By Ingrid Melander and Yann Le Guernigou
PARIS (Reuters) - France's Socialist government will propose on Wednesday a reform bill which is crucial for avoiding EU sanctions but risks being watered down by lawmakers angry with President Francois Hollande's deregulation drive.
The bill aims to let shops open more often on Sundays and resolve disputes over firings more rapidly. It also includes plans to deregulate the legal trade and cut red tape for construction.
It is France's attempt to try and prove to its European Union peers that it is carrying out structural reforms in order to get a new reprieve in March on its missed budget targets and avoid sanctions.
The bill, spearheaded by new Economy Minister Emmanuel Macron, an ex-banker who has played a key role in Hollande's pro-business switch, also aims to help lift the euro zone's second-largest economy out of stagnation.
The objective is "to remove the locks that burden our economy," Macron said.
But lawmakers to the left of the Socialist Party have warned they would vote against the bill if it is not diluted and they said they 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, a year when it must go through two sets of local elections and a Socialist Party convention in June, where 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 wrote in a note.
"While we believe sanctions are still unlikely, the European Commission will probably require more efforts next Spring," they said.
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.
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; Writing by Ingrid Melander; Editing by Larry King)