By Brian Love
TOULOUSE, France (Reuters) - Growing opposition within France's ruling Socialist Party to Europe's hard line on budget austerity risks undermining President Francois Hollande's efforts to convince markets he is serious about meeting deficit targets.
A rising chorus of critics in the party, meeting in the southern city of Toulouse on Friday for its annual congress, wants Hollande to take a tougher stand on pro-growth policies in Europe to counter a German-led austerity drive.
With France's finances vulnerable to the problems that hit Spain and Italy, any backtracking on reining in the public deficit could mean financial markets stop treating France as almost as safe a bet as Germany.
France's 10-year bonds yield around 2.1 percent to Germany's 1.5 percent, while Italian bonds have to offer 4.9 percent to attract investors worried about Rome's finances.
Barely six months after his election Hollande's ratings have slumped to just 36 percent as voters chafe at stagnant economy and unemployment at a 13-year high, fuelling dissent in a party that won power in May pledging to focus on growth rather than cuts.
"There are a lot of people out there who want a change of direction in the way Europe is being built," said Emmanuel Maurel, a prominent party figure who won almost a third of the votes in a duel last week for the party leadership.
"We're pursuing massive deficit reduction targets at a time when we are on the brink of recession. I am not the only one who is saying it. A number of eminent people are starting to say this may be neither desirable nor doable," Maurel told Reuters.
Harlem Desir, the man who beat Maurel, is one of several senior Socialists in recent weeks to cast doubt on whether a 3 percent budget deficit target can be met next year if growth remains stalled.
Hollande's 2013 budget aims to meet his deficit pledge by raising 20 billion euros through tax hikes on companies and the rich and a further 10 billion euros by freezing spending, while sparing lower-income households from tax hikes.
Although Hollande says he can improve public finances without slashing wages, pensions and public services like debt-crushed Greece is doing, doubters question what Maurel called the "forced march" to a deficit of 3 percent of GDP.
Supporters note that even the International Monetary Fund has called for more flexibility in the approach to austerity.
SEEKING A SHIFT OFF AUSTERITY
Earlier this month 45 members of the Socialist Party and allied groups broke ranks to vote against ratification of a budget discipline pact committing euro zone states to balance their books or face fines, though a majority on the left still backed the pact and it will soon be signed into law.
Hollande will not attend the Toulouse congress but stands to suffer if it ends up marked by bickering over Europe.
Many in the party oppose German calls for deeper European integration and more outside control over national budgets but others say France will undermine its credibility as a borrower if it is seen siding with euro zone budget stragglers.
"It fixes people's minds to keep the 3 percent target," said Michel Tiroleni, a Socialist from eastern France who believes the congress should aim to unite behind Hollande.
While resistance in Socialist ranks falls short for now of what it would take to force the government to change tack, polls show the depth of public hostility to cutbacks.
A Viavoice opinion poll published on Thursday showed 62 percent of respondents opposed making sacrifices in the name of debt reduction, up 5 percentage points from a year earlier.
Hollande made a push on taking power to add growth-promoting measures to Europe's focus on austerity, though negotiations with other European leaders boiled down to agreement on a 120 billion euro package of growth funds that many regard as modest.
"The question now is how to counter, obviously in amicable fashion, the conservative forces in Europe," led by German Chancellor Angela Merkel, Maurel said.
(Reporting By Brian Love; Editing by Catherine Bremer)
