordination because recently tightened budget rules were still insufficient to prevent a repeat of the euro zone's sovereign debt crisis. She did not repeat past calls for treaty change.
Merkel's visit, to end with a private dinner, has also come with Paris and Berlin at odds over whether the EU should risk a trade dispute with China by imposing duties on its solar panel exports in the coming days - a move Germany has opposed.
(Editing by Paul Taylor and Peter Graff)