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France's Hollande names new PM, pledges tax cuts after poll rout

French Interior Minister Manuel Valls leaves after the weekly cabinet meeting at the Elysee Palace in Paris in this February 19, 2014 file p
French Interior Minister Manuel Valls leaves after the weekly cabinet meeting at the Elysee Palace in Paris in this February 19, 2014 file p

By Mark John and Emmanuel Jarry

PARIS (Reuters) - President Francois Hollande named centrist Interior Minister Manuel Valls as his new prime minister on Monday, replacing Jean-Marc Ayrault who quit after ruling Socialists were trounced in local French elections.

Hollande vowed to pursue cuts in labor charges for business but also promised tax cuts to boost consumer spending, insisting that EU partners take his reform efforts into account in judging whether France had respected commitments to Brussels.

"I have understood your message, it is clear," Hollande said in a televised message to the nation in which he acknowledged his 22-month-old government had so far failed to turn around the euro zone's second largest economy.

"Not enough change and too much slowness. Not enough jobs and too much unemployment. Not enough social justice and too many taxes... I say it once again: we have to get our country back on the right track."

The 51-year-old Valls has been compared with "New Labour" former British Prime Minister Tony Blair for his pro-business ideas and his dashing style. He is a bogeyman to the Socialist left, having proposed changing the party's name and criticized the flagship 35-hour work week it pioneered over a decade ago.

Valls, who friends say harbors his own presidential ambitions, is expected to present a slimmed-down government team before Hollande travels to a EU-Africa summit in Brussels late on Wednesday.

Hollande said France would pursue public spending cuts to help narrow its budget deficit and reduce labor charges on business by some 30 billion euros ($41.35 billion), part of a "responsibility pact" with employers he launched in January.

But he said Sunday's elections, in which his Socialists lost control of more than 150 towns, also showed the need for a "solidarity pact" offering workers tax cuts and assurances on welfare, youth training and education.

He did not detail how much that would cost but said it would be financed from the more than 50 billion euros of public spending cuts he has already announced in the next three years.

"The government will have to convince Europe that this effort by France to boost growth and competitiveness should be taken into account in how it respects it commitments," he said.

European partners last year gave France an extra two years until end 2015 to bring its public deficit down to below the EU treaty limit three percent of gross domestic product.

Data released on Monday showed the deficit stood at 4.3 percent of gross domestic product in 2013, higher than the government's 4.1 percent target.

LIKE SARKOZY?

Political commentators have compared Barcelona-born Valls, who has taken a tough line on crime and Roma migrants, with former conservative President Nicolas Sarkozy, the son of a Hungarian immigrant who earned his spurs as a security hardliner in the same ministerial position.

The two members of Hollande's Greens coalition partners in the outgoing cabinet, Housing Minister Cecile Duflot and Development Minister Pascal Canfin, will not join the new government, a source close to Canfin said.

Ayrault acknowledged that he and his ministers bore part of the blame for Sunday's defeat, which saw 155 towns swing to the centre-right UMP and the far-right National Front claim 11.

Facing the lowest popularity levels of any president in the 56-year-old Fifth Republic, Hollande changed tack earlier this year to a more pro-business stance aimed at spurring investment and jobs through cuts in corporate social charges.

The president has said a mid-April vote in parliament on his "responsibility pact" package of tax cuts for companies will also be a vote of confidence in his government.

Provisional results from Sunday's voting showed the anti-EU National Front party of Marine Le Pen taking control of 11 towns across the country plus one district in Marseille, surpassing a past record in the 1990s when it ruled in four towns.

The National Front's wins were largely in the south, which has a tradition of anti-immigrant feeling. But it also took power in northern towns such as Henin-Beaumont and Hayange, which are suffering from France's industrial decline.

"This result is proof that we can win on a grand scale," Le Pen told BFM TV, adding that the vote showed her party could win European Parliament elections due in late May. Pollster Ipsos on Sunday put the FN narrowly behind the UMP for the EU vote, with the Socialists trailing in third place.

In some consolation for Hollande, Socialists retained control of Paris city hall, with their candidate Anne Hidalgo due to become the first female mayor there.

($1 = 0.7256 Euros)

(Additional reporting by Nicholas Vinocur, Pauline Ades-Mevel and Brian Love; Editing by Gareth Jones and Paul Taylor)

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