FACTBOX-Political risks to watch in France

PARIS, March 1 (Reuters) - President Francois Hollande's pledge to steer France's economy towards recovery is crumbling as faltering growth drives unemployment to new highs and erodes his fiscal credibility.

After saying late in February he had given up hope of bringing the public deficit below an EU ceiling of 3 percent of economic output this year, the Socialist leader will have to persuade sceptical euro zone partners that Paris should get an extra year.

Poll gains that Hollande won following France's January military intervention in Mali are also wearing thin, putting him on a shaky political footing as he seeks new ways to spur growth.


The French mission to end Islamist domination of northern Mali has driven militants out of key towns. Concerns are growing the hunt for the rebels in Mali's vast desert expanses could take much longer and entangle France in a complex conflict.

Further complicating the intervention, gunmen have taken three French adults and four children hostage in northern Cameroon, accusing France of declaring war on Islam with its campaign in Mali.

What to watch:

- Militant attacks by al Qaeda-linked rebels

- An extension of military operations beyond March


Hollande aims to reform France's overstretched pension system, reduce a bloated public sector and push a draft bill on labour reform through parliament following a deal between unions and employers that loosens labour regulations.

The labour bill, pension reform and public sector rationalisation will be closely studied by foreign investors wary of any signs that Hollande's commitment to improving competitiveness is weakening.

What to watch:

- Signs the labour bill is blocked or watered down

- Early discussions on pensions in weeks ahead


Hollande has pledged to turn around the economy by end-2014, but unemployment has risen to a 15-year high and the total number of jobless people is a hair away from a record.

As industrial layoffs and plant closures mount on an almost daily basis, crisis management risks absorbing government energy that would have otherwise gone towards pushing through reforms.

What to watch:

- Protests over unemployment and plant closures

- Jobless claims breaching a record high


The Finance Ministry will redraft its deficit-reduction plans in the coming weeks to take into account that growth is proving weaker than the 0.8 percent target it built the 2013 budget on.

France will have to convince other euro zone countries that it will not ease its deficit-cutting efforts even though it needs an extra year to meet the 3-percent target.

What to watch:

- The government's revised growth and deficit forecasts

- Opposition to giving France more time to reduce its deficit (Reporting by Leigh Thomas; Editing by Andrew Heavens)