Prime Minister Manuel Valls presented the government’s resignation to President Hollande after Economy Minister Arnaud Montebourg called for new economic policies and questioned the EU “obsession” with cuts and austerity.
Mr Valls had formed a new team only four months ago but has continually had to reconcile policy differences between leftwingers such as Mr Montebourg and a rump of centrists.
The president’s office said that a new government would be formed in line with the “direction the president has defined for our country.”
In speeches at a Socialist gathering on Sunday, Mr Montebourg and Education Minister Benoit Hamon had said that forcibly reducing budget deficits as the economy wilted was driving up unemployment and risked tipping the economy into recession.
“The priority must be exiting crisis. The dogmatic reduction of deficits should come second,” Mr Montebourg told the annual Fête de la Rose meeting of Socialist Party activists at Frangy-en-Bresse.
The government must use more of the gains from public-spending cuts to reduce taxes on households, instead of focusing mainly on reducing deficits and bringing down business taxes, Mr Montebourg and Mr Hamon said.
The statements proved too much for the upper echelons of the party.
Mr Valls offered up his government’s dissolution after accusing the economy minister of crossing a line with his blunt criticism of government policies.
The criticism had come at a difficult moment for President Hollande, who had insisted last week that he would push ahead with a three-year plan to cut public spending to fund tax cuts for business.
The country is under pressure from the European Union to get its finances in order and Mr Montebourg’s questioning of austerity did not suit President Hollande.
Mr Montebourg drew the anger of the Socialist leadership, which said his job was to support the government, not criticise it.
“He’s not there to start a debate but to put France back on the path of growth,” complained Socialist Party spokesman Carlos Da Silva.
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