PARIS: Financial markets shelved hopes of significant economic reforms in France after President Jacques Chirac appointed a close ally, Dominique de Villepin, as his new prime minister on Tuesday. Analysts said Nicolas Sarkzoy, the ambitious chairman of the ruling UMP party, would have been a better bet if Chirac had wanted to signal a change in the direction of policy and branded the appointment of his rival as a vote for the status quo.

Tough reforms were seen unlikely to be on Villepin’s agenda and analysts predicted he would plump for policies aimed at pleasing disenchanted voters, who delivered a crushing blow to the government by rejecting the EU constitution on Sunday.

“This is a perfect example of what is wrong with France,” said Paul Hofheinz at the Brussels-based Lisbon Council, which lobbies for economic reform. “They have just had a monumental defeat and instead of drawing the conclusion they need to do things differently, they are giving off the signal that it is business as usual — which so far has meant running away from the problems.”

Economists said it was unclear whether Sarkozy would have been able to pull off the trick of convincing discontented voters of the need for change but dismissed any hopes of reforms with Villepin now in power.

“Villepin is unlikely to rock the boat and his appointment is seen as a reflection of the anti-reform stance,” said Dominique Barbet, senior economist at BNP Paribas.

Previously interior minister, one of Villepin’s challenges will be to ensure the electorate does not punish the ruling centre-right party in the presidential elections in 2007 for perceived economic failures.

That will mean tackling slowing growth, high unemployment, and sagging business and household confidence at a time when France is on a tight budget in order to comply with European Union budget deficit rules.

New answers to this conundrum are unlikely from a Villepin government, market analysts said.

“Villepin is a very, very close friend of Chirac ... and from a political point of view it’s a very strong statement,” said Stephane Deo, econmomist at UBS in London.

Failure to reverse households’ concern about job security or the perception that their purchasing power is being eroded will cast a pall over the outlook for the euro zone’s second biggest economy.

“France, with an unemployment rate of over 10 per cent, at the moment is in a worse situation than before the Revolution,” Maurice Allais, 1988 Nobel economics prize winner, said in an interview with Spain’s La Vanguardia newspaper.—Reuters