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Third time lucky for French government?

Tuesday, August 26, 2014 - 02:23

France's prime minister scrambles to put together a new pro-reform government, after the surprise eviction of rebel ministers opposed budgetary rigour. As Sonia Legg reports the crisis comes as the ECB could be about to ease monetary policy.

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It's the 70th anniversary of Paris' liberation from the Nazis. Peace has endured but there's a new economic conflict between France and Germany. It's at the heart of the current political crisis in France. While others in the euro zone introduced the tough austerity packages favoured by Germany - France largely carried on spending. Panmure Gordon's David Buik says as a result their economy is in a mess. (SOUNDBITE) (English): DAVID BUIK, PANMURE GORDON, SAYING: "France is very nearly a brilliant country but unfortunately they are too into demarcation and restrictive practices which has made them lazy." Francois Hollande recently started tackling the problems - partly because his European partners made him. But his timing wasn't ideal. Left-wingers in France's Socialist government believed it was wrong to attempt deficit reduction when growth was so elusive. Economy Minister Arnaud Montebourg and two colleagues resigned as a result. In their place a cabinet which Prime Minister Manuel Valls hopes will unite over reform. But it comes just as the ECB seems to be considering a different approach. On Tuesday the euro hit its lowest level against the dollar for almost a year on the expectation of monetary stimulus from the central bank. Last week Mario Draghi even called for more government spending to help provide jobs. Pierre Briancon is from Reuters Breakingviews (SOUNDBITE) (English): PIERRE BRIANCON, EUROPEAN EDITOR, REUTERS BREAKINGVIEWS, SAYING: "He has definitely shifted the debate and the austerity camp is now reduced to Germany and very few allies within the euro zone so the question now is what do the other guys, the other governments, do to convince Angela Merkel that they don't want to waste public money." The turmoil leaves markets in a quandry, says Patrick Armstrong from Plurimi Investment Managers. (SOUNDBITE) (English): Patrick Armstrong, Managing Partner, Plurimi Investment Managers, saying: "You'd like to have policies alligned throughout all of the euro zone, have harmony but we obviously don't have that. Hollande's approval rating is down to 17 percent which is shockingly low. I think it shows the general population is not happy with the austerity." But France's economy is barely out of recession and in October it needs to pass its 2015 budget. It's already said it won't meet EU deficit reduction targets for a second time. Something clearly needs to change.

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Third time lucky for French government?

Tuesday, August 26, 2014 - 02:23