France awaits new govt after shock resignation

Paris - France's prime minister was set to appoint a new cabinet on Tuesday after tendering his government's resignation amid a row over economic policy, plunging the country into a fresh political crisis.

As desperately unpopular President Francois Hollande battles to overcome splits in his ruling Socialists and revive the stagnant French economy, Manuel Valls was expected to announce the make-up of his team in the afternoon.

The shock resignation on Monday was seen as a bid to restore order after a weekend of sniping from economy minister Arnaud Montebourg who attacked France's economic direction and the country's main European ally Germany.

Montebourg, a left-wing firebrand who is no stranger to controversy, made it clear he would not be part of the new team and launched a hefty broadside at the policies of austerity he said had catapulted France and Europe into the worst economic crisis since the 1929 Depression.

Education minister Benoit Hamon and culture minister Aurelie Filippetti later said they would join him in self-imposed exile from the next government.

Top French daily Le Monde described the reshuffle as "the last chance for the president to save his five-year term" as Hollande faces record-low unpopularity at 17% and record-high unemployment.

The reshuffle was also a desperate bid to quell unseemly infighting in his ruling Socialists between left-leaning members like Montebourg and those, like Valls, who tend more to the centre.

'Serious, destructive and long'

The departing Montebourg lashed out at the austerity policies implemented by the Valls government, saying they were only prolonging and worsening a "serious, destructive and long" crisis in Europe.

"For two years, I fought tirelessly to convince, I wrote notes and letters to the head of the executive and made private and public declarations to attempt to convince and implore the president to refuse excessive measures for our country that risked damaging and sinking our economy," he said.

Acknowledging that he had failed to convince Hollande or the prime minister, he said: "I believed it necessary to take back my freedom in the same way he (Valls) accepted to give it to me."

Montebourg, who is 51, is well known for loose cannon comments, having made headlines in the past for his outspoken criticism of Germany, which he has blamed for factory closures in France.

He was promoted to his current position in April in a government shake-up after the Socialist party suffered a drubbing at local elections, and has had to cosy up to Finance Minister Michel Sapin who supports the very austerity measures that he disagrees with.

As industrial renewal minister before his promotion, he had also raised eyebrows by dubbing the head of tyre giant Titan an "extremist" after the CEO criticised the French workforce as lazy.

He also became embroiled in a very public fight with steelmaker ArcelorMittal over the closure of a plant.

But he maintained he was leaving "on amicable terms" with the government.

Opposition figures reacted with shock to the unfolding events, pointing to a major crisis of confidence at the heart of the executive, with far-right leader Marine Le Pen even calling for the lower house National Assembly to be dissolved.

The crisis comes at a time when France is mired in stubbornly slow economic recovery, with high unemployment.

The French economy has been stagnant for the past six months and the government has been forced to halve its growth forecast to 0.5 percent for this year.

'Historically unpopular'

Both Hollande and Valls say the answer to the economic crisis is their so-called Responsibility Pact that offers businesses tax breaks of at least $55bn in exchange for a pledge by companies to create 500 000 jobs over three years.

Hollande plans to finance this with €50bn in spending cuts, and the plan has angered those on the left of the party - including Montebourg.

The prime minister himself is also deeply unpopular with some Socialists.

Two Green ministers left the government when Valls was appointed in March after the Socialists' humiliation at the polls.

But Frederic Dabi, deputy head of polling firm IFOP, warned against overestimating the impact of the latest crisis on public opinion.

"We have a government and president that are historically unpopular, and what will make them popular or more unpopular isn't what happens in the government in terms of people but policies being implemented and a lack of results."