Sarkozy launches bid for second chance as France president

Trailing François Hollande, his socialist rival by 20 points in polls, French leader hopes plans for financial tax and VAT hike will boost economy and his popularity.

France’s president, Nicolas Sarkozy, prepares for a televised interview on Sunday, in which he outlined plans for a 0.1 per cent tax on financial transactions and an increase in VAT of 1.6 percentage Show more

PARIS // Nicolas Sarkozy has launched his campaign for a second term as French president by announcing a series of measures intended to counter his socialist rival's radical programme and boost the country's ailing economy.

Mr Sarkozy has less than three months to persuade a sceptical electorate to give him a second chance after seeing the euro crisis and world financial troubles aggravate the disappointments of a first term that began with bold promises of reform.

He now trails François Hollande, who became the socialist candidate after sex allegations in New York forced the former International Monetary Fund chief Dominique Strauss-Kahn out of contention, by up to 20 points in the opinion polls.

The stubborn appeal of Marine Le Pen, leader of the populist, far right Front National, even raises the threat that he will be beaten in the first round of polling in April, leaving Mr Hollande a theoretically comfortable route to the Elysée in the May run-off.

As the campaign develops, Mr Sarkozy will emphasise his record on foreign affairs, notably his leadership of international support for anti-Qaddafi revolt in Libya and his fierce opposition to violence against protesters in Syria. Despite his rivals' lack of experience on the world stage, however, the election is likely to be decided on domestic issues.

In an hour-long interview on peak-time television, Mr Sarkozy said on Sunday he would introduce a 0.1 per cent tax on financial transactions, expected to include dealings in equities, bonds and derivatives though few details have been given, from August irrespective of whether the rest of the euro zone imposed similar levies. He estimated that this would generate significant yield and help cut France's budget deficit; state debt has been put at 85 per cent of gross domestic product (GDP) with some analysts saying it could rise as high as 95 per cent in two years.

More controversially, he also said the value added tax (VAT) would rise by 1.6 per cent to 21.2 per cent. The idea is to use proceeds to lower the burden of social security charges paid by employers, encouraging them to take on extra staff.

The lower contributions paid by employers would improve competitiveness, he said. Social charges "should not weigh principally on labour, which is so easy to outsource. We should reduce pressure on jobs and seek a contribution from imports, which compete with our products through low labour costs."

But the increased VAT would also drive up prices of goods and services at a time when the public is already complaining bitterly about their diminishing purchasing power.

Mr Sarkozy suggested that by setting October as the starting point for the higher rate, people would have an incentive to make purchases beforehand, creating a spending boom that would aid economic growth.

Whether Mr Sarkozy will be in office to see any of his proposed measures take effect is another matter.

He has been promised the active support of the German chancellor, Angela Merkel, who fears a socialist victory in France would wreck efforts which she and Mr Sarkozy have spearheaded to navigate a course out of crisis for the beleaguered single currency.

But Mrs Merkel's backing has done little to reduce the threat to Mr Sarkozy posed by Mr Hollande.

Mr Hollande would also tax financial transactions but go much further, for example by raising bank taxes by 15 per cent, ending stock options for executives, taxing the wealthy more heavily and restricting the large cash bonuses that have enraged hard-pressed voters.

Rejecting prevailing economic wisdom, he would resist the conservative mantra that there is no sensible alternative to cost-cutting and austerity by increasing state spending to create 60,000 new teaching jobs and provide employment for the young. Unemployment in France is currently 2.8 million, the highest for 12 years, with youth unemployment standing at 20 per cent.

Mr Hollande has also spoken out against the Franco-German plans for saving the euro and says he would renegotiate the measures adopted by members of the single currency area.

Although Mr Sarkozy hopes voters will see the socialist programme as economically illiterate, threatening to create what his centre-right party calls a "middle class bloodbath", there is little sign yet that they are prepared to rally to his support. His public approval rate has remained doggedly low and the absence of good news on the economic front has been underlined by the loss of France's Triple A credit rating.

However, his opponents do expect him to make some improvement in his electoral standing between now and April as he seeks to present himself as the safe pair of hands France needs in difficult times.

Mr Sarkozy will stress that he, too, is no soft touch for the bankers and financial speculators. In his television interview, he said: "What we want to do is create a shockwave and set an example that there is absolutely no reason why those who helped bring about the crisis shouldn't pay to restore the finances."

But he has much to do if he is to convince voters that Mr Hollande, with his vociferous attacks on the world of finance - which he recently described as "my real adversary" - is a woolly idealist unsuited to the challenges of modern economic management.

Immediate response to the president's comments divided on predictable left-right lines, Mr Sarkozy's prime minister, François Fillon, praising his strength and resolve while François Rebsamen, leader of socialist senators, accused him of "killing the patient he's supposed to cure". Bank shares fell on concerns about the proposed transactions tax.

* With additional reporting by Agence France-Presse