French government dissolves over economic policy

Published on NewsOK Modified: August 25, 2014 at 12:07 pm •  Published: August 25, 2014
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PARIS (AP) — President Francois Hollande is weighing his options after dissolving the government on Monday over open feuding in the Cabinet about how much cutting — or spending — will revive the country's stagnant economy.

Hollande is to announce a new government on Tuesday. The debate among French Socialists mirrors one taking place across Europe on whether to pursue a German-led model of fiscal austerity or use more government spending to spur growth.

Prime Minister Manuel Valls offered up his Socialist government's resignation after accusing France's outspoken economy minister of crossing a line with his blunt criticism of the government's policies. Hollande accepted the resignation and ordered Valls to form a new government by Tuesday.

Hollande has promised cuts to taxes and spending as well as reforms to make it easier for businesses to open and operate. The measures are meant to reduce the tax burden for companies and also contain the government's deficit, which is above the European Union's limit of 3 percent of GDP.

France has had effectively no economic growth this year, unemployment is hovering around 10 percent and Hollande's approval ratings are sunk in the teens. The country is under pressure from the 28-nation EU to get its finances in order, but Economy Minister Arnaud Montebourg has criticized austerity as the wrong medicine to foster growth and argues the government should spend more freely to create jobs.

He lashed out at the government's policies in a final adieu as minister on Monday.

"The entire world is urging us —even begging us — to end these absurd austerity policies that are plunging the eurozone into an economic slowdown," he said in a statement to the press.

"My responsibility as economy minister is to tell the truth, and observe... that not only these austerity policies are not working, but they are also unfair, as well as being ineffective"

Hollande's promised reforms have stalled, in large part because of the divisions within his Socialist Party.

Montebourg unsettled his government bosses over the weekend by proclaiming that a "major change in our economic policy," was needed — just days after Hollande had expressly said there would be no change in the government's economic direction.

The minister's comments angered the Socialist leadership, which said Montebourg's job was to support the government, not criticize it from within.

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