PARIS President Nicolas Sarkozy used a primetime television interview on Sunday to flesh out a flurry of measures to boost employment and competitiveness which he hopes to rush through France's parliament before a presidential election in April.
Sarkozy, who is running far behind Socialist challenger Francois Hollande in opinion polls for the election, said he would raise the VAT rate to 21.2 percent from 19.6 percent from October to fund a reduction in social charges on companies.
The move, which Sarkozy first alluded to in a New Year's speech, is aimed at narrowing a competitiveness gap with Germany that is weighing on French growth, but it risks angering voters.
Among other measures, Sarkozy said he would set up an industrial investment bank in February with a billion euros in capital that will lend to small and medium-sized businesses struggling to obtain financing in today's climate.
He also said companies with more than 250 employees would be obliged to take on interns to the level of 5 percent of total staff, as a way of helping reduce chronic youth unemployment.
Sarkozy said he had a duty as president to hold off announcing his re-election bid until as late as possible.
Yet his interview, broadcast live across eight TV channels, seemed timed to respond to a series of TV appearances and speeches last week by Hollande, who is campaigning at full throttle for the two-round election on April 22 and May 6.
"We have to protect employment, we have to defend it, value it," said Sarkozy, who has thrown his focus onto growth and jobs since it became clear late last year that his deficit-cutting efforts could not save France from a credit rating downgrade.
"I am convinced this decision will save jobs and that it's the only credible way to stop outsourcing," he said of his so-called "Social VAT" plan to ease firms' social contributions.
Sarkozy, who turned 57 on Saturday, said a financial transaction tax he is planning for August would set a tax of 0.1 percent on transactions in French securities.
He gave no detail on the tax, which France wants to be adopted across the European Union, but a government source later said it would target shares, not bonds, and could raise a billion euros annually.
Separately, Sarkozy announced a rise in taxes on individuals' financial income such as interest and dividends.
UPS AND DOWNS
Sarkozy has worked hard in recent months to present a more austere and presidential demeanor following criticism of his informal and sometimes brash manner, and he stuck to a highly technical discourse on Sunday. He referred frequently to Germany as an economic model that France should be copying.
Setting the stage for what aides say will be an "honest" campaign that admits past mistakes yet seeks to show he is the safest pair of hands to steer France out of economic gloom, Sarkozy sounded a note of humility about his years in office.
"I accept the criticism," he said, adding that there had been "ups and downs" and things he regretted.
Opinion polls show Sarkozy could lose a runoff against Hollande by 10 percentage points, and some in his UMP party believe he is suffering from his decision to leave launching his campaign until close to a March 16 deadline.
Hollande put in an able performance last week in a TV debate against Alain Juppe, Sarkozy's foreign minister and one of the most talented politicians in his team, and he also unveiled a weighty and fiscally responsible economic plan.
In an attempt at one-upmanship, Sarkozy said France's public deficit for 2011 could come in as low as 5.4 or 5.3 percent of gross domestic product, well below a target of 5.7 percent.
Yet illustrating the economic challenge ahead, the source said that the government will soon revise down its 1.0 percent forecast for 2012 growth.
Both Hollande and Sarkozy are seizing on the euro zone crisis and what many fear is a descent into recession in France as their key focus for the 2012 election.
While Hollande blames France's woes on more than a decade of conservative leadership, Sarkozy is playing on his experience next to a man who has never been a government minister.
An Ifop poll published on Sunday showed, however, that many see Hollande as the best candidate to tackle debt reduction and unemployment, which is running at a more than 12-year high.
The poll found 46 percent of respondents trusted Hollande most to fight unemployment, versus 22 percent for Sarkozy, and 34 percent chose Hollande as the best to handle the public debt, versus 32 percent for Sarkozy.
Underlining a belief that Hollande could defeat Sarkozy, Angela Merkel's Christian Democratic Union (CDU) party said on Saturday that the German Chancellor plans to actively back Sarkozy in his campaign by making joint appearances with him.
(Editing by Alison Williams)