UPDATE 2-EU and France play down tensions over reforms
* EU's Rehn avoids criticism of France's reform plans
* French budget sees deficit nearer EU levels next year
BRUSSELS, Sept 26 (Reuters) - The EU's economics chief put aside any frustration with the pace of French reforms on Thursday, telling France's finance minister that his budget plans were on track and avoiding mention of ballooning pension costs.
Relations between Brussels and Paris have been tense since the European Commission, the EU executive, told France to cut spending and reform its pension system in return for a two-year reprieve on meeting European budget targets.
President Francois Hollande has warned the Commission not to tell France how to modernise its frail economy but his finance minister Pierre Moscovici still sought to reassure Brussels, a day after presenting the French budget for 2014.
"France has made a huge effort to restore its public finances, and this draft budget law is characterised by responsibility and prudent policy making," Olli Rehn, the EU's economic and monetary affairs commissioner told a joint news conference with Moscovici, waving a copy of the French budget.
Rehn made no mention of Hollande's pension reform plans, which do not raise the country's retirement age as the Commission has demanded. Germany also wants to see the euro zone's second largest economy address overspending.
Brussels says Paris is not taking radical enough action to combat rising labour costs, a falling share of international export markets and an industrial decline, threatening a shock to its economy that would resonate through the 17-nation euro zone.
France's economic well-being is central to the health of the currency area, but the country's pride in its status as a leading member of the European Union means it resists taking advice from EU institutions.
The pension reform, among the most closely watched measures undertaken by Hollande since he took office in May 2012, aims to fill a hole in the pension system that could reach almost 21 billion euros ($28 billion) by 2020.
Though Hollande's reform will lengthen the number of years worked, it does not change the legal retirement age of 62 years for a full pension, which is one of the lowest in Europe.
In the shadow of the pension reform, Moscovici presented France's 2014 budget to parliament on Wednesday. He plans 15 billion euros in savings to reach a deficit of 3.6 percent of economic output, which should allow Paris to bring the budget deficit to below the EU's 3 percent ceiling in 2015.
Under EU rules, sharpened at the peak of the debt crisis in late 2011, euro zone countries can face fines if they fail to meet deficit targets and risk damaging investor confidence.
Moscovici was also keen to convince Rehn, who has new powers to check countries' budgets, that France's planned budget savings and economic forecasts are in line with its commitments.
He also sought to play down any suggestion that France would not respect the Commission's new monitoring powers.
"Europe does not pose a constraint. Europe is not a problem. In France, Europe is a solution," Moscovici said.
In one of the most far-reaching responses to the region's debt crisis, euro zone countries must submit their draft 2014 budgets to the Commission by October 15. They will then be scrutinized for any shortcomings, including unrealistic revenue projections or insufficient spending cuts.