PARIS, France (Reuters): French President Nicholas Sarkozy will try this week to defuse protests against his economic plans but talks with unions will be tough with unemployment rising, growth tumbling and Caribbean unrest threatening to spread.
More than a million people took to the streets across France two weeks ago in protest at Sarkozy's policies, demanding pay rises and protection for jobs in the face of the downturn, and trade unions have penciled in another protest next month.
Sarkozy's 26 billion euro ($33.6 billion) stimulus plan has focused on public spending projects such as building roads and modernizing rail links rather than helping consumers directly. Unions and the political left have called on him to change tack.
A television appearance after the protests, intended to allay public fears, only weakened Sarkozy's support further. He will head into a meeting with unions on Wednesday under pressure to address their concerns, but room for maneuver is limited.
"The outcome of my five-year term is at stake," newspaper Le Figaro, which is close to Sarkozy, quoted him as telling advisers in its Saturday edition.
French gross domestic product fell 1.2 percent in the last three months of 2008, its biggest drop in 34 years, as exports fell and retailers reduced their stock, and unemployment in December was 11 percent higher than a year earlier.
Increasing the pressure on Sarkozy before Wednesday's "social summit," the opposition Socialists have called for a 1 percentage point cut in value-added tax and a 3 percent rise in the minimum wage to give a boost to consumer spending.
"France is the only country not to act massively and immediately in the direction of purchasing power, while a consensus has been established by economists on the need for such measures alongside those in favor of investment," prominent Socialist Dider Migaud said last week.
Britain has cut its value-added tax by 2 percentage points but Sarkozy lambasted the move in his television address, saying it "brought absolutely no progress," angering Downing Street.
Sarkozy has also said it is only worth increasing France's public debt for stimulus measures that amount to investments for the future rather than funding consumer spending, even though that is traditionally the main driver of French growth.
He is likely to cite one of the few bright spots in last week's GDP figures in his defense -- household consumption rose 0.5 percent in the last three months of 2008, suggesting that consumers did not need further encouragement to keep spending.
But that is unlikely to sway protesters in the French Caribbean islands of Guadeloupe and Martinique which have been crippled by strikers demanding pay rises and lower food prices.
Unions and associations began the protest in Guadeloupe on January 20 demanding a 200 euro monthly rise for low-wage workers. The protest has since spread to Martinique and, to a more limited extent, the Indian Ocean island of Reunion, and there are fears that it could spread to mainland France.
An IFOP poll for regional newspaper Sud-Ouest published on Saturday found 63 percent of respondents believed similar protests could soon take place on the mainland.
With Sarkozy so far unwilling to meet national unions' demands on boosting consumer spending, there is little obvious room for an agreement to avert further protests.
Le Figaro said Sarkozy could announce proposals before Wednesday's meeting, but did not say what they might be, and some analysts said concessions may soon become necessary.
"If household demand were to weaken, we would be on the brink of recession. In those conditions, it is hard to imagine not providing a boost, targeting the households that are most likely to spend," said Alexander Law, chief economist at research institute Xerfi.
