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French Prime Minister Moves to Dissolve Cabinet French Prime Minister Moves to Dissolve Cabinet
(about 5 hours later)
PARIS — French politics were thrown into disarray on Monday as Prime Minister Manuel Valls said he would dissolve the government after a divisive battle in his cabinet over whether belt-tightening measures supported by President François Hollande were impeding France’s stagnant economy from recovering. PARIS — The collapse of the French government on Monday exposed widening divisions both within France’s leadership, and Europe more broadly, over austerity policies that many now blame for threatening to tip the eurozone back into recession.
The political crisis reflected a widening backlash against austerity not only in France but in Europe more broadly, as well as deepening tensions between France and Germany, which continues to advocate budget cuts as necessary to restore confidence in the eurozone. Prime Minister Manuel Valls announced that he would dissolve his government after a rancorous battle in his cabinet over whether the belt-tightening measures taken by President François Hollande — at the urging of Germany and European Union officials in Brussels — were impeding France’s recovery.
The French news media reported that Mr. Valls had threatened to resign on Sunday unless Mr. Hollande ordered a shake-up of the government after his outspoken economy minister, Arnaud Montebourg, insisted that budgetary austerity had gone too far and was hobbling France and the eurozone. The dispute broke into the open when Mr. Vall’s outspoken economy minister, Arnaud Montebourg, insisted in an interview over the weekend that austerity had gone too far. “The priority must be exiting the crisis, and the dogmatic reduction of deficits should come after,” he told the newspaper Le Monde.
He also took direct aim at the policies of Angela Merkel, the German chancellor. “Germany is caught in a trap of austerity that it is imposing across Europe,” he said.
The cabinet reshuffle precipitated by those comments was the second major shake-up since Mr. Hollande took over the presidency in 2012. Since then, the French economy has nearly flatlined, and Mr. Hollande has been dogged by some of the lowest approval ratings for a French president in decades.
The government collapse did more than throw France’s politics into disarray. It also bared the growing disagreement between France and Germany — Europe’s largest economies — over whether Ms. Merkel’s prescription of austerity threatens to turn a five-year euro crisis into a long-term malaise of low growth and high unemployment.
The announcement in Paris coincided with a visit by Ms. Merkel to Spain, where she praised Prime Minister Mariano Rajoy for austerity measures that have included a freeze on public salaries and more flexible labor laws. While Mr. Rajoy credits the steps with restoring faint growth to Spain’s economy, the changes have not been popular. During the visit, the chancellor was forced to delay a planned speech after throngs of protesters booed her.
Asked about events in France, Ms. Merkel told reporters that she wished Mr. Hollande success, but declined to comment on French domestic politics. But tension with the French government has been evident.
In early August, after Mr. Hollande was quoted telling French reporters that a change in economic direction might be needed in Europe, a German government spokeswoman, Christiane Wirtz, crisply commented that the German government “sees no reason to undertake any correction in its policies,” and certainly not because of “rather glib statements from Paris.”
Last week, Mr. Hollande acknowledged the problems his government faced, saying in an interview with Le Monde that austerity policies the country had been compelled to follow to meet the eurozone’s budget deficit target had made it nearly impossible to achieve a recovery after six months of zero growth and more than a year of weak economic activity. The eurozone consists of the 18 members of the European Union that use the euro.
As a result, he said, France will no longer try to meet a deficit reduction target this year, and may fall behind on deficit reduction next year as he seeks to put in place 50 billion euros worth of spending cuts he has already pledged to make through 2017. Mr. Hollande acknowledged that growth is so weak in France that it was unlikely to rebound any time soon.
His warning that growth has been jeopardized was the most strident repudiation yet of the policies that Ms. Merkel and the union’s bureaucrats insisted countries follow at the height of the euro crisis, when there was a palpable danger that the monetary union might break up.
But a rising chorus of critics and economists now say that the austerity approach has left European governments little leeway to employ the kind of growth measures necessary to restore demand.
Paul de Grauwe, a professor of political economy at the London School of Economics, said that the collapse of the French government underlined a split within France and Europe as a whole over whether austerity measures, coupled with structural changes, were enough to restore Europe’s sagging economic fortunes.
“The Merkel view has been discredited, not in Germany, but pretty much everywhere else,” he said. “People are starting to see that the paradigm of the past three years is not enough. Confidence has not flowed and we are still waiting for growth.”
While Mr. Hollande and Mrs. Merkel have tussled in the past over the future economic direction of Europe, the French news media, citing advisers close to Mr. Valls, said his anger was fueled in part by concern that Mr. Montebourg had crossed a line by voicing such strident dissent publicly and that he was threatening to upend a relationship with Germany that is considered the motor of European integration.
“It’s either him or me,” Mr. Valls said to Mr. Hollande, according to the French newspaper Le Monde.“It’s either him or me,” Mr. Valls said to Mr. Hollande, according to the French newspaper Le Monde.
Mr. Montebourg suggested over the weekend that Mr. Hollande had overreached in pushing austerity — including a plan to slash spending and raise taxes — to reduce the nation’s deficit, and that if the French government did not shift course, it risked losing support to populist or extremist parties. A new government is to be formed on Tuesday and Mr. Valls is expected to remain as prime minister; Mr. Montebourg resigned on Monday and was expected to remain sidelined.
“The priority must be exiting the crisis, and the dogmatic reduction of deficits should come after,” Mr. Montebourg said in an interview published in Le Monde. In a speech over the weekend, Mr. Montebourg added that he had asked Mr. Hollande for a “major shift” in economic policy to favor growth, adding, “Promising to get the economy going again hasn’t worked.” The tension at the core of the eurozone come after years of admonishments from Germany to rein in runaway debts and deficits. Those policies, pushed when the threat of the eurozone breaking up seemed urgent, are now blamed by many of Germany’s neighbors for making it harder, rather than easier, to mend tattered balance sheets and to reduce high unemployment.
He also took direct aim at the policies of the German chancellor, Angela Merkel. “We need to raise the tone,” he said in the interview in Le Monde. “Germany is caught in a trap of austerity that it is imposing across Europe.”
A new government is to be formed on Tuesday and Mr. Valls is expected to remain as prime minister. After raising dissent from within the government, it seemed likely that Mr. Montebourg would be dropped from the cabinet.
Last week, Mr. Hollande acknowledged the problems his government faced, saying in an interview with Le Monde that austerity policies the country had been compelled to follow to meet the eurozone’s budget deficit target had made it near impossible to achieve a recovery after six months of zero growth and more than a year of weak economic activity.
As a result, France will no longer try to meet a deficit reduction target this year, he said. Even so, growth is so weak in France, which has the second-largest economy in Europe after Germany, that it is unlikely to rebound any time soon, he added.
It was the most strident repudiation yet of the policies that Ms. Merkel and the so-called troika of lenders — the European Commission, the International Monetary Fund and the European Central Bank — insisted countries follow at the height of the crisis, when there was a palpable danger that the 18-member euro monetary union might break up.
That threat has diminished, but requirements that even countries facing a recession slash spending and raise taxes to meet fiscal targets have shifted the European debt crisis into a new phase: one of prolonged anemic growth and high joblessness.
On Monday, Ms. Merkel was in Spain to meet with Prime Minister Mariano Rajoy, a visit aimed in part to shore up support for her austerity policies. Asked about events in France, she told reporters that she wished Mr. Hollande success with his reforms, but declined to comment on French domestic politics.
In early August, after Mr. Hollande told French reporters that a course correction might be needed in Europe, a German government spokeswoman, Christiane Wirtz, crisply commented that the German government “sees no reason to undertake any correction in its policies,” and certainly not because of “rather glib statements from Paris.”
The tensions at the core of the eurozone come after years of admonishments from Germany to rein in runaway debts and deficits that many of its neighbors now blame for making it harder, rather than easier, to mend tattered balance sheets and to reduce high unemployment.
The eurozone now faces the threat of sliding back into its third recession in five years, after the currency bloc failed to grow at all between April and June. By contrast, the United States economy is recovering and unemployment is declining.The eurozone now faces the threat of sliding back into its third recession in five years, after the currency bloc failed to grow at all between April and June. By contrast, the United States economy is recovering and unemployment is declining.
The government shake-up in France — the second since Mr. Hollande took over the presidency in 2012 — exposed the challenge the president faces from the left wing of his party as he struggles to revive France’s flat economy. Even though Mr. Hollande had pledged to cap austerity, Mr. Montebourg suggested over the weekend that the president had already overreached with a plan to slash spending and raise taxes to reduce the nation’s deficit. He also warned that if the French government did not shift course, it risked losing support to populist or extremist parties.
Mr. Valls was initially a relatively popular prime minister, but his support has diminished as the economy has faltered. Mr. Hollande has one of the lowest popularity ratings in decades. According to an IFOP poll published on Saturday by Le Journal du Dimanche, Mr. Valls’s approval rating has plunged to 36 percent and only 17 percent of the French approve of Mr. Hollande’s stewardship of the country. In a speech, Mr. Montebourg added that he had asked Mr. Hollande for a “major shift” in economic policy to favor growth, adding, “Promising to get the economy going again hasn’t worked.”
Mr. Hollande took office two years ago, and the French economy has been stagnant since, with unemployment above 10 percent. Opinion polls show that four out of five French people are unsatisfied with Mr. Hollande’s handling of the economy. But the straitjacket of the European Union’s austerity policies has left the government little leeway to employ the kind of growth measures that many economists say are necessary to restore demand. The comments exposed the challenge Mr. Hollande faces from the left wing of his Socialist Party. Mr. Montebourg, a charismatic figure from the left, has long been perceived as a scourge among pro-business people in France, delighting his substantial antiglobalization constituency with strong criticism of foreign investors.
While the United States has rebounded since the worst of the economic crisis, a much-heralded European recovery has failed to emerge. With the Continent’s three main engines — Germany, France and Italy — sputtering, weakness in the European Union, with its more than 500 million consumers and one-quarter share of world gross domestic product, threatens to undermine the global outlook. The turmoil among the Socialists comes as the center-right is buffeted by a leadership crisis and as the far-right National Front is gaining ground and seeking to fill the electoral vacuum. Elsewhere in Europe, countries like Greece and Portugal, which adopted stringent austerity measures as conditions for receiving international bailouts, are still struggling to recover.
The turmoil in France’s Socialist government comes as the center-right is buffeted by a leadership crisis and as the far-right National Front is gaining ground and seeking to fill the electoral vacuum. Spain, whose government last year pledged to ease up on austerity, is only starting to see the return of some growth. In Italy, where the economy recently slid back into a recession, Prime Minister Matteo Renzi has also backed away from austerity and called on Ms. Merkel and other European leaders to make growth a priority.
Elsewhere in Europe, countries like Greece and Portugal, which adopted stringent austerity measures as conditions for receiving international bailouts, are still struggling to recover. Spain, whose government last year pledged to ease up on austerity, is only starting to see the return of some growth. In Italy, where the economy recently slid back into a recession, Prime Minister Matteo Renzi has also backed away from austerity and called on Ms. Merkel and other European leaders to make growth a priority. Mrs. Merkel has acknowledged the European economy needs to grow faster. But she has maintained that countries cannot backslide on commitments to improve their financial balance sheets.
France, like many other countries, was compelled to adopt some austerity measures at the height of the euro crisis, when financial markets punished countries with high debts and deficits through higher interest rates. Today, those rates have fallen sharply, but a growth rebound has still been slow in coming.France, like many other countries, was compelled to adopt some austerity measures at the height of the euro crisis, when financial markets punished countries with high debts and deficits through higher interest rates. Today, those rates have fallen sharply, but a growth rebound has still been slow in coming.
Mr. Montebourg, a charismatic figure from the left wing of the Socialist Party, has long been a thorn in the government’s side, delighting his substantial anti-globalization constituency with strong criticism of foreign investors but muddying Mr. Hollande’s message that France is open to international business.
Pascal Perrineau, a professor at the Institut d’Etudes Politiques in Paris, said that the government resignation was a potent sign of open rebellion within the Socialist Party and of the struggle the government faced to maintain its parliamentary majority when elections are held in 2017. But he said it also showed that Mr. Hollande was unwilling to cave into demands from the hard left of his party to stop tough but necessary economic changes.
“Mr. Hollande is sending a message at the national and international level that France will not change its economic direction at a time of great political and economic weakness in France,” Mr. Perrineau said.