UPDATE 1-France talks tough on deficit cuts

* Lagarde says will hit 2011 fiscal targets come what may

* Budget Min sees 2 bln eur in extra revenue from new jobs

* Govt GDP forecasts still too optimistic - economist

* France still 'paying lip service to austerity' -economist

(Recasts, adds economist, background)

By Daniel Flynn

PARIS, Aug 23 (Reuters) - France is committed to cutting its budget deficit and state funds will be boosted by a jobs markets upturn, ministers said, as the government went on the offensive to persuade sceptical investors it will meet fiscal targets. An emergency ministerial meeting on Friday -- convened four days after ratings agency Moody's warned France was inching closer to losing its AAA rating -- ended with a cut to the country's 2011 growth forecast to 2 percent from 2.5 percent and a pledge to slash tax breaks. [ID:nN17130318]

Finance Minister Christine Lagarde told Monday's Financial Times that France was determined to do "whatever it takes" to cut the deficit in 2011, and that markets were not giving the government credit for its reforms, [ID:nLDE67L0CF]

Meanwhile Budget Minister Francois Baroin, who must finalise the government's 2011 spending plan before the end of September, chose French daily Le Figaro to predict the creation of 60,000 jobs this year would provide the state with 2 billion euros in extra welfare contributions. [ID:nLDE67M051]

Under the deficit projections, the GDP cut will require some 3.5 billion euros in additional savings next year to compensate for lower revenues.

But economists said even more austerity might be needed to be done as the new growth forecast, which brought the government closer to the market consensus, still appeared too high.

"They are being a bit optimistic ... France has quite a track record of pencilling in too high growth in its budgets," said Joost Beaumont, economist at ABN Amro, who predicts 1.6 percent expansion for next year.

AUSTERITY 'ESSENTIAL FOR GROWTH'

President Nicolas Sarkozy's government was already seeking 40 billion euros in savings to reduce the budget gap to 6 percent of GDP in 2011 from an estimated 8 percent this year under a pledge to comply with an EU ceiling of 3 percent by 2013.

"Everything must be directed towards this aim: we are obliged to return as quickly as possible to the pre-crisis levels of deficit," Baroin told Le Figaro.

Friday's meeting agreed to slash 10 billion euros in tax exemptions to help meet next year's goal, and Baroin said all but 2 billion euros of this had already been found.

Solid second-quarter GDP growth of 0.6 percent put France's 1.9 trillion euro economy, which makes up over a fifth of the euro zone, on track to meet a government target of 1.4 percent growth this year.

But growth rates stubbornly lag those of neighbour and rival Germany, and economists said robust consumer spending, which underpinned France's second-quarter expansion, was expected to tail off later this year as fiscal stimulus measures expire.

Baroin said strong government action on the deficit would help to strengthen consumer spending by alleviating ordinary French people's concern over the debt and deficit levels.

"It is an essential issue for our economic growth," he said.

The government has already announced a freeze on civil servants' wages and committed to replacing only half the central government employees who retire over the next three years. [ID:nLDE6721TL]

FIGHTING ON SEVERAL FRONTS

The 2011 budget is just one of a number of headaches for Sarkozy, who also faces national protests at a security crackdown and plans to overhaul the loss-making pensions system.

Some analysts have suggested that presidential elections in 2012 could tempt Sarkozy, whose popularity is sagging near record lows, to avoid cuts to high levels of public services.

"France has a very poor track record in sticking to its deficit commitments, and if you look at the details of how they plan to do it, it is still not clear," Beaumont said, noting that France's cyclically-adjusted deficit was amongst the most stubbornly high in Europe.

"They have a lot of work to do and so far they are the only (European) country just paying lip service to austerity."

(Additional reporting by Sophie Taylor; Editing Brian Love, John Stonestreet)