French prime minister Manuel Valls resigned on Monday, clearing the way for a cabinet reshuffle that is likely to see leftists critical of President François Hollande’s budget policy removed from the government.
The move came after economy minister Arnaud Montebourg lamented the “financial absurdity” of reining in France’s high public spending in an interview with Le Monde newspaper on Saturday.
Montebourg, an anti-globalist and opponent of austerity, said France should not align itself with the “ideological axioms of the German right” and called for a revised fiscal policy.
On Monday, Montebourg argued in a speech that “austerity policies are making deficits worse instead of narrowing them” and said, “The whole world is begging us to put an end to these absurd austerity policies which are burying the eurozone deeper and deeper in recession and which will soon end up with deflation.”
Valls’ resignation comes less than five months after Hollande tapped the centrist social democrat to lead his government which was taken by investors as a sign that more business-friendly policies were imminent.
Montebourg was promoted to economy minister at the time but the ruling Socialist Party’s Green allies refused to back the new government.
While the Greens, who command seventeen seats in the National Assembly, did not leave the government without a majority, Montebourg could if he takes far-left allies with him in opposition.
Despite deeper spending cuts and €10 billion worth of payroll tax cuts to encourage job creation, France looks certain to once again miss its deficit target of 3.8 percent of economic output this year while growth remains elusive. Unemployment is over 10 percent.
The malaise has left Hollande France’s least popular postwar president.
Town between a reformist wing led by Valls and far leftists like Montebourg, Hollande, who won the 2012 presidential election against the conservative Nicholas Sarkozy with 51.6 percent support, has struggled to unite the Socialist Party behind a convincing economic and fiscal program. The removal of Montebourg and his allies could split the party but also give Hollande and Valls the opportunity to push through deeper spending cuts and enact market reforms.
France’s labor market is in particular need of an overhaul. Even Hollande has recognized that laws that make it costly and difficult to lay off workers make firms reluctant to hire. Yet he has shied away from making concrete proposals for reducing labor costs, which could include lower social contributions for employers or making dismissals less arduous and quicker.
Opposition conservatives and the Front national called for the outright dissolution of parliament on Monday. “With half of the presidential mandate already gone, it doesn’t bode well for the ability of the president, or whatever government he chooses, to take key decisions,” said former prime minister François Fillon.
But his party is suffering a shakeup of its own after a financial scandal forced its president, Jean-François Copé, to resign in May. In the elections for the European Parliament that month, the right won under 21 percent of the votes, compared to almost 29 percent in 2009.
The Socialists got only 14 percent support at the time, placing third.