UPDATE 2-French unions turn on minister as govt firm on reform

* Unions say minister mired in scandal a "real problem"

* Govt expects "extremely serious" strike, won't back down

* Unions demand it drops plans to raise retirement age

* Reform is key to meet govt pledge on cutting deficit (Recasts with union attack on Woerth)

By Daniel Flynn and John Irish

PARIS, Sept 2 (Reuters) - Two unions intent on paralysing France with a strike over pension reform rounded on the minister leading the overhaul on Thursday, questioning how he can do his job properly while he is surrounded by a political scandal.

Labour Minister Eric Woerth came out fighting earlier in the day, ruling out any watering down of major changes to the loss-making pension system, despite the prospect of strong support for next week's nationwide strike.

Woerth, who has been dogged throughout the summer by allegations of involvement in illegal funding, said his political problems had not weakened his focus on the reform.

He has denied any wrongdoing in the affair involving France's richest woman, L'Oreal heiress Liliane Bettencourt. However, on Thursday he admitted intervening in favour of Bettencourt's wealth manager to receive the prestigious Legion d'Honneur title.

The leaders of France's most powerful unions, the CGT and CFDT, who had kept their distance in the funding scandal, said in a joint interview that Woerth was too preoccupied to focus on the pension reform.

"I ask myself one question: how can he manage at the same time the problems of the 'Bettencourt Affair' and the pension reform?" CFDT leader Francois Chereque said in a preview of Friday's Les Echos newspaper. "This situation means we are not tackling the heart of the subject. It's a real problem."

Woerth, architect of the reform which goes to parliament next week, said the government was ready to compromise on some details but would not abandon plans to raise the retirement age, a chief aspect of its drive to slash its budget deficit.

Unions convening the Sept. 7 strike -- which they say will disrupt everything from public transport and schools to telecommunications -- say a government offer to relax rules on people who perform arduous labour, hold multiple pensions or started work young is not enough.

"This reform will be for decades and millions of employees," CGT's Bernard Thibault told Les Echos. "We are the only country where there is legislation on a social issue without any negotiations taking place," he said.

The unions are calling on President Nicolas Sarkozy, whose popularity is near record lows before elections in 2012, to ditch plans to raise the full retirement age to 67 from 65.

"We are facing a strike which is obviously extremely serious," Woerth told reporters. "But ... that will not change the pension reform because if we introduce fundamental changes, there will be no pension reform."

Until now only the opposition Socialists had called Woerth into question, but new allegations are appearing almost daily, deepening the government's embarrassment.

Sarkozy has been keen to maintain good relations with unions and listen to their demands. But he appears to be heading for a showdown, with most commentators saying he cannot afford to drop his minister, potentially delaying the reform.

Prime Minister Francois Fillon said on Thursday that Woerth would see the reform through.

QUESTION OF NATIONAL INTEREST

The government unveiled plans in June to overhaul the pay-as-you-go pensions system and clean up state finances, warning that without major changes the system would run up annual deficits of 50 billion euros by 2020.

France has committed itself to cutting its budget deficit to 3 percent of GDP by 2018 from an estimated 8 percent this year. Even the Socialist party has recognised a fundamental reform of the pension system is needed.

Sarkozy's government, which trails the Socialists in opinion polls, is trying to complete unpopular measures to cut next year's budget deficit and faces criticism over a crime crackdown which has targeted Roma, arousing dissent even within the cabinet. [ID:nLDE67U13V]

On Wednesday, Chereque said unions were aiming for a protest at least as large as one in June which they say drew 2 million people. Police say only 800,000 joined the protest. (Additional reporting by Jean-Baptiste Vey; Editing by David Stamp)