French PM rules out resignation over smear scandal

PARIS, May 2 (Reuters) France's Dominique de Villepin today ruled out resigning over a political smear campaign, the latest worry for a prime minister weakened by student protests and riots by poor youths in recent months.

French media have been speculating for days that Villepin might have to step down over the so-called Clearstream affair, which apparently aimed to discredit his main rival for a 2007 presidential election, Interior Minister Nicolas Sarkozy.

''Nothing justifies a departure today,'' Villepin said.

''I have been unjustly accused, on the basis of truncated declarations,'' he told Europe 1 radio. ''I am a prime minister who has the concern ... of this being a useful year for the French.

France cannot afford to lose time.'' Villepin, whose popularity ratings have slumped to near record lows, is struggling to win back voter confidence after mass protests forced him last month to withdraw an unloved youth job contract that he championed as a necessary reform.

''Another black Tuesday for Villepin,'' Le Parisien daily said in a banner headline, noting his rival Sarkozy would be in the spotlight with the presentation of a tough immigration bill later today.

Villepin ruled out early elections over the scandal and said he was shocked by accusations that he was behind the smear bid.

The affair began with anonymous charges in 2004 that Sarkozy and other politicians had accounts in a Luxembourg-based finance house, Clearstream, that were linked to kick-backs in the bribe-ridden sale of French frigates to Taiwan in 1991.

The list quickly proved bogus. A judicial inquiry has since concentrated on finding out who authored it and whether top government officials delayed clearing the accused left- and right-wing politicians' names as a way of discrediting them.

The scandal gained steam on Friday, when Le Monde newspaper quoted a senior intelligence official who investigated the scandal as saying Villepin had told him that President Jacques Chirac wanted the confidential probe to focus on Sarkozy.

But the official, General Philippe Rondot, denied the report on Tuesday. ''Villepin never asked me to get interested in politicians,'' Le Figaro newspaper quoted him as saying.

FRENCH WATERGATE? Villepin and Chirac have denied any involvement in the scandal and the prime minister said he would be ready to answer questions from an investigating magistrate.

''I am ready to respond to all questions I could be asked,'' said Villepin, who was to meet deputies from his ruling UMP party on Tuesday.

Several politicians have called on Chirac to fire Villepin or call an early general election. Dominique Strauss-Kahn, a possible Socialist contender in the 2007 presidential poll, has said the government risked a ''French Watergate'' over the affair.

Chirac appointed Villepin last year hoping the dynamic career diplomat would help win back the country's confidence after voters rejected a proposed European Union constitution.

But Villepin's record in office has been marred by a series of set-backs, resulting in frequent calls on him to resign.

An opinion poll published on Tuesday put his support at 20 percent, only two points ahead of the all-time low for a prime minister set by Edith Cresson in 1991.

The job protests came just months after suburban youths set ablaze thousands of cars in anger over their bleak future.

If Villepin left, Chirac might struggle to find a successor.

Sarkozy would not want the risky post one year ahead of a presidential poll he plans to contest, media said. Another potential successor, Defence Minister Michele Alliot-Marie, might be too closely linked to the Clearstream affair herself.

Alliot-Marie's diary was among items seized during raids on her office, and she has denied media reports she failed to make a timely disclosure of all she knew about the case.

Labour Minister Jean-Louis Borloo has also been cited as possible successor, but his less-than-enthusiastic support of Villepin's jobs reform has clouded his chances, analysts say.

REUTERS VC1606