Analysis: France's Sarkozy faces strikes and budget woes

France's President Nicolas Sarkozy delivers a speech in the French Alps, April 22, 2010.

PARIS (Reuters) - President Nicolas Sarkozy's summer break ends with a thud this week as France's soaring debts force the French leader to slash costs in a country where the word austerity is taboo.

Labor unions are planning a big strike over pension reform, his government has a month to prepare a deficit-shrinking budget and opinion polls offer him cold comfort as 2012 elections loom larger in French political life.

Under pressure to convince financial markets that France is serious about debt control while it crawls out of recession, the difficulty that the French president faces is that what pleases investors may deeply displease voters.

Sarkozy, who will hold a first post-vacation cabinet meeting on Wednesday, is unlikely to make any concessions on the plan to raise the legal retirement age to 62 from 60, analysts say.

Nor is he expected to back down on a belt-tightening budget for next year, as France's strives to make progress on European promises to knock its public deficit back to 3 percent of gross domestic product by end-2013 from 8 percent this year, starting with a drop to 6 percent in 2011.

But he is struggling to convince voters that he has a strategy which goes beyond protecting France's top-notch AAA credit rating, a grade that allows the country to service a large debt as cheaply as possible in markets.

"The big problem is the seeming lack of clarity and vision," said Francois Miquet-Marty, political analyst at Viavoice, an opinion polling agency.

"Nicolas Sarkozy gives the impression his hands are tied. Ultimately, the impression is that he is at the mercy of the economic climate rather than in control of it."

PAIN AT ALL ONCE

That sits uneasily with the fix-it rhetoric that swept him to power in 2007, when the global economy was booming.

A survey by Viavoice highlights the danger now for Sarkozy, who has less than two years left of his five-year term.

The survey published on Monday showed 55 percent of voters would prefer a candidate from among his adversaries on France's political left for the 2012 election, be it Socialist party boss Martine Aubry or Dominique Strauss-Kahn, an ex-finance minister who now heads the International Monetary Fund. IDLnLDE67L0A8

Sarkozy might have expected to draw at least some benefit from his recent announcement of plans to dismantle hundreds of itinerant camping sites and send dozens of Roma people home to Romania, but his poll ratings remain close to rockbottom.

An Ipsos poll released on Monday, and conducted after the announcement and start of expulsions, showed his support rating slipped one percentage point to 34 percent, leaving it just two points above an all-time low.

What makes Sarkozy's life harder is that the pension reform bill starts its passage through parliament at much the same time as the government prepares a budget bill set to freeze civil servants pay next year and remove tax breaks worth some 10 billion euros.

"The government has no choice," said Marc Touati, head of economic research at Global Equities, an investment brokerage. "Either they stick to their guns or lose that AAA rating."

Touati said the job is by no means "mission impossible" for all that, and that much of it will depend in the weeks to come on how well Sarkozy and his ministers manage expectations.

TAX RISE RULED OUT

Sarkozy took time out of his summer holiday last Friday to meet ministers and announce that France's official growth forecast for 2011 was being cut to 2 percent from 2.5 percent, but that the economy was on the mend.

Several of Sarkozy's ministers have mobilized via the media in the meantime to stress the need to sort out France's public finances and the government's determination to stay the course after a debt market crisis that hit the euro and left Greece dependent on international financial support.

The cut in growth forecast, according to his budget minister Francois Baroin, means the government has to find 3 billion-3.5 billion euros next year on top of the 40 billion the budget bill was already going to have to raise via spending cuts or taxes.

The government is now exploring every way it can to increase its tax take without raising tax rates. The latter was a promise Sarkozy made when he ran for election but the difference between the two is subtle for many, said Miquet-Marty.

Sarkozy hopes the pension reform bill will be wrapped up and approved in parliament by the end of October, whereafter he is expected to reshuffle his cabinet in what some commentators believe will be the last big change of lineup before elections in the first half of 2012.

Between now and then he will have to take stock of just how many people the unions mobilize on Sept 7, when rail transport will likely be badly disrupted or even paralyzed.

All the main trade unions at the state railways have called workers to strike that day, and two unions at the Paris urban rail network have urged staff to go on an open-ended strike.