Emmanuel Macron had been in his new job less than 48 hours when he dropped his bombshell. Picked by François Hollande to be economy minister after a row over austerity prompted a reshuffle, the young investment banker suggested that France could consider an end to its hallowed 35-hour week.

Was this Hollande's "Clause IV moment", analysts wondered? Was the French president about to show his commitment to economic reform by abandoning a totemic policy, as Tony Blair did on becoming Labour leader in 1994?

Not really, it emerged.

Laurent Berger, head of France's largest trade union, the CFDT, made it clear that organised labour would not tolerate the scrapping of the 35-hour week. Macron, he said, had "made a mistake" and, as far as the unions were concerned, "the subject is closed".

That seemed to go for the government too, which quickly rowed back from Macron's suggestion. A spokesman for the prime minister, Manuel Valls, said: "The government has no intention of going back on the legal length of the working week."

Another view was that France is having its "sick man of Europe" moment. In a crowded field, the eurozone's second-biggest economy has beaten off the challengers for the crown of the most problematic country on the continent.

Spain and Greece have held this dubious honour – as did Britain, of course, in the 1970s. Italy has held it off and on for decades; there was even a brief period when the mantle fell on Germany. Now it is France's turn under the spotlight.

The symptoms are clear enough. Unemployment is more than 10%; the country has not managed two successive quarters of economic growth since Hollande arrived at the Elysée Palace more than two years ago. Weak growth is putting a strain on the public finances. Its industry is less competitive than that of neighbouring Germany, which has led to job losses and factory closures.

Last week, as the new French government was being sworn in following the sacking of the anti-austerity economic minister Arnaud Montebourg and two colleagues, Michel Charroin was helping to plant 54 crosses on a grassy verge outside the factory where he works in Saint-Etienne, an industrial town south-west of Lyon.

"Management told us at the end of June that they're closing the plant, and there's nothing to be done. It's the death of 54 jobs," he said. All that his CGT union can hope for is to negotiate the best possible terms for its members. The skilled workers, who make nuts and bolts at the GFD factory, will probably be able to find other jobs. But Charroin, a 52-year-old office worker, with two children and a wife who works part-time, has no clue what he will do after 25 years with the same employer. The Italian-owned plant has lost €6m (£4.76m)in two years and will close in October or November.

"The crisis is our daily life," said Charroin. "There's no work to be had in the Saint-Etienne basin. In the past 20 years, 50,000 jobs have gone."

Few would disagree with Charroin's view that the French economy is deeply troubled. But opinion is divided on the cause of the malaise, and the remedy for it. One view is that France is hidebound by rules and regulations that are strangling the private sector, with the 35-hour week a symbol of a country that needs to wake up and face the harsh reality of life in the modern global economy.

Jennifer McKeown, European economist at Capital Economics, says: "Reform is certainly what France needs in the long term. We have argued that the weakness of the labour market relating to structural rigidities has been a key factor behind France's underperformance compared with Germany."

The US economist Paul Krugman, a strong opponent of the austerity policies pursued across Europe since the debt crisis began in 2010, disagrees. He says employment among prime-age (25-54) workers in France is higher than in the US, that the notion of French uncompetitiveness sits oddly with a small current account deficit, and that until the crisis French unit labour costs rose in line with the eurozone average.

The problem, Krugman says, is not structural rigidity but blanket austerity and Germany's unwillingness to reflate. "The question I would ask is: what do Hollande and his inner circle think will make the situation turn around? Europe's austerity drive has now gone on for four years; over the course of those four years the euro area has seen economic recovery shrivel, a much-touted comeback also stumble, and now a slide towards deflation. French economic performance tends to track the eurozone average; why should anyone expect France to come roaring back?"

That was broadly the argument made by Montebourg last week when he went public with his criticism of the austerity programme and blamed Germany.

"I agree with Montebourg," says Youri Tabet, a 23-year-old studying for an MA in public affairs. "He's a bit of an opportunist but he was right to bang his fist on the table."

He is critical of Hollande's failure to follow through on his election promises to restore growth. "Hollande should have been firmer with [Angela] Merkel. He gave in too quickly," says Tabet, who was a card-carrying member of the Socialist party until the 2012 election but has since stopped going to meetings .

He lives with his parents in southern Paris out of necessity, and they are footing the bill for his studies. He says the signs of economic stagnation are all around: "Our teachers tell us how hard it will be to get a job. And I can see that my parents' friends are in difficulties too."

David Rouault, 25, is training to be a lawyer and shares a flat with three other people in Paris's south-western 15th arrondissement. The flatmates each pay €459 a month in rent. David earns €1,000 euros a month gross on an internship with a Paris law firm, but things are tight even though his firm gives him lunch vouchers.

Reflecting the majority view in opinion polls since the reshuffle, Rouault – who describes himself as a centrist unattached to a political party – says the prime minister was right. "What is outrageous is some ministers' lack of a sense of responsibility – in particular Montebourg – and their desire to stir things up after the holidays." But Rouault does not believe the reshuffle will bring change.

"I don't think the government is as responsible for the mess as the media would have us believe. France's problems date from before the left came to power, and things won't go any better with this new government," he says. "Things will improve when the crisis is finally over on an international scale, stimulated by other countries."

Hollande has adopted a two-pronged strategy. He has a pact with business, under which modest cuts in public spending will be used to cut corporate taxes, provided firms take on more workers. And he hopes that if he shows a commitment to reform, the German government will ease up on its austerity demands and allow France to run budget deficits in excess of the 3% target stipulated by the European Union.

Stephen Lewis of stockbroker ADM is not convinced: "Hollande probably takes the view that he is likely to depend on Germany's goodwill if his government is to avoid imposing draconian measures on the French economy. The financial markets are taking a positive view of the new French government, though its centrepiece proposal of tax concessions to companies in return for commitments to raise employment seems unlikely to strengthen the economy structurally. After all, there is no guarantee that the jobs companies create to gain their tax concessions will be very productive."

Hollande, whose approval ratings stand at just 17%, needs results, and fast. But the chances of him achieving them look slim. It is not just that the latest business surveys make grim reading – though the economy does appears to be going backwards in the third quarter. It is not just that the amount of slack Merkel will cut him is likely to be limited. And it is not just that the European Central Bank has been painfully slow in waking up to the threat of deflation.

Rather it is that for all its many problems, France remains a prosperous and – for those in work – comfortable country. There is just no appetite for any of the more radical proposals, be they structural reforms, abandoning austerity or leaving the euro.

David Marsh of monetary thinktank Omfif says: "The political and economic position in France is parlous. Hollande will now be under attack from two sides: from the right wing, both his traditional conservative rivals and the revitalised Front National, and from his own socialist party, where Montebourg and his allies, unencumbered by government office, will be quick to regroup."

The risk for Hollande is clear. He is neither Margaret Thatcher in 1979 nor Blair in 1994. He has levers but seems unwilling to pull them. Clause IV moment? No chance. Lame duck moment? Much more likely.