By Ingrid Melander and Yann Le Guernigou
PARIS (Reuters) - France's government proposed a reform bill on Wednesday that is crucial for avoiding EU sanctions but risks being watered down by left-wing lawmakers angry with President Francois Hollande's deregulation drive.
The bill - which polls show the French themselves broadly support - aims to let shops open more often on Sundays and resolve disputes over firings more rapidly. It includes plans to deregulate the legal trade and cut red tape for construction.
It is France's attempt to prove to its European Union peers that the euro zone's second-biggest economy is carrying out reforms needed to get a new reprieve in March on its missed budget targets and avoid sanctions.
The bill is spearheaded by new Economy Minister Emmanuel Macron, an ex-banker who has played a key role in Hollande's pro-business switch.
Macron said the aim was "to remove the locks that burden our economy", which is stagnating.
The Bank on France forecasts just 0.1 percent growth in the fourth quarter of this year and data on Wednesday showed a worse-than-expected 0.8 percent drop in French industrial output in October while paid employment fell 0.3 percent in the third quarter.
But lawmakers to the left of the ruling Socialist Party have warned they would vote against the bill if it is not diluted and would even campaign against it, making this a major test for the most unpopular French president in polling history.
That promises tough debates in parliament for Hollande's government in 2015, when it faces two sets of local elections and a Socialist Party convention in June, when politicians will start jockeying for position before the 2017 presidential elections.
"The government is therefore likely to remain between a rock (fading support for reforms at the National Assembly) and a hard place (European Commission recommendations) for some time," analysts at Exane BNP Paribas said in a note.
"While we believe sanctions are still unlikely, the European Commission will probably require more efforts next spring," they said.
SILVER LINING FOR HOLLANDE?
The so-called "Law on Growth and Activity" plans to let shops open up to 12 Sundays a year from five currently, with more flexibility on opening hours in tourist areas, which have long envied London's seven-day-a-week shopping culture.
That's one of the most controversial parts of the bill and Prime Minister Manuel Valls has already said that compromise solutions could be found on this point.
Shoppers on the streets of Paris, locals and tourists, appeared broadly positive about the extension of Sunday trading were broadly positive.
"Travellers come here on Sunday so this is a good opportunity for shops to bring in more income, and it's more convenient for the traveller as well," said Whan Jarupiaiyapong, 34, a visitor from Thailand who works in online cosmetics sales.
"If people want to do something like go to church on Sundays, perhaps working on a shift pattern is the way to solve this problem," she suggested.
The bill also aims to open long-distance bus routes to competition and open up closed professions such as notaries, who have a lucrative monopoly on transactions like moving house.
The silver lining for Hollande, whose economic policy is judged to be bad by nearly 90 percent of French, according to a recent poll, is that close to 60 percent actually back this law, the same poll showed.
"At a time of crisis and deep anxiety for the French people, boldness pays off more than fear of offending your own camp," Odoxa pollster president Gael Sliman said.
(Additional reporting by Jean-Baptiste Vey and Hannah Murphy; Writing by Ingrid Melander; Editing by Mark John and Susan Fenton)