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* Sarkozy reforms did not do the job
* Socialists hope labour reform shows consensus possible
* Tackling pensions part of drive towards sounder state finances
By Brian Love and Emmanuel Jarry
PARIS, Jan 18 (Reuters) - France's Socialist government will overhaul the nation's pension system again because former president Nicolas Sarkozy failed to ensure its long-term viability, Labour Minister Michel Sapin told Reuters on Friday.
A government-endorsed panel of experts estimates the system that relies on people in work paying taxes to fund those in retirement will run up a deficit of 20 billion euros ($27 billion) by the end of the decade - despite a reform by Sarkozy that sparked large and widespread street protests in 2010.
"The main message is that the previous reform in no way solved the problem. It generated a lot of injustice without solving the problem itself," Sapin, a close friend of President Francois Hollande, said in an interview.
"A large chunk of 2013 is gong to be devoted to this reform, to consultations on this reform, what shape it takes, how we go about it, and where it's headed," he said.
Acknowledging that such changes would still leave the system dependent on state support, he added: "It's about moving the cursors that can be moved to ensure that, even if the books are not balanced, the system is in any case sustainably financed."
But with state finances already under duress and a stagnant economy, the government has few options to fix the system given that it has always dismissed any element of private pension funding. Its options consist largely of increasing the length of time that people are obliged to contribute to the scheme or seeking further increases in minimum retirement ages.
Hollande, who unseated Sarkozy in a May election to become the country's first Socialist president in 17 years, has rolled back part of a reform under which his predecessor had raised the legal pensionable age to 62 from 60.
But such moves have run up against doubts about long-term trends in France's finances that have cost the country two of its top triple-A credit ratings. Many economists say Hollande's target of cutting the budget deficit to the European Union ceiling of 3 percent of output this year is optimistic.
He told business and labour leaders this week to prepare for consultations, starting in July, on overhauls of pension and welfare benefit finances more broadly, seeking to shrink the public sector deficit to zero by 2017.
"This is part of the wider, necessary, push towards balanced state finances and the social partners are very conscious of this need," Sapin said.
Hollande and his labour minister claimed victory in engineering a new industrial relations climate after unions agreed a labour law reform last week that will give firms more leeway to cut pay or working hours in hard times.
Sapin, the man who orchestrated that accord, said that his government hoped it would be on the statute books by May and was a more powerful reform because it had the backing of employers and the majority within the labour movement.
The labour accord "will not mechanically create jobs" but will, along with a raft of other pro-employment measures, help France to rebound better when the economy starts to pick up, perhaps in the second half of this year, Sapin said.
Hollande has said he hopes to reverse the upward spiral in the unemployment rate this year. The number of jobseekers in France, a country of 65 million people, hit a 15-year high of more than 3.1 million in December.
Sarkozy often sought to force the pace of reform in France, ruling by decree rather than seeking first to build up support among employers and unions, said Sapin, who contends that the labour code change will be held up in years to come as proof that France, often described as "unreformable" can change.
($1 = 0.7486 euros) (Reporting by Brian Love; Editing by Ruth Pitchford)