PARIS—The French government said it plans to increase the retirement age, setting up a battle with unions who want the French to continue retiring earlier than most other Europeans.

The government said it plans to introduce a bill to raise the retirement age from the current minimum of 60—though it didn't say to what age—and create a new tax on high earners, to try to fix the nation's debt-choked pension system.

Unions have scheduled a nationwide demonstration on May 27 to protest the proposed overhaul.

The sparring comes as France and other European countries are under pressure to rein in their budget deficits after the Greek debt crisis caused financial chaos. France has the same high credit rating as Germany, but some economists are concerned that Paris could suffer a downgrade unless it demonstrates budget discipline.

"It's a litmus test," said economist Christian Saint-Etienne, head of the Générations Citoyennes think tank. "France's creditworthiness is at stake."