French president Francois Hollande is facing an anti-austerity revolt from his own ministers as he pushes through a fresh round of tax rises and austerity to meet EU deficit targets.
Three cabinet members have launched a joint push for a drastic policy change, warning that cuts have become self-defeating and are driving the country into a recessionary spiral.
“Its high time we opened a debate on these policies, which are leading the EU towards a debacle. If budget measures are killing growth, it is dangerous and absurd,” said industry minister Arnaud Montebourg.
“What is the point of fiscal consolidation if the economy goes to the dogs. Budget discipline is one thing, cutting to death is another,” he said.
Mr Hollande will on Wednesday unveil another round of belt-tightening worth €12bn, even though Paris is already carrying out the harshest fiscal squeeze since the Second World War and France may already be in a triple-dip recession.
The cuts are hard to reconcile with Mr Hollande’s campaign pledge last year to end austerity. They have set off furious criticism across the French Left. “Austerity is no longer tenable in Europe today with millions of unemployed,” said social economy minister Benoît Hamon.
Mr Hollande has sought to restore discipline, warning that “no minister is entitled to call into question the policy we have in place”. Yet he is struggling to justify why France is passively complying with German doctrines.
He flirted with the idea of "Latin bloc" to confront Berlin last year but ultimately backed down, cleaving like his predecessors to the Franco-German alliance. Any deviation from EU Fiscal Compact would lead to a showdown with Berlin.
Mr Montebourg appears to have broken ranks entirely, accusing Germany of running the euro into the ground by squeezing German wages to gain competitive advantage, warning that it is unacceptable for one country to “impose” its own agenda.
Almost all the austerity measures will come from tax rises, pension fees and a “green’ levy, rather than spending cuts. The state sector will climb to a record 56.9pc of GDP this year as the economic contraction eats into the private sector. Public spending has reached Scandinavian levels, without nordic labour flexibility.
Pierre Gattaz, head of the industry federation, said the French state is out of control. “Company bosses are in panic, stressed by falling order booksm, the tax burden and a loss of competitiveness.”
Critics say the French tax squeeze is not even helping to curb borrowing. France is at growing risk of a debt trap as the slump itself erodes tax revenues. Public debt will jump to 94pc of GDP next year, a drastic upward revision from 90.5pc.
A report prepared for EMU finance ministers over the weekend by the Breugel forum in Brussels said the eurozone’s crisis strategy is a failure, a nexus of confused policies that cut against each other.
Sky-high unemployment is eroding job skills and “undermining Europe’s long-term growth potential”. Low growth is making it “much tougher for hard-hit economies in southern Europe to recover competititveness and regain control of their public finances”.
Breugel said the apparent success of EMU’s “internal devaluation” strategy - where crisis states cut unit labour costs to claw back lost competitiveness - is an illusion caused by distortions to the productivity data. “There have been very few truly good performers,” it said.
The report called for a radical shift in policy to break out of the vicious circle and prevent Europe being left behind as the US recovers. Yet as so often in this long saga EMU finance ministers appeared to have ignored the findings of their own experts.