By Nicholas Vinocur
PARIS (Reuters) - President Francois Hollande's plan for tens of thousands of state subsidized jobs will not fix France's stagnant economy but it may be enough to keep angry unions and jobless youths off the streets as layoffs mount after the summer.
Two months into his presidency, Hollande faces a gathering storm as unemployment climbs past 10 percent and threatens to jump even higher this autumn.
Worsening prospects for many jobless youths have fed frustration in the poor suburbs that ring major French cities, which saw riots in 2005. France's militant unions, alarmed by mounting factory closures, are bristling for a fight.
"My hypothesis is that after holidays there will be social upheaval because people will no longer be able to express their frustration by voting," said Dominique Reynie, head of political think tank Fondapol.
"Everything Francois Hollande has done until now has been to prepare the French for a shock in the autumn."
Hollande's strategy borrows heavily from his political mentor, former Socialist premier Lionel Jospin, whose mass youth employment scheme in 1997 is often credited for sparking one of the longest periods of job creation in postwar France.
But economists say what worked for Jospin - who enjoyed robust economic growth and virtually no spending limits during his five-year term - is unlikely to yield the same result in 2012 for Hollande, who has neither luxury.
Anaemic growth and strict budgetary constraints have squeezed the funds Hollande can pour into job subsidies and public sector hiring, limiting the impact of his plan to a shallow and short-lived rise in employment.
Hollande's jobs strategy appears geared to serve another, more political, purpose: soothing anger among workers and jobless youths.
"It's the easiest solution," said Philippe Askenazy, an economist at the CNRS research institute. "It will not change France's economic situation, but it does have an immediate soothing effect on society.
"Faced with a weak economic situation, we are choosing a social policy to avoid instability."
As Hollande rounded out a first month in office in June, unemployment hit a 13-year high, with nearly a quarter of youths aged 18-25 out of work.
In a report this week, research body Coe-Rexecode wrote that the employment situation would likely worsen this year and that businesses' expectations for hiring had "brutally fallen".
Elected on a "jobs first" platform, Hollande campaigned on a promise for state-backed measures to boost employment and raise domestic demand.
His campaign literature called for the creation of 150,000 public sector youth jobs, 80,000 additional subsidized jobs, 60,000 teaching posts, as well as a so-called "generation contract" to encourage companies to hire younger workers.
The cost of such plans, spread over a five-year term, is more than 11 billion euros, according to estimates by the Institut de l'Entreprise business group. Hollande's camp says the expense will be recouped by rolling back Sarkozy-era tax breaks.
Meanwhile, job losses are mounting.
Unions have warned that many struggling firms, which postponed restructuring decisions until after parliamentary elections in June, are poised to unleash a wave of more than 75,000 redundancies. Some 8,000 layoffs announced by carmaker Peugeot last week were just the beginning, they say.
And if Hollande's administration gives with one hand, it may be about to take away with another.
Mass layoffs at Peugeot are piling pressure on the government to cut social welfare levies as a way of easing labor costs and making French industry more competitive.
With his government struggling to find 33 billion euros ($40 billion) in deficit cuts for next year, Hollande cannot afford the billions of euros in subsidies and cheap loans thrown at the auto sector by the previous government to stave off jobs cuts after a worldwide economic slump in 2008-2009.
For Hollande, the context is the opposite of what Jospin faced in 1997, when he embarked on a five-year program that created 300,000 jobs and reduced unemployment.
While Jospin enjoyed the budgetary freedom to expand his program almost at will, Hollande cannot afford to bolster a scheme which economists warn is already too small to have knock-on effects on the broader labor market.
"These are costly measures whose real impact on the economy and the employment situation will be, at best, marginal," said Denis Ferrand, head of economic forecasting at liberal think-tank Coe-Rexecode.
For many private sector employers, the answer to France's job woes is clear: push through painful reforms of the labor market to ease hiring and firing, reduce social charges on employment and make French firms more competitive.
In an acknowledgment of private sector arguments, Hollande opened a two-day summit between unions and the government earlier this month with a speech that pointed to "structural rigidities" as a weak point of the French economy.
But union warnings of impending mass layoffs cast a pall over the conference, relegating discussion of labor reform to later meetings, which prompted an angry outburst by the head of the MEDEF employers chamber, Laurence Parisot.
Labor Minister Michel Sapin made it clear that, while the government would push through parliamentary approval of the youth jobs scheme by October, discussion of cutting labor costs would be pushed back until 2013.
"It is a shame to delay these measures by another year when we have already diagnosed the decline in our competitiveness," said Coe-Rexecode's Ferrand. "We have called for a competitiveness shock. We need it as soon as possible."
(Editing by Daniel Flynn/Mike Peacock)
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