* Hollande says jobs are his priority
* Says will be no repeat of partner's tweet scandal
* Blasts Peugeot for mismanagement, lies
By Daniel Flynn and John Irish
PARIS, July 14 (Reuters) - President Francois Hollande marked Bastille day celebrations on Saturday with a pledge to fight industrial layoffs and clean up French politics, after watching troops parade down the Champs Elysees as jets streamed the national colours overhead.
The Socialist leader's first National Day since winning office in May was overshadowed by outcry at mass job cuts announced by carmaker Peugeot and a scandal over his private life threatening to undermine his image as "Mr Normal".
Reviving the tradition of a July 14 television interview, scrapped by his predecessor Nicolas Sarkozy, Hollande said France had to make an "effort" to restore its public finances but ruled out the kind of painful austerity causing protests in Spain and Italy.
"My mission is to help France recover and give it a future. Jobs are my priority," Hollande said in the interview at navy headquarters overlooking the historic Place de la Concorde, where thousands went to the guillotine during the Revolution.
Hollande, who pledged during his campaign to curb the highest unemployment level in 12 years, faces a major challenge after Peugeot said on Thursday it would axe 8,000 jobs in France.
Accusing the company's management of strategic errors and misleading the public over its intentions, Hollande said he could not accept the restructuring plan as it stood and promised public incentives to help French-made cars.
During the interview he also said he had told his partner, journalist Valerie Trierweiler, and the wife of his four children, Segolene Royal, to end a public spat.
The parade - which ended with parachutists landing before the presidential tribune - came as Paris struggles to pare back one of the highest levels of public spending in Western Europe to meet an EU deficit target of 3 percent of GDP next year.
The government announced 7.2 billion euros ($8.8 billion) in new taxes last week to plug a budget shortfall for this year and needs to find 33 billion euros in 2013 to meet its European deficit targets or risk unnerving financial markets.
"I knew the state of France before I inherited it. I am not going to pretend that I just discovered it," Hollande said.
He said the government was looking at a raft of measures to fill the shortfall, including an increase in the CSG social welfare charge recommended by the state auditor this month, which would hit all households.
"I'm not going to announce today an extra tax for the majority of the French ... A rise in the CSG is one of the things under study, among other measures," he said.
With his popularity already hit by voters' fears over austerity, Hollande has also had to deal with simmering tensions between his partner, his four children and their mother, Socialist politician Royal.
The affair flared this week when Thomas Hollande, his eldest son, told Le Point magazine he and his siblings wanted no contact with Trierweiler after she backed Royal's rival in a legislative election in the western city of La Rochelle in June.
Royal said a tweet from Trierweiler in support of her opponent was partly to blame for her losing the seat, fuelling media reports of bitterness between the two women.
"Private matters should be handled privately and I told those close to me that they should scrupulously respect this principle," Hollande said in Saturday's interview, promising their would be no repeat of the incident, dubbed "tweetgate".
Trierweiler sat in a separate tribune from Hollande to watch Saturday's two-hour parade under cloudy Parisian skies in the Place de la Concorde. Thousands of onlookers packed the tree-lined avenue, decked out in France's Tricolour flag, as troops, cavalry and tanks streamed past from the Arc de Triomphe.
A day after police opened a preliminary graft investigation into Sarkozy's former chief-of-staff Xavier Musca, Hollande appointed ex-Socialist Prime Minister Lionel Jospin to head a taskforce to clean up and modernise politics.
"There must be rules put in place so that no conflict of interest will be tolerated," he said.
An avid football fan, Hollande was also asked about the behaviour of French soccer players during June's European championships when the team was knocked out amid a scandal over their attitude and perceived lack of national pride.
"When you wear the French jersey, you have to be irreproachable. Look at the soldiers on parade. They don't necessarily earn much but they are ready to give up their life."