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PARIS - France's Nicolas Sarkozy won a clear mandate in last night's (NZT) presidential election to reform the euro zone's second biggest economy and is expected to move fast to try to introduce unprecedented labour market flexibility.
Promising reforms which would put France on an economically more liberal
path, Sarkozy won about 53 per cent of the votes in a run-off vote that attracted the biggest turnout in a quarter of a century.
The size of his majority gives Sarkozy strong political legitimacy to carry out his pledge to secure full employment in five years with measures designed to encourage people to work and firms to hire, analysts said.
This, rather than cutting the budget deficit and debt, is expected to be his priority for most of the first half of his five-year mandate.
"Nicolas Sarkozy showed resolution in wanting to drag France kicking and screaming into the 21st century and seems determined to deal with employment issues and immigration legislation," said David Buik, head of trading at Cantor Index in London.
Sarkozy has promised to exempt overtime from tax and social charges and cut corporate tax. He also wants to create a single labour contract, with social rights increasing over time.
Such measures are expected to help cut a jobless rate of well over 8 per cent -- the highest in the euro zone and third highest in the European Union -- and tackle youth unemployment, which is two and a half times the national rate.
They are also likely to help lift France's growth potential, analysts said.
"In the short term, the impact of Sarkozy's election will be quite limited but in the medium term this is going to be positive," said Dominique Barbet, senior economist at BNP Paribas.
"Things will be going in the right direction when it comes to having more structural reform and a more liberal economy."
Sarkozy will be unwilling to bite off more than he can chew, and is likely to focus on pushing through the labour market reforms he has championed, sweetening any bitterness with tax measures if necessary, analysts said.
"I think they will use the fiscal lever to make sure they can pass the reforms they want to pass," said Nicolas Sobczak, economist at Goldman Sachs in Paris.
"The crucial point is the new labour contract. This will be what everyone is watching. If he manages to introduce this new contract, it will be a big step."
Winning a clear majority in a parliamentary election due in June will be vital to pushing through such reforms.
"He is likely to have a large centre-right majority given it is unheard of for the French to change their minds so quickly," said Guillaume Menuet, economist at Merrill Lynch in London.
A bigger risk is that Sarkozy's reforms anger trade unions and trigger street protests of the sort seen in 2006 over a youth job contract that aimed to make it easier to hire and fire young workers and which the government subsequently withdrew.
Sarkozy has shown he is ready to talk to the more moderate unions and the unions may now be less united now than in the past, analysts said.
An early indication of Sarkozy's ability to overcome resistance to reforms will be whether he can introduce a bill on minimum service in public sector monopolies such as transport. He has promised to introduce it in his first 100 days in office.
"One of the first things that he will do is negotiate with the trade unions over minimum services for public transport and it will be quite key as it will show how he will manage his relationship with the unions," said Laurence Boone, European economist at Barclays Capital.
- REUTERS
