PARIS, July 21: France's new leftwing government,initially opposed to privatisation, is having second thoughts as pressure mounts to plug holes in the budget in the run-up to European Monetary Union. Financial analysts say this is the background to a decision to unload insurer GAN and to signs that the government may sell part of France Telecom.

``Reality is catching up with their electoral programme,''said bond analyst Iain Lindsay of Credit Lyonnais. ``It doesn't surprise me they are going to have to relax their very rigid stand that all privatisations would have to be terminated.''

Economists say they believe the Socialist-led government,which scored a surprise election win on June 1, will give the green light to more sales, especially in the financial sector.

After coming to power, the government froze the previous conservative administration's plans to privatise a host of major companies. But lately it has been flagging a change in policy which economists say suggests a new pragmatism.

Prime minister Lionel Jospin has questioned the role of the state in bailing out troubled financial institutions and pledged to put national interest ahead of ideology.

Last Friday, he put his statements into action.

The government said it would proceed with the plans of its predecessors and privatise GAN, a massive money loser, along with its profitable regional banking network CIC whose sale last year was scrapped after strong local protests.

``I find the GAN decision and especially the CIC decision quite encouraging -- the fact that a socialist government is willing to take on all those local interests,'' said economist Paul Horne of brokerage Smith Barney in Paris.

Also on Friday, the government indicated it was ready to sell a minority stake in France Telecom, seen as the jewel in the state crown. The conservatives had planned to sell 35 per cent of the operator, valued at 160-210 billion francs.

But in a nod to its communist coalition parters who oppose privatisation, the government said the state would keep loss-making consumer electronics giant Thomson Multimedia (TMM).

TMM, whose planned sale to South Korea's Daewoo Electronics last year was scrapped after a public outcry, is in line for an 11 billion franc state handout. The flurry of announcements has come as the government clears the decks for release on Monday of an audit of public finances expected to show the deficit worse than originally forecast for 1997, the qualifying year for European Monetary Union.

Reports suggest the audit will put France on target for a deficit of 3.5 to 3.7 per cent, well above the three per cent guideline for admission contained in the Maastricht Treaty.

The decision to keep TMM followed up on the government's move last week to scrap the sale of TMM's sister firm, defence electronic giant Thomson-CSF. But although the government has halted the sale of Thomson-CSF to build a defence electronics conglomerate around the firm, it said it was interested only in keeping a ``decisive stake''

This has raised market hopes it may retain only a ``goldenshare'', and let its 58 per cent stake fall below 50 per cent, to allow the entry of private partners to fend off competition. Government's partial backtracking is a need for cash from the sale of profitable state firms.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.