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France and the shadow of the euro

While the collapse of the French government highlighted policy divisions and personal ambitions, the cause is the crisis in the eurozone.

La rédaction de Mediapart

This article is freely available.

President François Hollande has been overseeing the creation of his third cabinet in two years, reports BBC News.

The resignation of his government on Monday was partly due to feuding, personal ambition, and the divisions between centre-left politicians and socialists.

All of that was in play but behind this government breakdown was the continuing crisis in the eurozone.

Throughout the summer tension has been rising. The German economy is slowing. Business confidence has fallen for four months in a row. The French economy is stagnating. Housing starts in France have fallen by over 10% in a year. Italy is in recession.

Against this background the easy confidence of the European Central Bank (ECB) has been shaken.

The critique of Arnaud Montebourg, the economy minister who has been forced out, is shared to varying degrees in Spain, Greece and Italy. He says that austerity has caused "the most destructive crisis in Europe since 1929". The policies have "mired the eurozone in recession and soon deflation".

Ministers in Germany respond by saying that France, unlike Spain, hasn't fully embraced structural reforms that make it easier to hire and fire workers and free up the labour market.

The same accusation is levelled at Italy; that Prime Minister Matteo Renzi talks a good talk but many reforms are not fully implemented and employment laws remain too rigid.

In Berlin it is easy to hear the view that President Hollande's first two years have been largely wasted; a president unwilling to face down the vested interests of the unions or to explain to the French people that their much-valued way of life is not sustainable without change.

Mr Montebourg, in particular, resents these criticisms. He accused the government of "following the extreme orthodoxy of the German right".

This did not just sound like open revolt against the government's policies but risked souring relations with Berlin. President Hollande could not accept that, although he has been critical in the past of the era of austerity made in Germany.

In the end, for his own credibility, he had to have a cabinet with the appearance of unity.

The French government insists reforms have been introduced. There are the 40bn euros (£32bn; $52bn) of tax cuts for business in exchange for taking on more staff. There is the commitment to reduce spending by 50bn euros to meet EU budget targets.

But despite these headline policies unemployment remains stubbornly above 10% and the government has been forced to cut its forecasts for growth. France will also fail to meet its target - agreed with the EU - for reducing the deficit.

Read more of this report from BBC News.