Hollande Rebuffs Cabinet Mutiny on Austerity, Sticks to Plan

President Francois Hollande, facing a mutiny within his cabinet, slapped down suggestions from three ministers that France needs to slow deficit-cutting and promised to be relentless in revamping the economy.

“I want to make it clear that this is the direction the government and I will not deviate from,” Hollande said today at a press conference in Paris. “No government minister can question the policies we’ve put in place, which are not austerity measures.”

The comments mark an attempt by Hollande to claw back ground after being weakened by former Budget Minister Jerome Cahuzac’s admission of lying about holding funds in a secret offshore bank account. Hollande sought to reassert his authority over the government and prevent the political crisis surrounding Cahuzac from stalling efforts to overhaul Europe’s second-largest economy, which is teetering on the brink of recession.

In the past day, Industry Minister Arnaud Montebourg, Consumer Minister Benoit Hamon and Housing Minister Cecile Duflot have called for less focus on austerity and more policies to spur growth.

“I make a distinction between indispensable budget seriousness, which is a means, and austerity that becomes an end in itself,” Hamon was cited as saying in today’s Parisien newspaper. Montebourg yesterday said that deficit cutting is “killing growth” and becoming “absurd and dangerous,” while Duflot said spending cuts risk a ‘‘recessionary spiral.”

‘Not Austerity’

With joblessness close to a record high and the economy flirting with its third recession in four years, Hollande said his policies are needed to revive growth, boost employment and strengthen France’s hand in steering Europe’s economy.

“The policy I’m carrying out is that of reviving the country’s financial and productive potential,” Hollande said at the press conference after his weekly cabinet meeting. “This is to combat unemployment. I’ve put in place serious budget discipline. That’s not austerity.”

The confrontation with his ministers reveals a crisis at the core of Hollande’s government, underlining how the political uproar surrounding Cahuzac’s confession and resignation risk de-railing efforts to overhaul an economy that has barely grown in two years.

Hollande’s popularity is plummeting after less than a year in office. The portion of voters who approve of his performance fell to 26 percent from 31 percent, according to an Ipsos poll for Le Point magazine published this week. That’s the worst rating for any president since the survey began in 1996.

Time Needed

Hollande faces pressure from the European Commission and countries in the region to trim the budget deficit and improve French competitiveness as part of commitments the government made to help end the European debt crisis. While France is among countries that need to adjust its economic policy, the commission said today that the changes will take time.

“It will take some time yet to complete the unwinding of the imbalances that were able to grow unchecked in the decade up to the crisis, and which continue to take a toll on our economies,” EU Economic and Monetary Affairs Commissioner Olli Rehn said in a statement.

France is on track to have a deficit of about 3.7 percent of gross domestic product this year instead of the 3 percent originally promised. The economy will probably expand 0.1 percent in 2013, according to Commission forecasts. Finance Minister Pierre Moscovici -- the target of “unfair” attacks over the Cahuzac scandal, according to Hollande -- is scheduled to set out his economic plan to the commission on April 17.

French Marathon

German Chancellor Angela Merkel has led calls for countries sharing the euro to reduce their deficits to help restore confidence in the region among bond investors. Germany’s IWH institute and Kiel Economics said last month they expect the nation’s budget to move into surplus next year.

“Budget consolidation is a marathon, you don’t finish it as you would a sprint,” Hamon said. “Today Germany is asking us to sprint even though France needs to catch its breath. If this continues, we won’t finish the race.”

While France has failed to balance its budget in more than three decades, Germany is on track to bring its budget close to balance this year and economists expect a surplus in 2014.

Bank of France Governor Christian Noyer said today that Germany is benefiting now from efforts made previously and that France’s budget reduction efforts don’t amount to austerity.

“We have no choice, we can’t continue forever to spend much more than we earn,” Noyer said today on Europe 1 radio. “All we have to do is hold spending at its 2012 level. We need to freeze spending” and accelerate reform, Noyer said.

Mark Deen in Paris at +33-1-5365-5066 or markdeen@bloomberg.net

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