Hollande sacks his government

French president François Hollande dissolved his cabinet early this week and asked his prime minister, Manuel Valls, to name a new team.

The trigger for the move was a weekend interview with economy minister Arnaud Montebourg, a left-winger who lambasted the government’s economic policy, especially the attempt to clamp down on the budget deficit.

The new economy minister is Emmanuel Macron, a former Rothschild investment banker who has already advised Hollande for several years. Other dissidents usually associated with the left of the Socialist Party have also gone.

What the commentators said

Political uncertainty usually rattles investors, said Allister Heath in The Daily Telegraph. But “the purging of hard-left ministers” gave the benchmark French stock market index, the CAC 40, quite a boost. “The old guard was so bad that nothing could be any worse, the markets were saying, and rightly so.”

Montebourg’s departure should result in a more coherent approach to economic policy, as the FT pointed out. In his two years as president, Hollande has been “notoriously confused” about what he is trying to do. He came to office on a platform of taxing the rich.

Then in March he appointed Valls to drive reforms, such as cutting labour taxes and government spending. But he also gave Montebourg a bigger role, “allowing him a more prominent platform from which to attack the very policies that Valls was advocating. Something had to give.”

It’s a start, but France’s ossified economy needs a lot more treatment. Employers in France pay the state around 40% of every salary they pay, compared to 12% here, said Charles Bremner in The Times.

Cutting red tape and deregulating protected professions is crucial. “Archaic costs and fee fixing” cost €6bn a year, and the French pay €205 more than their European neighbours for protected services. For instance, only pharmacies may sell painkillers, allowing the chemists to impose a large mark-up.

Yet, Hollande’s reforms may now face trouble in parliament, as Montebourg’s call for ditching austerity “resonates well beyond the left”, said the FT. There could even be fresh elections, further delaying the overhaul the economy so urgently needs.

Merryn

Claim 12 issues of MoneyWeek (plus much more) for just £12!

Let MoneyWeek show you how to profit, whatever the outcome of the upcoming general election.

Start your no-obligation trial today and get up to speed on:

  • The latest shifts in the economy…
  • The ongoing Brexit negotiations…
  • The new tax rules…
  • Trump’s protectionist policies…

Plus lots more.

We’ll show you what it all means for your money.

Plus, the moment you begin your trial, we’ll rush you over THREE free investment reports:

‘How to escape the most hated tax in Britain’: Inheritance tax hits many unsuspecting families. Our report tells how to pass on up to £2m of your money to your family without the taxman getting a look in.

‘How to profit from a Trump presidency’: The election of Donald Trump was a watershed moment for the US economy. This report details the sectors our analysts think will boom from Trump’s premiership, and gives specific investments you can buy to profit.

‘Best shares to watch in 2017’: Includes the transcript from our roundtable panel of investment professionals – and 12 tips they’re currently tipping. The report also analyses key assets, including property, oil and the countries whose stock markets currently offer the most value.