French Government Resigns After Ministers Fought Openly on Economic Policies

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By Kalyan Kumar | August 26, 2014 5:40 PM EST

The entire French government unexpectedly resigned on Monday after a public spat on economic policies by ministers provoked President Francois Hollande to ask Prime Minister Manuel Vall to form a new team.

Reuters
The Eiffel tower is pictured during sunset in France, March 14, 2014.

At the root of the open feuding in the Cabinet was the question of austerity and how much cutting or spending can revive the country's stagnant economy.

The French Socialists have been debating whether a German model of fiscal austerity is viable or deficit funding to spur growth will be beneficial.

The main provocation was from France's outspoken economy minister Arnaud Montebourg, who has been blunt in his criticism of the government's economic policies.

Hollande's Approach

Mr Hollande had promised tax cuts and more spending, backed by reforms to make things easy for businesses.  By reducing the tax burden for companies, France hoped to reign in the government's bulging deficit, which is above the limit of 3 per cent of the GDP.

France has been facing a tough economy. Unemployment was high at 10 per cent. Mr Hollande's approval ratings are low among the youth.

The controversial remarks of Economy Minister Arnaud Montebourg aggravated the situation. He called austerity as a wrong medicine and argued that the government should spend freely to create more jobs.

Montebourg's criticism of austerity did not spare German Chancellor Angela Merkel also. In an interview with the newspaper Le Monde, Montebourg said France's neighbor had been trapped by the policy of austerity, referring to the fears of stagnation in the German economy.

The outgoing minister lashed out at the French government's policies and said the entire world has been urging France to end the absurd austerity policies, which are driving the eurozone into an economic slowdown.

Factionalism in Party

Mr Hollande's promised reforms did not take off because of the factionalism within his Socialist Party. Montebourg rubbed the government bosses the wrong way by consistently demanding "major changes in our economic policy," even after Mr Hollande ruling out changes in the economic direction.

However, Christian Paul, a Socialist MP, defended the minister and said he was only conducting a constructive debate on questions that people have been asking for many months.

Though the Socialists have a majority in parliament, inroads from France's resurgent right-wing National Front is not ruled out. 

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(Photo: Reuters / Charles Platiau)
The Eiffel tower is pictured during sunset in France, March 14, 2014.
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