President Francois Hollande was yesterday plunged into the greatest political crisis of his presidency when the French government collapsed following a dispute over austerity.

The Élysée said Mr Hollande has asked prime minister Manuel Valls “to constitute a new team in coherence with the orientations which he has himself defined for our country”.

Mr Valls will announce the new government today.

The crisis was precipitated by remarks by the maverick economy minister Arnaud Montebourg and education minister Benoit Hamon, who are on the left of Mr Hollande’s Socialist Party. Mr Montebourg had levelled the same criticisms at the government’s economic policies and against Germany in an interview with Le Monde.

At a press conference where he announced he was “regaining his freedom,” Mr Montebourg blamed the “unprecedented crisis” in France and Europe on “wrong political choices” and said that “it is now established, known, understood and agreed that austerity policies have prolonged the economic crisis and the pointless suffering of the European population. Today, the whole world is begging us to stop these absurd austerity policies.These errors, this obstination and absurd stubborness has opened up questions and discord in many European countries.”

‘General consensus’

Mario Draghi, the president of the European Central Bank, made remarks similar in spirit to Mr Montebourg’s at an economic symposium in the US last week. Mr Draghi shifted the focus of euro zone policy away from austerity and towards reviving growth. He encouraged governments to boost demand and said policymakers were ready to add fresh monetary stimulus to prevent Japanese-style stagnation.

The euro zone economy stalled in the second quarter and unemployment remains near a record high. Mr Draghi does not want Europe to fall into a deflationary spiral.

Mr Montebourg said France “must raise its voice” with Germany because “Germany is caught in the trap of political austerity which it has imposed on all of Europe . . . I mean the German right that supports Angela Merkel. France should not align itself with the ideology of the German right . . . That would mean that even when the French vote for the French left, they would in fact be voting for the programme of the German right!”

Alluding to Mr Montebourg, the French prime minister’s office had said “an economy minister cannot express himself thus, be it regarding the economic policy of the government he belongs to, or regarding a European partner of France”.

The German chancellor has praised Mr Hollande’s “courageous reforms”.