* Valls can't afford to backtrack in face of worker action
* Question of credibility: "We have to pass reform" - govt
* Focus on big economic reforms, avoiding marginal issues
By Alexandria Sage
PARIS, June 22Manuel Valls, the tough-guy prime minister named by Francois Hollande to speed up France's economic reforms, is facing his trickiest challenge yet as striking railworkers, rebel back-benchers and even angry actors test his resolve.
Whether Valls stands firm or not in coming weeks could determine whether Hollande achieves his aim of reversing the decline in French industrial competitiveness and so reviving the euro-zone's second largest economy.
"This is an important moment. Are we reforming? Are we advancing? Or can we no longer do anything?" a source in Hollande's office said of the challenge facing Valls.
"It's a question of credibility. We must pass our reforms," the source said of projects which range from efforts to bring the public deficit back to within EU limits to a far-reaching simplification of France's labyrinthine local government.
The role of French prime minister is one of the hardest in European politics: to take the flak for the president and sort out messy domestic affairs, leaving the head of state to set the strategic direction of the country on the international stage.
Many come woefully unstuck - the most spectacular example of which was conservative premier Alain Juppe, forced to abandon welfare reforms after mass strikes in 1995 that turned into the biggest social conflict since the May 1968 protests.
Hollande's first prime minister, Jean-Marc Ayrault, lasted barely 18 months before being jettisoned. He shrunk back from pushing through tax reforms in the face of public protests.
Valls, appointed in April following a disastrous showing by the majority Socialists in local elections, has already "succeeded in restoring the credibility of the prime minister's actions," said Martial Foucault, the head of the Cevipof political think tank.
"He's someone capable of making others respect discipline and governmental cohesion," Foucault said. "And that's new."
During his spell as interior minister, Valls, 51, topped opinion poll ratings for hard-line pronouncements on crime.
But the stakes as premier are higher. Any sign of weakness today could encourage opponents to seek to derail more vital reforms ahead - be it a supply-side "responsibility pact" that lowers employers' taxes in exchange for hiring guarantees, or efforts to trim France's high public deficit and debt.
The railway strike, which three out of four French voters oppose, has helped Valls burnish his image as a no-nonsense politician in the vein of Tony Blair, the former British prime minister, who is unafraid to tackle painful reforms.
The government is trying to push through a restructuring of the rail sector that pre-dates Hollande's tenure, ahead of EU moves to inject more competition into rail networks. A bill is being debated in parliament with a vote expected for June 24.
The reform would put state railway SNCF and track owner RFF under the same holding company, but with separate operations.
"No one understands this strike - customers, young people, public opinion," Valls said after meeting two unions this week which argue the overhaul - which does not directly involve worker pay or benefits issues - would erode working conditions.
"No one can question the government's great firmness on this subject, as on other crucial reforms," Valls said, urging the strike to be called off.
OUT-OF-WORK ACTORS, PARLIAMENT REBELS
So far, he is winning. While labour leaders dismissed an amendment to the bill on Wednesday protecting the special status of railworkers as a smoke-and-mirrors trick and vowed to strike on, by Friday just 6.85 percent of the workforce followed them.
A dispute in the country's performing arts sector might seem a side-show but it could spell trouble. Valls backs a reform that would trim the higher-than-average jobless benefits enjoyed by France's 100,000 casual arts workers, which together account for a quarter of the state unemployment fund's deficit.
Those workers - who argue such benefits are justified by the sporadic nature of their profession - are threatening to disrupt this seasons summer festivals that draw hundreds of thousands of visitors and tens of millions of euros to municipal coffers.
Despite efforts by Valls to allay their concerns, they plan a major strike on July 4, the opening of the most prestigious festival of them all, the Avignon Festival of contemporary arts.
"The unions know full well that the government and president have been weakened, so they're hoping for a showdown," said Cevipof's Foucault, of the low government popularity ratings which Valls has been brought in to repair.
The conflicts in the rail and arts sectors provide the backdrop for a further clash in coming weeks - this time between Valls' government and his own Socialist lawmakers.
A supplementary bill paving the way for a further four billion euros of public spending cuts is to be voted to help France push down its public deficit as promised to EU partners, while a separate bill will offer payroll tax cuts to firms.
The left of Valls' Socialist party - and in particular a core of 41 rebels - are seeking to water down the spending cuts and argue more is needed to help the poor. They are unimpressed with a promise to extend tax relief to 4 million poor households in 2014, half a million more than initially announced.
"It's not that we don't hear them, that we can't discuss it with them, but they are after all a minority," said the source in Hollande's office, explaining Valls' determination to push the economic reforms through.
Finding himself prime minister at the midway point of Hollande's five-year term, Valls has little time to act.
He will thus seek to avoid becoming sidelined by marginal disputes over protected interests, while steering clear of major social issues dear to the French Left but divisive, such as the gay marriage law passed last year despite fierce opposition.
"Manuel Valls has understood that pragmatism in 2014 means the economic question, and that means re-establishing public finances and making France more competitive," said Foucault.
The question - as past French prime ministers have found - is how far and how fast to go.
"The government is being authoritarian," Jean-Claude Mailly, head of the Force Ouvriere union said last week.
"If this confrontational attitude carries on, then good luck in trying to govern in future ... because it's going to create a climate of hate." (Additional reporting by Emmanuel Jarry and Elizabeth Pineau; Editing by Mark John and Mark Potter)