Paris, August 27, 2014 -- Shades of France's notorious Third Republic ! The latest French government has been summarily dismissed after only six painful months. It was certainly time for a change. President François Hollande's poll ratings have plumbed new depths at 17 percent, while Prime Minister Manuel Valls had lost 9 percentage points in one month, down to 36 percent. With his usual indecision, the President told Mr. Valls to go back and form a new government to carry on the same policies – the third in the space of one year -- but excluding the trouble-makers who provoked this crisis.
The principal culprit is ex-Economics Minister Arnaud Montebourg, who during the weekend proclaimed unresolvable differences with the president's economic policies and explicitly blamed Germany for France's “descent into hell.”
Mr. Montebourg wants changes that seem gathering support in many places, including even Washington and the American university (thanks to the Nobel Prize economists Joseph Stiglitz and the indefatigable Paul Krugman). The appeal is powerful to the beleaguered countries of southern Europe, and recently at the IMF in Washington, and even for European Central Bank chairman, Mario Draghi last weekend at Jackson Hole. The message is: Stop the austerity in Europe, or at least apply some flexibility, before it is too late.
The latest French statistics have been awful. Income tax came in at 10 billion euros less than last year, despite painful and unpopular tax increases. Growth was 0 percent in the last trimester, and France's promise to the EU to bring the annual deficit down to 4 percent were officially broken. Even German growth was a surprising minus 0.2 percent for the last trimester. Yet one of President Hollande's most recent policy decisions was to promise 50 billion euros in budget cuts next year.