French government resigns over economic debate

[Syt]

http://www.bbc.com/news/world-europe-28924279

French PM Manuel Valls resigns amid economy row

French PM Manuel Valls has submitted the government's resignation to President Francois Hollande and has been asked to form a new cabinet.

The government was badly shaken on Sunday by criticism over its handling of the economy by economy minister Arnaud Montebourg.

Moments after Mr Valls's resignation Mr Hollande issued a statement.

He asked Mr Valls to set up a new cabinet "consistent with the direction [Mr Hollande] has set for the country".

The prime minister had accused Mr Montebourg of "crossing a yellow line" after the economy minister had attacked austerity measures which he said were strangling France's growth.

Mr Montebourg told a meeting of Socialists in eastern France that the time had come to put up a "just and sane resistance" to the "excessive obsessions of Germany's conservatives".

On Saturday, he told Le Monde newspaper that Germany was trapped in an austerity policy that it imposed across Europe".

He was backed up by education minister Benoit Hamon and appeared to have the support of culture minister Aurelie Filippetti, too.

Mr Hamon called on Sunday for a revival in demand and for an end to German Chancellor Angela Merkel setting Europe's direction: "You can't sell anything to the French if they don't have enough income," he said.

Manuel Valls became prime minister in March after a poor performance by President Hollande's Socialist party in local elections.

Earlier this month, the French government admitted it would be impossible to reach a previous growth forecast of 1%. Germany saw its economy shrink by 0.2% between April and June.

Mr Montebourg told French radio shortly before Mr Valls announced the government's resignation that he had no regrets about his remarks, "first of all because there's no anger".

There was no debate about authority, he told Europe 1 radio, but a "debate about economic direction".

[Martinus]

I was trying to find an angle to this story so I would stop viewing it as non-news, but couldn't. 

If British, German or American government resigned, I would see it as important. I can't for the life of me see such news about the French government as important (and that's not just because the French have a presidential system).

[Duque de Bragança]

So Valls stays but Montebourg and Hamon are out I guess to discipline the government. Seems Taubira will get the boot as well.

PS : she stays dammit. More lax justice coming...

[mongers]

So Valls stays but Montebourg and Hamon are out I guess to discipline the government. Seems Taubira will get the boot as well.

So it's really just what we call a cabinet reshuffle over here? 

[Duque de Bragança]

Exactly. Usually, they would wait September to make it coincide with the rentrée. I guess they wanted to create a diversion, as always. 

[Viking]

I was trying to find an angle to this story so I would stop viewing it as non-news, but couldn't. 

If British, German or American government resigned, I would see it as important. I can't for the life of me see such news about the French government as important (and that's not just because the French have a presidential system).

In Britain and Germany replacing the government means replacing the head of government. In france it is equivalent to a major cabinet reshuffle.

[Martinus]

That's why I also made a reference to America and said this is not just because France has a presidential system. I thought that would be enough to deter one of Languish "literalists" from stating the obvious. I was wrong.

[Sheilbh]

The Eurozone: teaching the French elite to hate and fear Germany all over again

François Hollande shuffles in shadow of Angela Merkel and Charles de Gaulle
The French leader came into office in 2011 as the anti-Merkel. Now she is as strong as ever and he has never looked weaker
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Ian Traynor
Ian Traynor, Europe editor
The Guardian, Monday 25 August 2014 18.50 BST

Angela Merkel has just brought down the French government. That, at least, is the way François Hollande's troubles will be seen on the protectionist left wing of his governing Socialist party.

Formally, the political turmoil in Paris is the collapse of a government. In effect, however, it is a reshuffle, with the prime minister, Manuel Valls, resigning only to be asked immediately to form a new cabinet.

The big casualty is almost certain to be Arnaud Montebourg, the powerful economics minister and a figure of no small ambition on the French left.

Hollande's uncomfortable calculation is whether Montebourg, a robust controversialist, is more dangerous inside or outside his government tent.

Montebourg's main sin was to question Hollande's lacklustre attempts to kickstart the flagging economy. But he couched his broadside in anti-German rhetoric, bitterly complaining that Merkel's domination of European fiscal policy was strangling France and Italy.

It was clear he was demanding that Hollande stand up more forcefully to the German chancellor, comparing the president unfavourably with giants of the EU such as De Gaulle and Thatcher. Through the sheer force of leadership, they had turned European policymaking around singlehandedly, Montebourg declared.

The Élysée Palace was less than amused, forcing Hollande to make his second major reshuffle in months.

The French leader came into office at the height of the euro crisis in 2012 as the anti-Merkel, campaigning against German fiscal rigour, denouncing austerity as the German-scripted answer to Europe's travails, and trying to maintain the Franco-German relationship while concocting a Club Med pact against Berlin with Spain and Italy (discreetly supported by Washington and London).

Three years on, Merkel is as strong as ever. Hollande has never looked weaker. An opinion poll at the weekend put him at 17%, the lowest presidential rating ever in the Fifth Republic. No De Gaulle he. Nor Mitterrand.

Unemployment remains stubbornly high, the economy is stagnating, failing to muster the government's projected 1% growth this year, Hollande needs Brussels to relax its budget deficit targets for France for a third time and his flagship policies amount to a French form of austerity – spending cuts combined with corporate tax breaks. So far, the results are meagre. If and when he fails, there will be plenty more like Montebourg whingeing that Hollande administered the German medicine but the patient failed to respond.

The economics minister is not isolated. An internal Socialist party policy paper a couple of years ago, only a draft, featured a bitter attack on the German chancellor while accusing Berlin of ruining Europe. It was ditched as too incendiary. But the sentiment persists within parts of Hollande's party. The same resentments and rancour extend to Italy, Spain, and Greece. While Hollande's challenge to Merkel faded fast and amounted to not very much, all eyes are now on Italy's new young centre-left leader, Matteo Renzi.

Can he take on Merkel where Hollande failed? The former mayor of Florence appears to be a more convinced reformer of Italy than Hollande is of France. Whether Renzi can deliver is the big question, given the entrenched interests he would need to destroy.

The EU is gearing up for a new regime – a new European Commission, a new EU council president running the summits, a new foreign policy chief. If Merkel is at the zenith of her powers in European policymaking, it may also be that she is passing her peak, vulnerable to a more concerted challenge.

The turmoil in Paris presages more battles ahead in Brussels and between EU capitals as the existential crisis that was the euro emergency turns more political.

• This article has been amended to correct the date Hollande came into office

The best hope is still Renzi. If he can combine committed reforms with a demand for change on Eurozone policies then there's hope.

As it is it looks like the Eurozone will carry on pointing to the woeful Spanish recovery as proof the medicine's working - at least the patient's still breathing - until the centre stops holding, all causing huge economic and social damage on the way.

[Admiral Yi]

The best hope for what Shelf?

[Sheilbh]

The best hope for what Shelf?

The Eurozone's long-term survival.

[Admiral Yi]

Right. 

What is the best policy choice to ensure that outcome?

[Sheilbh]

Right. 

What is the best policy choice to ensure that outcome?

Probably slower paced austerity, looser monetary policy and structural reform. But I don't think that's possible.

Given that Keynesian counter-cyclical fiscal policy, current insane monetary policy and structural reform.

What they'll probably stick with until it becomes politically impossible for France or Italy to tolerate any longer: austerity, tight monetary policy and weak structural reform efforts. Add to that the odd expression of shock that tight fiscal and monetary policy combined with private sector deleveraging leads to deflation and occasionally recession and pointing at this like its' a great recovery/stabilisation:

[Admiral Yi]

Why any austerity at all?  I thought you were of the school of thought that austerity is an unequivocal bad.

[Sheilbh]

Why any austerity at all?  I thought you were of the school of thought that austerity is an unequivocal bad.

No, that's never been what I've been saying.

I think the US and the UK can afford austerity though I think both rushed into it too soon, especially here, where we tried to cut too deeply to begin with before a recovery had really started (hence our double-dip recession). But at least that was offset by monetary policy.

Given the ECB's policy I think austerity is insane and given the market's reaction to debt levels/failure of deficit reduction plans v speeches by Draghi I also think it's a political choice. Personally I'd rather a far looser monetary policy but I think that's impossible due to Germany and the legal restrictions on the ECB, so the next best option would be for Keynesian fiscal policy. I don't know about the Eurozone as a whole but I think France and Italy would certainly benefit from some swingeing tax cuts.

And obviously whatever they choose they should make sure to underpin it with structural reforms - though from my reading about Europe I think these tend to focus there far too much on making it easier to fire people and not nearly enough on liberalising markets. I still think the biggest thing the EU could do to help the Eurozone is actually build a single market for services.

[The Minsky Moment]

I think the French are between a rock (ECB) and a hard place (ze Germans and the BIS-type unwise men).  In theory, given the monetary straight-jacket, the optimal move would be looser fiscal policy, but there are real bond vigilantes hanging around Europe, and Hollande doesn't want to risk being the odd man out.  I also think Krugman is right that Draghi's heart is in the right place but is too constrained to act; in any case, the core of the problem here is institutional design, and the mental attitudes that created and sustain that design.