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Home , Arnaud Montebourg, Bernard Cazeneuve, Cabinet reshuffle, Manuel Valls, Michel Rocard

: Government reshuffle

Standard Note: SN06973 Last updated: 4 September 2014

Author: Rob Page Section International Affairs and Defence Section

Manuel Valls, the Prime of France, has reshuffled his following criticism of the Government’s austerity policies by , the Economy Minister. Montebourg’s place in the Cabinet has been taken by , a leading pro- business figure. This note explains the events leading to the reshuffle, and provides an overview of how the new cabinet has been received.

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1 Introduction 3

2 Political background 3

3 Reshuffle 4

4 Reaction 5

2 1 Introduction , the Prime Minister of France, has reshuffled his Cabinet following criticism of the Government’s austerity policies by Arnaud Montebourg, the Economy Minister. Montebourg’s place in the Cabinet has been taken by Emmanuel Macron, a leading pro- business figure. This note explains the events leading to the reshuffle, and provides an overview of how the new cabinet has been received.

2 Political background Francois Hollande was elected in May 2012, defeating his centre-right opponent, the incumbent . In the parliamentary election which followed in June 2012, Hollande’s Parti socialiste (PS) and its immediate allies won an absolute majority.1

Yet Hollande’s popularity began to drop almost immediately. Hollande’s socialists suffered a series of bruising defeats in the municipal elections of March 2014, losing control of over 130 towns to the centre-right Union pour un mouvement populaire (UMP).2 The far-right Front National (FN) also performed well, seizing power in the one-time Socialist stronghold of Henin-Beaumont.3

The results prompted Hollande to reshuffle his Government, appointing the centrist Manuel Valls as Prime Minister. The following is an extract from an article published by Reuters on 8 April:

He confirmed an expected package of 30 billion euros (24.4 billion pounds) in payroll tax cuts on companies by 2016, and said a revenue tax on companies, known as "C3S", would be scrapped by the same date, handing six billion euros back to business.

A temporary surtax on the main corporation tax would be abolished in 2016 and the standard rate of corporation tax would be cut gradually to 28 percent from 33 percent, he said.

He also announced 5 billion euros of reductions in payroll charges and tax cuts largely aimed at low earners.

The Assemblée Nationale approved the proposals by 306 votes to 239.4 However, the changes failed to stem the electorate’s disillusionment with the socialists. In the election on May 2014, the PS won just 13 of France’s 74 seats, finishing a distant third behind the FN (24 seats) and the UMP (20 seats).5 Valls described the result as an “earthquake”.6

In August 2014, writing for , Kim Willsher analysed the reasons for Hollande’s unpopularity:

1 PARLINE database on national parliaments [accessed 4 September 2014] 2 "French reshuffle may loom after Hollande's Socialists routed in local elections", Reuters, 30 March 2014 3 "France's far-right score local gains as voters punish Hollande", Reuters, 23 March 2014 4 "France's Valls wins parliament backing for tax and spend shake-up", Reuters, 8 April 2014 5 "Europe Decides" website [accessed 8 September 2014] 6 "French far right in 'earthquake' win as Europe votes", Reuters, 26 May 2014

3 At the news kiosk across the Seine from Rue de Solférino, famed as the home to France's , L'Express magazine's front page proclaims from the stands: "La faillite, c'est maintenant."

Faillite is a strong word. It translates as "collapse" or "bankruptcy" and the line plays on President François Hollande’s 2012 election slogan: "La change ... c'est maintenant."

In 10 days France will pick up where it left off in July before the long annual down-tools during which the country's woes, if not entirely forgotten, are shelved for sun cream. If the summer weather has been dismal this year, la rentrée – as the collective return to work is known – threatens to be a scorcher for Hollande. The forecast promises protests and political storms amid what analysts say are unprecedentedly gloomy ratings for Hollande and his Socialist government.

A recent survey found that 89% of voters believed it incapable of reducing public debt, as promised; 84% believed it would not improve on the level of zero economic growth, as promised; and 85% did not believe it could reduce unemployment, currently running at a record 10.1%. "This is a massive and indiscriminate lack of trust that symbolises the rejection of the government," said Frédéric Dabi, deputy director general of pollsters Ifop.7

3 Reshuffle On 23 August the Minister of the Economy, Arnaud Montebourg, gave an interview to in which he criticised the Government’s austerity policies. He made similar comments in a speech to a PS rally on 24 August. He argued that: “France is a country which shouldn’t be aligning itself with the obsessions of the German right.”8

Following these comments the Prime Minister, Manuel Valls, submitted his Government’s resignation on 25 August,9 and formed a new administration without Montebourg the following day. Montebourg was replaced by the pro-business Emmanuel Macron.10

There were three further changes in personnel: replaced Auréline Filippetti as Minister of Culture and Communication; Najat Vallaud-Belkacem left her post as Minister of Urbanity, Youth Affairs and Sport to replace Benoît Hamon as Education Minister; and Vallaud-Belkacem’s previous post was filled by . Whilst the reshuffle has been portrayed as a shift to the right,11 it is important to note that Sylvie Pinel and – members of the Socialists’ far-left coalition partners – both kept their Cabinet seats.

In addition, several Ministers saw their official titles modified. Whereas Montebourg had been “Minister of Economy, Industrial Recovery and Digital Economy”, for example, his successor Macron is “Minister of Economy, Industry and Digital Economy.” The women’s rights portfolio

7 "France's François Hollande returns to mutiny and mistrust within party ranks", Guardian, 23 August 2014 8 "France thrown into political turmoil after government dissolved", Guardian, 25 August 2014 9 Ibid. 10 "Hollande replaces firebrand economy minister with former banker", , 26 August 2014 11 "Rocard's return", Economist, 6 September 2014

4 (previously combined with cities, youth and sports) is now to be combined with social affairs and health.12

4 Reaction Following the reshuffle, the following editorial appeared in the Financial Times on 27 August:

François Hollande, France’s president, is not known for decisive leadership. Yet this week he has acted with uncharacteristic ruthlessness in removing Arnaud Montebourg, the economy minister, from office.

Throughout this year, Mr Montebourg has been the most voluble leftwinger in the cabinet and a thorn in the side of Manuel Valls, the country’s reformist prime minister. At the weekend, the fiery socialist took his opposition to government policy to a new level, arguing that its commitment to deficit reduction was “an economic aberration” and “financial absurdity”. In response, Mr Hollande stripped Mr Montebourg and other leftwing dissidents of their posts, paving the way for Mr Valls to reconfigure his top team.

On the face of it, Mr Montebourg’s removal looks like good news for France. Since coming to power two years ago, Mr Hollande has been notoriously confused over the direction of economic policy. A cabinet reshuffle last March only compounded the confusion. The president appointed Mr Valls to implement supply-side reforms aimed at boosting competitiveness. Yet he also gave a bigger role to Mr Montebourg, allowing him a more prominent platform from which to attack the very policies Mr Valls was advocating. Something had to give.

Mr Montebourg’s departure offers a chance for a more joined-up approach. Mr Valls is now better placed to implement structural reforms, including cuts in public spending and labour taxes that France needs to boost competitiveness. The appointment of the well-regarded Emmanuel Macron as economy minister should also improve the government’s coherence.

Yet the ousting of the left is also a political gamble that raises two concerns about the direction France is taking.

First, while Mr Montebourg sometimes appears a brash egoist, his call for fiscal relaxation in France resonates well beyond the left. France’s economy is stagnant. Unemployment remains above 10 per cent. It is perfectly reasonable to question whether France – and the eurozone more generally – can recover if the current commitment to budgetary contraction is maintained. A stagnant economy, combined with deflation, also risks undermining the sustainability of France’s public finances. These are not maverick concerns. Fears about tight fiscal policy were expressed at the weekend by Mario Draghi, president of the European Central Bank, who called for a more growth-friendly fiscal stance for the euro area.

Second, Mr Montebourg’s removal, though politically bold, is potentially destabilising. Mr Hollande’s presidency is weak, with approval ratings of just 17 per cent. Mr Montebourg is now in a position to boost the anti-austerity group in France’s National Assembly, comprising rebels from the Socialist party and . At best this will take France along a twisting political path. At worst, it could see the country plunged

12 Council of Ministers (France), in Europa World online. London, Routledge. House of Commons. Retrieved 08 September 2014 from http://www.europaworld.com/entry/fr.dir.260

5 into fresh parliamentary elections, with the prospect of a messy cohabitation between a leftwing president and a rightwing government.

Mr Hollande and Mr Valls have made a decisive political choice. They now need to pursue a broad variety of policies to jolt the country out of its economic rut. They must persuade France’s political class to implement deeper structural reforms – most notably overhauling the labour market. To help win the argument, they need to convince the German government that France requires fiscal leeway to cut taxes to boost growth.

Mr Montebourg is an unreconstructed socialist who was a difficult colleague for the president and prime minister to work with. But his critique of the flawed policy mixture that European policies have forced on France will echo long after he has left the stage.13

Writing for the Observer on 31 August, Will Hutton argued that:

Valls and Macron have to do two things. They must use their pro-business, pro-EU credentials to insist that Germany allows the ECB and governments to tackle secular stagnation head on: the ECB must flood the European banking system with cash and governments given the fiscal headroom to boost demand. They must also develop much smarter support for the new sans-culottes. They need processes that enable them to be fast and smart, hiring and firing when necessary, but underwriting the new risks of being a worker and entrepreneur. In short, they need a wholesale recasting of the welfare, labour market and innovation systems to be both capitalist- and worker- friendly.14

On 6 September, the Economist argued that:

The most important shift taking place within the government, however, may not be the appointment of a single new young minister. It is rather the closet takeover by social democrats linked to , France’s prime minister from 1988 to 1991.

Mr Valls himself is the spiritual son of Mr Rocard, and got his first government job serving as the former prime minister’s parliamentary attaché. In his book “Pouvoir” (Power) Mr Valls writes admiringly of Mr Rocard, citing “the force of his intelligence and the frankness of his words”. These fired Mr Valls’s political imagination as a teenager and secured his loyalty for the next 15 years, as Mr Rocard, then a rising star of the left, tried but failed to impose his centre-left thinking on the Socialist Party as an alternative to the socialism of François Mitterrand.

Rocardiens have been installed in all corners. Mr Valls’s current political adviser, Yves Colmou, is one, having also served on Mr Rocard’s political staff. So did Sylvie Hubac, who now runs Mr Hollande’s staff at the Elysée Palace. , Mr Valls’s interior minister, got his first job as an adviser of a member of Mr Rocard’s government. Mr Macron is a close friend of Mr Rocard and invited him to his wedding.

At the same time, those on the party’s left have been sidelined. Two other left-wing ministers were thrown out along with Mr Montebourg. Their departure was preceded by that of Aquilino Morelle, a confidant of Mr Montebourg and a presidential adviser, after a scandal involving the shining of lots of pairs of Mr Morelle’s posh leather shoes at the Elysée palace.

13 "Hollande takes a political gamble", Financial Times, 27 August 2014

14 "France is in turmoil as advocates of austerity and investment fight it out", Observer, 31 August 2014

6 “The Rocardiens have clearly won the day,” notes another ex-member of Mr Rocard’s prime-ministerial cabinet. Mr Valls, who insists that the left must make peace with business, is now partly unpicking a rent-control law passed by his predecessor. Mr Macron has hinted at loosening rules governing the 35-hour working week; Mr Cazeneuve has urged common-sense immigration control, echoing Mr Rocard in 1989. As if all this were not suggestive enough, there is a further link: one of the former prime minister’s sons, Loïc Rocard, now works in Mr Valls’s cabinet.15

15 http://www.economist.com/news/europe/21615632-former-prime-ministers-ideas-are-making-comeback- rocards-return

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