French ministers demand Hollande abandon austerity and condemn Angela Merkel's 'right-wing dogma'

Condemnation of Angela Merkel’s domination of eurozone economic policy and ‘forced march’ of spending cuts could be designed to increase Hollande’s bargaining power in Brussels

John Lichfield
Monday 25 August 2014 08:29 BST
President François Hollande, left, and the Prime Minister Manuel Valls; both are suffering from low popularity ratings – 17 and 36 per cent respectively
President François Hollande, left, and the Prime Minister Manuel Valls; both are suffering from low popularity ratings – 17 and 36 per cent respectively

Two senior left-wing French cabinet ministers have broken ranks with the President, François Hollande, and demanded that Paris abandon the “forced march” of public-spending cuts in Europe.

As French unemployment rises and the eurozone totters towards a renewed recession, the Industry Minister, Arnaud Montebourg, called on Mr Hollande to repudiate the “Kafkaesque” European “dogma” of austerity, which he blamed on the German Chancellor, Angela Merkel. The Education Minister, Benoît Hamon, accused Ms Merkel of “serving her own interests rather than those of Europe”.

The double protest coincides with a plunge in the popularity of the Prime Minister, Manuel Valls, who was appointed in March. It also coincides with a gathering rebellion within the parliamentary ranks of the ruling Parti Socialiste.

Mr Hollande, speaking during a visit to French overseas departments in the Indian Ocean, minimised the revolt on Sunday. He said that it was already French government policy to win concessions in Brussels next month on the timetable for deficit cutting in the eurozone.

However, the comments by Mr Montebourg and Mr Hamon go far beyond French government policy. Some commentators suggested that the two left-wing ministers may have been permitted to stray “off the reservation” to increase Mr Hollande’s bargaining power in Brussels. Government sources said that such intemperate attacks on the German Chancellor were unlikely to further Mr Hollande’s cause.

Mr Montebourg, one of the two ministers who manage French economic policy, said that the “forced march” of rapid deficit cutting within the eurozone was an “economic aberration” which was “throwing Europe into the arms of extremist parties which want to destroy Europe”. He said that even Germany – which suffered zero growth in the last quarter – was “caught in the trap” of austerity which Ms Merkel’s “right-wing dogma” had imposed on Europe. Mr Hamon said that Ms Merkel “should no longer be the person who runs European economic policy”.

Neither minister challenged the market-oriented and tax-cutting reforms adopted by Mr Hollande in January. They said that the reforms were being undermined by the eurozone policy of cutting public deficits rapidly to 3 per cent of gross domestic product (GDP).

Similar warnings have been given recently by the International Monetary Fund and by the Nobel-winning American economist Paul Krugman. Mr Krugman wrote in his New York Times blog last week that the European “nightmare scenario isn’t hypothetical”. He blamed excessive austerity policies and relatively high eurozone interest rates imposed by what he called “sadomonetarists”.

As Europe drifts towards deflation, France and Italy are expected to lead a group of EU countries which will demand a change of economic course next month. They want the European Central Bank to cut interest rates and introduce some form of quantitative easing. They also want the eurozone to ease its timetable for deficit cutting. They argue that the present policy has led countries such as France into a vicious cycle of pain and no gain. The more they cut spending, the more the economy slows down. Tax income falls and the deficit does not shrink as planned.

France is engaged in its steepest spending cuts for 40 years – a €50bn (£40bn) reduction over three years. Nonetheless, zero growth this year is expected to mean that Paris misses its end-of-year deficit target of 4 per cent of GDP. Ms Merkel warned last week that she would oppose any softening of the eurozone rules. She fears any relaxation of budget discipline would lead to renewed speculation against the euro on financial markets.

In an interview with Le Monde at the weekend, Mr Montebourg dismissed these arguments as dangerous. He said it was time for EU countries to “take a tougher line” with Germany. “In a time of worldwide recovery, the only Kafkaesque island of resistance is the eurozone,” he said. “The leaders of the euro-using countries stubbornly persist in policies which block growth and prevent a reduction in unemployment.

“The forced march of deficit cutting is an economic aberration because it increases joblessness. It is a financial absurdity because it makes it impossible to restore the health of public budgets. And it is a political calamity because it throws Europe into the arms of extremist parties who want to destroy Europe.”

Mr Hamon said that he and Mr Montebourg were “not far from thinking like” the group of 50 or so Socialist parliamentary rebels who may challenge Mr Hollande this autumn. Unlike many of these rebels, however, Mr Hamon made it clear that he did not oppose the policies of tax cutting and reduction of payroll charges on business promised by Mr Hollande in January.

“However, this supply-side policy can only work if purchasing power rises,” the Education Minister said. “You can’t sell anything to people whose incomes are poor.”

An opinion poll by IFOP published on Sunday in Le Journal du Dimanche suggested that French voters had lost faith in the Prime Minister, Manuel Valls, who was appointed in March to push through the new market-oriented reforms. His approval rating fell by 9 per cent in one month to 36 per cent.

Mr Hollande’s approval rating remains marooned at 17 per cent – the lowest of any president of the Fifth Republic.

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