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 He and Prime Minister Manuel Valls were due later to unveil a new
cabinet which will make its debut just a few weeks ahead of tough
negotiations at home and with EU peers on a 2015 budget widely seen
breaking promises to Brussels over deficit cuts.
The reshuffle is the latest episode in a debate in Europe about how
much budgets can be cut to reduce debt while the region's economies
are still recovering from financial crises.
Valls handed in his government's resignation on Monday after
Hollande judged outspoken Economy Minister Arnaud Montebourg had
gone too far by attacking his economic recovery plan and crucial
euro zone partner Germany's "obsession" with austerity.
While Montebourg's appeals for fiscal loosening aimed at boosting
growth have started to gain traction in some quarters outside
France, others insist trimming welfare systems and state spending
are needed to make economies more competitive.
Hollande, who in January took a more pro-business turn, has based
his recovery plan around 50 billion euros of spending savings up to
the end of his mandate in 2017, while offering companies 40 billion
euros in tax cuts to help them hire more.
"The president and the prime minister want to get it wrapped up
quickly because the government needs to get down to work," said one
source close to Hollande.
"That said, forming a government is never easy."
At stake is the slender majority of Hollande's Socialists in the
lower house of parliament which is due to examine the budget bill
and other reforms - such as a liberalization of France's highly
regulated service sector - in coming weeks.
If around 40 leftist Socialist deputies feel under-represented by
the new cabinet, they could abstain or oppose the forthcoming
reforms. The downside for them is that, given the unpopularity of
the ruling majority, they would likely lose their constituencies if
a rebellion triggered new elections.
Luc Chatel, caretaker leader of the main UMP opposition party,
called for a vote of confidence on the new government but stopped
short of demanding Hollande dissolve parliament.
Aurelie Filippetti, one of three ministers including Montebourg who
will exit the government, played down speculation that the group
would seek to lure away leftist deputies from the government camp
and so undermine Hollande's fragile majority.
"It's not our aim to provoke a government crisis. I will support the
new government," the ex-culture minister told BFM-TV, saying she
planned to focus her work on the depressed region of northeastern
France where she is a Socialist deputy.
The European debate about how to kickstart growth while not
undermining public finances is not just felt in France. Austria's
finance minister Michael Spindelegger resigned on Tuesday after
drawing fire for his refusal to cut taxes unless that can be
financed without new levies.
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"SAVING PRIVATE HOLLANDE"
While other European economies begin to emerge from a years-long
slow-down, France, the euro zone's second-largest economy, is flat
and the government has acknowledged it will not meet this year's
fiscal targets. Most economists doubt a pledge to bring the deficit
within EU-endorsed limits in 2015 will be met.
The latest sign of weakness came from France's depressed real estate
sector on Monday, where new housing starts in July registered a 10.8
percent year-on-year fall to hit their lowest level since November
1998.
Euro zone officials have often exchanged fierce words over the
extent to which budgetary rigor can be pursued while the region's
economies are still recovering from the financial crisis sparked in
2008/09.
Ironically, Montebourg's appeals against "austerity" have started to
gain support elsewhere, with European Central bank chief Mario
Draghi weighing in last week with a call for governments to do more
to push demand.
While Germany's Angela Merkel and her conservatives have yet to
comment directly on the French reshuffle, some voices in the German
media raised concern that excess rigor would help the rise of the
far-right National Front in France.
"The goal in Europe must be: Save Private Hollande. If the President
and his new government press ahead with their reform course, then
Berlin and Brussels should meet him half way," left-leaning
Sueddeutsche Zeitung wrote in an editorial, citing flexibility on
public deficit limits.
Economists gave a guarded welcome to Montebourg's eviction, hoping
it would bring a sharper focus to government.
"This represents a welcome clarification of the economic strategy
but it increases the risk of a political crisis," Barclays economist
Philippe Gudin said.
He said the most likely scenario would be for self-proclaimed rebel
lawmakers in the ruling Socialist party to keep criticizing
Hollande's policies but without forcing snap elections -- if only
for fear of losing their own seats.
(Additional reporting by Ingrid Melander in Paris,; Michelle Martin
in Berlin and the Vienna bureau; editing by Anna Willard)
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