French President Names New Cabinet

The French leader kept tough-talking Manuel Valls as prime minister and lifelong friend Michel Sapin as finance minister. Mr. Hollande promoted only loyal supporters, such as former adviser and Rothschild investment banker Emmanuel Macron, who was named economy minister.

The snap reshuffle of a cabinet Mr. Hollande appointed less than six months ago comes after ministers from the left of the Socialist Party accused the president over the weekend of inflicting damaging austerity on the euro zone's second-largest economy, even as it is mired in stagnation.

The critics, led by outgoing Economy Minister Arnaud Montebourg and including Culture Minister Aurélie Filippetti, were cast aside.

Mr. Hollande is hoping that clarifying his economic line at home will strengthen his voice on the European scene. The French president has been quietly lobbying to tone down the German-inspired austerity implemented across much of the euro zone after the sovereign-debt crisis. Mr. Montebourg endangered that strategy with frontal attacks on Germany policy and Chancellor Angela Merkel in particular.

But Mr. Hollande's decision to evict rebels from his government could throw France into a political impasse. The bold move risks widening the rift between the president and elements of his ruling coalition ahead of key budget votes. The government will take the conflict to the brink in the coming weeks when Mr. Valls seeks a fresh confidence vote from lawmakers.

"If we fail to secure a majority, it will be over, because we wouldn't be able to continue," the prime minister said in a television interview after he was reappointed.

If Mr. Valls loses the confidence vote, the president can either pick a new prime minister or dissolve the National Assembly and call elections.

The left-wing revolt began brewing in 2012, soon after Mr. Hollande was elected on a platform rich in pledges to tame the financial industry—which he described as his "enemy"—and protect the middle class.

In November 2012, however, the president unveiled a program aimed at supporting French business through a series of tax cuts.

Despite a deluge of criticisms from the left that the tax-credit system was a gift to business with nothing in return, Mr. Hollande vowed in January to amplify the move, saying business creates the wealth French people need.

After a drubbing at the polls in local elections in March, Mr. Hollande shuffled his government and handed Mr. Valls the responsibility for marshaling the new pro-business platform.

But as the economy stagnated, opponents grew in strength. Around 40 socialist lawmakers abstained from voting on a program of public spending cuts to fund the business tax cuts in the coming years.

Mr. Hollande persisted, even when data this month showed a surprise continuation of the economic stagnation in the second quarter. The French president said he wouldn't change course, prompting Mr. Montebourg to launch his latest broadside.

On Tuesday, dissident Socialist lawmakers close to Mr. Montebourg vowed to continue defying the government.

"I'm not waiting for a cabinet reshuffle," Socialist lawmaker Jean-Marc Germain said minutes before a presidential aide announced the new government. "I want Mr. Hollande to reshuffle his policies."

In the television interview Tuesday, the prime minister expressed frustration with fellow Socialists. "What happened in the last few days?" he said. "The left created its own problem."