UPDATE 1-French employers say draft labour accord unacceptable

* Talks on labour reform due to conclude this week

* Employer chief says cannot meet union demands

* Government to legislate if talks fail

By Nicholas Vinocur

PARIS, Jan 7 (Reuters) - French employers will reject moves
to overhaul rigid labour rules unless unions drop demands for
heavier welfare charges on short-term job contracts, their
leader said on Monday, suggesting talks this week could fail.

Socialist President Francois Hollande called on employers
and unions to strike a deal by the end of 2012 that would grant
companies more flexibility in hiring and firing while giving
more job security to workers on short-term contracts.

Talks between the Medef employers' union and main labour
groups spilled over to January after the last round broke up on
Dec. 21 without a deal, with each side accusing the other of
making unacceptable demands.

As talks resume this week, Medef chief Laurence Parisot said
employers would be unable to sign a deal imposing higher costs
for hiring on seasonal or short-term contracts.

"At this point in our discussions, including talks we had
all day yesterday, on Sunday... the Medef will not sign the
deal," Parisot said on Radio Classique. "The issue of taxation
for short contracts is a vital question."

The government says it will impose its own deal if the two
sides fail agree. But legislating without support from unions
and employers could expose it to criticism. Unions may influence
left-wing parliamentarians to water down the agreement.

ABSOLUTELY DISASTROUS

The government is pushing for a deal to address concerns
that France has a two-speed labour market, with those on
long-term job contracts enjoying too much job security and those
on short-term contracts too little.

It has also granted French companies 20 billion euros in tax
credits to offset high social security charges for labour, which
is often cited by economists as a brake on growth and an
important factor in maintaining chronically high unemployment.

Unit labour costs in Germany crept up 2 percent 1999-2010,
while in France they leapt by more than 20 percent, OECD figures
show. Productivity gains were pumped back into wage increases to
fuel domestic demand.

French unemployment is at a 13-year high while across the
Rhine joblessness is at 6.9 percent, below the euro zone
average.

Parisot said that heavier levies on short-term contracts,
which are mainly used in tourism and restaurants, would make
employers less - not more - likely to hire, while undermining
broader efforts to ease wage pressures.

"It would be absolutely disastrous...to fail because of this
purely symbolic issue," she said.

Parisot, accusing Hollande's Socialist government of
indirectly interfering in the talks to employers' disadvantage,
added that they would not extend negotiations beyond this week.

FLEXIBILITY

Employers want an agreement that will allow companies to
adjust their wage burden more nimbly in a downturn, as well as
simplifying the rules about firing workers to make the process
more predictable and keep costs in check.

Two major unions reject measures to add flexibility. All
five unions at the talks want greater job security for workers
on flimsy contracts, calling for employers who use them to be
penalised by paying higher taxes or more welfare contributions.

Unions reject greater flexibility in work contracts and
demand more security for short-term workers. They want employers
using short-term contracts to pay more tax or higher
contributions to the a fund that pays out unemployment benefits.

"At the moment we have to be pessimistic," Stephane Lardy,
negotiator for the hardline Force Ouvriere (FO) union, told
Reuters. "It's obvious that the last draft the employers offered
us is very, very far from an agreement."

Labour Minister Michel Sapin said the government would
present a draft law regardless of the talks' outcome. However,
he expressed faith in a deal being reached by Jan. 11, when
talks are due to conclude.

"They're negotiating, it's their responsibility, and I'm
letting them negotiate," he told Canal+ television.