French Government Dissolves in Dispute Between PM Valls and Economy Minister Montebourg

Economy minister Arnaud Montebourg stepped over the line last weekend criticizing the policies of president Francois Hollande. Some sources report that prime minister Manuel Valls gave Hollande a "him or me" ultimatum, but Valls disputes that claim.

Regardless, France Thrown Into Political Turmoil After Government Dissolved.

France has entered uncharted political waters after the prime minister, Manuel Valls, presented his government's resignation amid a political crisis triggered by his maverick economy minister who called for an end to austerity policies imposed by Germany.

The prime minister, a social democrat who has been compared to Tony Blair, acted with characteristic swiftness in a bid to reassert his authority. His aides had let it be known on Sunday that the economy minister, Arnaud Montebourg, had crossed a "yellow line" for his dual crime of criticising both the president of France and a valued ally.

Montebourg, 51, fired his first broadside in an interview with Le Monde on Saturday and followed up with a speech to a Socialist party rally the following day. In a veiled reference to President François Hollande, he said that conformism was an enemy and "my enemy is governing". "France is a free country which shouldn't be aligning itself with the obsessions of the German right," he said, urging a "just and sane resistance".

He was joined in his criticism by the education minister Benoit Hamon, who on Monday denied that he had been disloyal. A third minister, Aurélie Filipetti, also appeared in danger of losing her job after wishing a "good day" on Twitter to her two dissident colleagues.

Hollande, who is politically weakened with his approval rating at an all-time low of 17%, asked Valls to form a new government "consistent with the direction set for the country", which is expected to be announced on Tuesday. Valls has pledged to stick to a course in which deficits would be cut while the tax burden on businesses would be eased, bringing him into conflict with the left wing of the party represented by Montebourg. The changes have not yet been carried out, unemployment is at nearly 11% and growth in 2014 is forecast to be only 0.5%.

Insurrection Forces François Hollande to Act

The Financial Times reports Insurrection Forces François Hollande to Act.

François Hollande, a politician renowned for his caution, acted with uncharacteristic speed on Monday to shake up his Socialist government after a weekend of provocative insurrection by Arnaud Montebourg, his most voluble leftwing minister.

The Elysée Palace denied French media reports that Manuel Valls, the uncompromising prime minister appointed only five months ago, had delivered a “him or me” ultimatum to the president, forcing Mr Hollande’s hand.

But Mr Hollande was left with little choice after Mr Montebourg – the economy minister – denounced government economic policy and threw in a few unsubtle barbs aimed at the “extreme” austerity championed by German chancellor Angela Merkel.

A rumbling rebellion within Socialist ranks now has a new champion in the form of Mr Montebourg for its call for more demand-side measures and relegation of cutting the budget deficit in the list of policy priorities. By contrast, on the mainstream centre-right – and from the EU – there is pressure to go further and faster in implementing structural reforms.

Meanwhile, the far right in the form of the National Front, led by Marine Le Pen, threatens to build on its success in winning the European parliamentary elections in May with its populist calls for both tax cuts and sustained public spending.

Mr Valls’ first task when he forms his second new government since April is to win a parliamentary vote of confidence – followed by a vote on the 2015 budget due to be tabled in September that will contain more than €20bn in spending cuts.

The Socialist rebels could put this in jeopardy if they choose to vote against the government. But Mr Hollande and Mr Valls are clearly betting that the dissidents will stay their collective hand faced with the alternative: a dissolution of parliament that would lead to a certain Socialist defeat in new elections and the prospect of a centre-right government ruling in “cohabitation” with Mr Hollande.

Socialists can easily take down parliament in a vote of confidence. Will they?

Hollande is going down in flames at the end of his term regardless. Might the socialists prefer to get some of this out of the way now? That's what it all boils down to.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com