Aug. 27 (Bloomberg) -- French President Francois Hollande’s new economy minister pledged to rebuild investor confidence, commiting to the path of reform after the cabinet was purged of ministers who rebelled against spending cuts.
Emmanuel Macron, Hollande’s former economic adviser, made his comments today as he took over the economy and industry portfolios from Arnaud Montebourg. Montebourg and two other ministers were replaced yesterday after slamming the Socialist government’s adherence to “absurd” austerity policies.
“I want to restore the confidence of our partners, of foreign investors, as well as the confidence of France itself,” Macron, 36, told reporters at a swearing-in ceremony in Paris before the new cabinet met for the first time.
The scale of the challenge facing Prime Minister Manuel Valls’s new ministerial team was made clear by statistics released today showing that French manufacturing confidence fell to the lowest in 13 months in August, adding to signs that the economy may struggle to grow after a stagnant first half. Hollande’s government is trying to revive the stalled economy while heeding European pressure to reduce the budget deficit.
The timing of the cabinet overhaul “is interesting, to some extent surprisingly, it’s precisely when Europe is probably more accepting of fiscal relaxation,” Gilles Moec, chief European economist at Deutsche Bank AG, said today in a Bloomberg Television interview. “But this relaxation is acceptable only if structural reforms come through.”
Montebourg’s portfolio now falls to Macron, a former Rothschild & Cie. banker, who was Hollande’s economic adviser until July. He was in charge of drafting major reforms including taxes on labor and the so-called Responsibility Pact to cut state spending. The president’s office said Macron also played a key role in French government efforts to get the best deal for Alstom SA’s energy business.
The core of Valls’s cabinet remained unchanged, with Michel Sapin reappointed to finance, Laurent Fabius remaining at the Foreign Ministry, Jean-Yves Le Drian at defense and Segolene Royal still in control of the environment and energy portfolio.
Among those to go were Benoit Hamon at education and Aurelie Filippetti at culture, both of whom joined Montebourg in pushing back against Hollande’s pledge for 50 billion euros ($66 billion) in spending cuts over the coming three years.
“We must create wealth and we must cut our deficits,” Valls said last night in an interview on France 2 television. “France has been living beyond its means for 40 years.”
The government tore up its budget-deficit targets this month after the economy posted no growth in the past two quarters. The Montebourg challenge and cabinet overhaul come a month before the government is due to unveil the 2015 budget, which Hollande may need opposition votes to pass in parliament.
Montebourg, 51, who was Hollande’s minister for industry and economic recovery for the past two years, publicly criticized the president in a weekend interview over what he said was “slavish” and “dogmatic” deficit reduction that costs jobs. His critique mirrored that of a group of Socialist lawmakers who oppose the government’s economic measures.
With an approval rating of just 17 percent in an Ipsos-Le Point poll released Aug. 25 -- the lowest for a French leader -- and record-high unemployment levels, Hollande’s room for maneuver is shrinking as he slips into the second half of his five-year mandate.
The new government has to be respectful and united around the president, Hollande’s office said.
“Hollande has taken the side of the reformers but it is only a modest step,” said Holger Schmieding, chief economist at Berenberg Bank in London. The risk remains that without broad political support his parliamentary majority may be “at risk in crunch votes, for instance on budget cuts or labor market reforms,” he said. “It may be a hot political autumn.”
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