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 The surprise move came the day after outspoken Economy Minister
Arnaud Montebourg had condemned what he called fiscal "austerity"
and attacked euro zone powerhouse Germany's "obsession" with
budgetary rigour.
In a terse statement, Hollande's office said Prime Minister Manuel
Valls had handed in his government's resignation, opening the way
for a reshuffle just four months after it took office.
"The head of state asked him to form a team that supports the
objectives he has set out for the country," the statement said,
suggesting Valls would continue trying to revive the euro zone's
second largest economy with tax cuts for businesses while slowly
reining in its public deficit by trimming spending.
France has lagged other euro zone economies in emerging from a
recent slowdown, fuelling frustration over Hollande's leadership,
both within his Socialist party and further afield.
The new cabinet will be announced on Tuesday and there was no
immediate word on who would stay and who would go.
If Hollande decided to sack Montebourg, who is viewed as a potential
presidential rival, he would risk seeing the ousted minister take
with him a band of rebel lawmakers and deprive him of the
parliamentary majority he needs to push through reforms.
Opposition conservatives, who for weeks have been embroiled in their
own leadership rows, called for an outright dissolution of
parliament, as did the far-right National Front.
"With half of the presidential mandate already gone, it doesn't bode
well for the ability of the president, or whatever government he
chooses, to take key decisions," said former Prime Minister Francois
Fillon, one of handful of hopefuls for the conservative ticket in
the 2017 presidential election.
"ALTERNATIVE MOTOR"
A new survey released at the weekend showed Hollande's poll ratings
stuck at 17 percent, the lowest for any leader of France since its
Fifth Republic was formed in 1958. Valls, a once-popular interior
minister, saw his own popularity eroded by his failure to tackle
unemployment, which is stuck above 10 percent.
Despite being promoted within the cabinet to economy minister,
Montebourg has emerged as the most visible leader of the left since
Hollande in January adopted a more pro-business line to try and
boost the economy with corporate tax breaks.
Hollande has also sought to repair ties with German Chancellor
Angela Merkel's conservatives that have been strained by France's
repeated failures to meet budgetary targets agreed with the
Brussels-based European Commission.
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Speaking at a meeting of Socialists in eastern France on Sunday,
Montebourg said deficit-reduction measures carried out since the
2008 financial crisis had crippled euro zone economies and urged
governments to change course swiftly or lose their voters to
populist and extremist parties.
"The time has come for us to take on an alternative leadership, to
set up an alternative motor," he told the gathering, where Education
Minister Benoit Hamon also took Hollande's policies to task.
The irony of the timing of Montebourg's comments is that EU
policymakers have in recent weeks acknowledged the bloc's rules on
budget consolidation should be followed with flexibility, while
France this month conceded that stagnant growth meant it would miss
its 2014 budget target.
Analysts said the showdown suggested the 51-year-old Montebourg --
who this year forced General Electric to sweeten its offer for
French industrial icon Alstrom's turbine business -- was looking to
disassociate himself from Hollande and rally the country's
splintered left behind a rival presidential bid.
"Montebourg's exit resonates like real ambition for 2017, that's
clear. It's a real political coup," said Martial Foucault, director
of the Cevipof think tank.
Foucault forecast that the government to be named by Valls on
Tuesday would be more centrist in tone but noted: "You need
ministers who are capable of speaking with unions, employers and
Germany and, I admit, there are not a lot of alternatives."
(Additional reporting by Maya Nikolaeva and Julien Ponthus; Writing
by Mark John; Editing by Crispian Balmer)
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