Chirac withdraws controversial youth job law

Mr Chirac's retreat comes after some eight weeks of protest against the law which was designed to boost employers' incentives to hire young people by making labour market rules more flexible.

Opponents of the law had objected to it allowing under 26-year-olds to be fired for no stated reason within two years, fearing a loss of job security.

The scrapping of the law is a blow for French prime minister Dominique de Villepin who is hoping to be a candidate for French president in the 2007 elections.

His popularity ratings have plummeted since he introduced the law, known by its French acronym CPE.

"The necessary conditions of trust and serenity don't exist, either among the youth, or among companies, to allow an implementation of the CPE,'' Mr de Villepin said in a live television address.

Labour minister Jean-Louis Borloo told Le Monde newspaper that the law will be replaced by subsidised job programmes and training and financial incentives for companies hiring unskilled youth workers on permanent contracts.

At the moment, youth unemployment in France stands at 22 percent and has become a major political issue in the country.

Afraid of reform?

For its part, the European Commission has been watching Paris' attempts to introduce the law with interest.

Last month, commission president Jose Manuel Barroso, referring to the protests against the law, said Europe shows "nostalgia for revolution, but fear of reform".

He went on to add that Brussels would continue to "support and encourage" reforms despite popular resistance.

Mr Barroso's term in office has been characterised by a strong pursuit of free market ideology.

He argues that opening up Europe's markets, including the strict labour laws that characterise some member states, is the only way to compete with rising economic powers like China and India.

Brussels has clashed with Paris several times, particularly after Mr de Villepin announced a policy of "economic patriotism" - protecting sensitive sectors from foreign companies.

France's protests against the youth job law came to be seen as symbolic of French resistance to Brussels-driven economic reforms as it pushes the EU to adapt to globalisation.