French poll forces Sarkozy into cabinet rethink

PARIS, June 18 (Reuters) French President Nicolas Sarkozy was forced into a cabinet rethink today after losing a senior minister in a parliamentary election that gave him an unexpectedly small majority, but his reforms remained on track.

Centre-right allies tried to mask their disappointment at yesterday's vote, which saw them miss out on a widely predicted landslide following a week of poorly managed debate over a possible hike in value-added tax (VAT).

But the shock defeat of government No 2 Alain Juppe, a former prime minister and cabinet heavyweight, in his Bordeaux fiefdom left Sarkozy facing an unwanted reshuffle.

''You'd really love things to be bad for me. You'd be happy if I died,'' an embittered Juppe snapped at reporters.

His defeat sent a warning to Sarkozy that the French voters wanted change but were not ready to hand him a blank cheque. It also provided an unexpected boost to the beleaguered Socialists, who had feared an electoral meltdown.

Economy Minister Jean-Louis Borloo was being touted as a possible replacement for Juppe at the newly created energy and environment ministry, though some conservatives say Borloo's unguarded comments on VAT had cost the right dozens of seats.

Former foreign ministers, Socialist Hubert Vedrine and conservative Michel Barnier, were also linked to the job.

The appointment could come as early as tomorrow along with a handful of junior minister posts.

ROYAL SEPARATION Sarkozy's allies won 345 seats in the 577-seat National Assembly, well short of the 470 predicted in some pre-poll estimates, while the Socialists and affiliated parties took 207 seats against 149 in the outgoing parliament.

For the first time more than 100 women deputies were elected to the French lower house -- 107 against a previous 71.

The Socialists' relief at avoiding a drubbing was partly overshadowed by the separation of the party's ''power couple'' -- defeated presidential candidate Segolene Royal and party chief Francois Hollande.

''I have asked Francois to live his life his way and he accepted.

We no longer live in the same home,'' Royal told France Inter radio.

Royal has said she wants to replace Hollande as party leader and the Socialists could face lengthy recriminations over the party's defeat in both major elections this year and soul-searching over its future.

Commentators said Borloo's admission the government was considering a hike in value-added tax, and opposition warnings that a huge majority would give Sarkozy too much power, had caused the right's sudden loss of support.

''The 'social VAT' cost us 60 deputies,'' former conservative Prime Minister Jean-Pierre Raffarin said of the value-added tax row. The levy could be raised to fund cuts to social security charges on payrolls to make it cheaper for companies to hire.

Yesterday's result made the UMP the first party since 1978 to win re-election and its Secretary General Patrick Devedjian said Sarkozy now had a firm mandate to press ahead with his reforms.

''I have a scoop for you, an event that has gone completely unnoticed -- we won,'' he quipped at a UMP news briefing.

A special summer session of parliament due to start on June 26 is to vote on 14.74 billion dollar in tax breaks, a 50 per cent cap on personal taxation, more autonomy for universities and stiffer terms for repeat criminal offenders.

REUTERS SG RAI2156