With Smear Scandal, France Near Paralysis

Le Pen, 77, who calls for strict controls on immigration, caught the French mainstream by surprise by placing second to Chirac in the first round of the 2002 presidential election, winning 17 percent of the vote to Chirac's 19 percent in a crowded field. Announcing his bid for the 2007 presidency to a boisterous crowd Monday, Le Pen blasted the government's role in the Clearstream scandal, saying: "Lies of state are now the rule in our banana republic."

Le Pen's current popularity has alarmed many French voters. "The government is in terrible shape," said Claire Terrier, a dental assistant. "Who's lying? I don't really care. This affair is great for Le Pen but bad for democracy."

The fracas between Villepin and Sarkozy stems from an investigation into allegations that senior French officials received kickbacks from a $2.8 billion sale of frigates to Taiwan in 1991. Two years ago, the judge investigating the sale received an anonymous CD listing dozens of French officials, including Sarkozy, who allegedly laundered their money through the Luxembourg-based Clearstream financial institution.

After a year's investigation, the judge concluded that the information on the CD was bogus, and the probe shifted to who was peddling what was seen as an attempt to smear Sarkozy.

Last week, the newspaper Le Monde ran a lengthy article quoting testimony and notes from a senior French investigator indicating that Villepin, possibly at Chirac's urging, had ordered the investigation of Sarkozy, and that the prime minister did not announce that Sarkozy and others had been cleared even after the judge determined there was no case against them.

Villepin and Chirac have denied ordering an investigation of Sarkozy. The investigator has denied being ordered to probe him, saying that Le Monde took his testimony and notes out of context.

Many analysts here believe that Villepin's misfortunes have killed his chances as a presidential candidate for the ruling Popular Movement (UMP) party next year.

In the meantime, the government will probably remain in limbo. "It's difficult for Villepin to govern with such a lack of support," and he probably will be dismissed eventually, said Alain Duhamel, a political analyst. "Daily decisions will be made, but France will lose a year."

Sarkozy, the head of UMP, now appears to be the party's leading candidate. In most opinion polls he leads or runs second to all other potential contenders. Though he was partially blamed for fueling last fall's unrest -- referring to rioters as "scum" -- he has avoided being dragged down by painting himself as an outsider running against the party's elite, represented by Villepin and his mentor, Chirac. Sarkozy has increasingly courted the far right with tough anti-immigration measures.

The spat came as newspapers published scathing exposes of Foreign Minister Philippe Douste-Blazy, a 53-year-old cardiologist with no diplomatic experience who was appointed to the job last year after French voters rejected a draft European Union constitution.

Le Monde last week published an unflattering profile of the man, who has publicly confused Taiwan with Thailand and Croatia with Kosovo, and who once was unable to respond to a weekend telephone call from U.S. Secretary of State Condoleezza Rice because he had no translators with him. France's chief diplomat speaks only French.

The satirical weekly Le Canard Enchaine last month reported an incident in which Douste-Blazy and his female companion, TV producer Dominique Cantien, allegedly engaged in a brawl at a hotel in Marrakesh last New Year's Eve that spilled out of their room into a hallway. Douste-Blazy denied reports that the room was extensively damaged and that Morrocco's government paid to repair it.

Researcher Corinne Gavard contributed to this report.