French PM Manuel Valls cabinet falls amid economy row

PARIS - French President Francois Hollande has ordered PM Manuel Valls to form a new government after two senior ministers criticised their austerity policies.

After Mr Valls announced the cabinet's resignation, Mr Hollande immediately asked him to set up a new one.

Economy minister Arnaud Montebourg and education minister Benoit Hamon are expected to lose their jobs.

They had both called for France to tackle low growth by resisting fiscal discipline imposed by Germany.

Offering his and the government's resignation, the prime minister said Mr Montebourg, a left-wing MP, had crossed "a yellow line".

Moments later, the president issued a statement asking him to set up a new government "consistent with the direction [Mr Hollande] has set for the country".

A French presidential source said Mr Valls's decision had been a matter of "absolute consensus" between President Hollande and the prime minister.

Hollande purges rebels - Lucy Williamson, BBC News, Paris

Francois Hollande is sending a clear message: dissenters within the party will not be tolerated at this difficult economic moment.

But the decision to dissolve the government is also a sign of how much is at stake for him.

With unemployment running at more than 10%, growth stagnant, and polls suggesting that less than 20% of voters think he can turn the economy around, Mr Hollande is facing a difficult autumn.

His plan has been to cut spending in order to fund tax cuts for business, in the hope of boosting the economy, but there are those in his party who disagree.

They want less focus on austerity, and more money funnelled direct to households. Purging the rebels is an eye-catching move, but with his popularity at an all-time low, Mr Hollande cannot afford to look weak.

Arnaud Montebourg, 51, is on the left wing of the French Socialists and has campaigned against globalisation. He came third in the party's contest for presidential candidate in 2011.

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 also to have the support of culture minister Aurelie Filippetti.

Mr Hamon called on Sunday for a revival in demand and for an end to German Chancellor Angela Merkel setting Europe's direction.

All three ministers were set to lose their jobs in Tuesday's reshuffle, Le Point reported, along with Justice Minister Christiane Taubira.

Manuel Valls became prime minister in March, replacing Jean-Marc Ayrault, 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, in which he called for a "just and sane resistance" to the "excessive obsessions of Germany's conservatives".

He was due to speak publicly later on Monday.

Francois Hollande's political opponents were quick to round on the president:

  • The head of the centre-right UMP opposition, Luc Chatel, complained of a "grave political crisis" that was weakening the country
  • National Front leader Marine Le Pen said the president should dissolve the National Assembly and call elections
  • Left-wing Green politician Eva Joly denounced Mr Hollande's and Mr Valls's economic policies, arguing they were "governing against their majority".

Mr Hollande's poll ratings have sunk to 17%, while Mr Valls' have dropped to 36%, according to an Ifop poll published on Sunday.

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