Shares in telecom-equipment group Alctael-Lucent plunged by nearly 7 percent on Wednesday, as controversy built up over a restructuring plan to cut 10,000 jobs worldwide and 900 jobs in France.
Prime Minister Jean-Marc Ayrault threatened to block the loss of 900 jobs in France unless the layoffs and plant closures, announced on Tuesday, were pared back.
Another minister called on French telecommunications network operators to be "patriotic" and buy Alcatel equipment.
But the new and outspoken head of the employers' federation Medef, Pierre Gattaz, shot back that the government should allow the group to restructure to face up to competition which is destabilising the telecoms sector.
Shares in Alcatel-Lucent, which had ended on Tuesday with a fall of 4.05 percent, fell 6.9 percent to 2.58 euros.
The overall market as measured by the CAC 40 index, was down 0.16 percent.
The row highlights pressures felt in France when well-known companies want to restructure and shed jobs.
The government is striving to tackle the weak competitive position of French industry and also bring down chronically high levels of unemployment.
At the end of July, Alcatel-Lucent said its first-half losses had more than doubled compared with 12 months earlier.
It posted a loss of 885 million euros ($1.2 billion) in the six months to June, compared with a loss of 396 million euros for the same period in 2012.
President Francois Hollande has made cutting unemployment a priority, saying he would inverse the trend by the end of the year, against a background of big job cuts by several high-profile French companies this year.
At the beginning of September the unemployment rate was 10.5 percent.
Alcatel-Lucent, which has lurched from crisis to crisis for years, says the latest restructuring is vital if it is to have a future in the sector of making equipment for the global telecoms industry, and analysts say it is a last-chance effort to become profitable.
But Ayrault, who heads a Socialist-Green government, urged the company on Wednesday to open talks to save as many jobs and plant sites as possible and reduce the total job losses in France from 900.
Analyst concerns about scaling back
He told Europe 1 radio that if no agreement were reached "the job-cut plan will not be agreed, because the law gives the state the responsibility to act in this way."
Analyst concerns about scaling back
Ayrault noted that a law on job security approved at the beginning of the year had strengthened the negotiating power of employees.
Asked why he was not asking the company to abandon its plan, the prime minister said: "This group, which has been very badly managed and which is in the digital sector which in Europe is marked unfortunately by an absence of rules -- Europe does not know how to be protective -- is experiencing real economic problems."
Analysts voiced doubts about the extent to which Alcatel-Lucent would be able to apply its new strategy as soon as the company announced its measures early Tuesday.
Morgan Stanley analysts commented on Wednesday that although the price of shares in Alcatel-Lucent had risen early on Tuesday in response to the company's announcement of the restructuring, it had begun to fall later on investor concerns the plan would be scaled back.
Already on Tuesday, the minister tasked with rejuvenating French industry, Arnaud Montebourg, had described the job cuts as excessive and urged the company to reduce them.
For the employers, Gattaz, who also strongly criticised on Wednesday what he said were policies over 30 years unduly burdening businesses with taxes and labour laws, said that Alcatel-Lucent should be allowed to restructure.
He told i-Tele: "Above all, companies must not be forbidden to adapt to globalisation."
However, he also said that action should be taken to see that those at Alcatel-Lucent who lost their jobs could find work.