By Mark John
PARIS (Reuters) - A fierce critic of budget austerity was named French economy minister on Wednesday in a reshuffled government packed with strident personalities, including President Francois Hollande's former live-in partner Segolene Royal.
Hollande has charged the new cabinet with halting France's economic decline after 22 months in power during which his popularity has collapsed to record lows, leading to the trouncing of his Socialists in weekend local elections at the hands of conservatives and the far-right.
While his first government was criticised for blandness, the cabinet of tough-talking new Prime Minister Manuel Valls includes a more powerful role for leftist Arnaud Montebourg, known for attacks on big business and the European Commission, who takes charge of an enlarged economy and industry ministry.
Montebourg, who has accused the European Union executive of strangling economic recovery with austerity policies, won promotion just two days after Hollande hinted that Paris would seek yet more time from Brussels to get its public finances in shape.
Royal, who announced she had split from Hollande after her failed 2007 presidential bid, returns to front-line politics as energy minister. However, the conservative opposition took aim at Montebourg, who as industry minister in 2011 called the policies of German Chancellor Angela Merkel "dangerous and suicidal".
"I see that Mr Montebourg has been promoted in charge of economic policy," Jean-Francois Cope, leader of the UMP party said after the names of the new government were read out on the steps of Hollande's Elysee Palace.
"It is he that will go to Europe to discuss our economic policy, notably with the Germans whom he has copiously insulted over the last two years," said Cope.
The European Commission has already given France an extra two years until 2015 to get its government deficit within a target of 3 percent of economic output - a goal that looked far off with data this week showing it stood at 4.3 percent in 2013.
Hollande said on Monday that France's efforts to stimulate growth, notably through tax cuts for low-earners, would have to be taken into account by Brussels. Jeroen Dijsselbloem, chairman of the euro zone's finance ministers, hit back by insisting that France knew it must deliver on its promises.
At the start of the year Hollande espoused more centrist policies, including a plan for 30 billion euros ($41 billion) of cuts to employment charges in a "responsibility pact" aimed at encouraging business to hire more workers.
The naming of Valls, a centrist often likened to former British premier Tony Blair, reflected that policy switch. But Hollande has also stated that the local election losses showed the Socialists needed to look after working-class voters better.
Montebourg will work alongside Michel Sapin, a long-time Hollande loyalist who was promoted from labour minister to replace Pierre Moscovici as France's finance minister.
While Sapin will have formal oversight over public finances, Montebourg's expanded role, covering industry and the digital economy, will give him a bigger say on policy than before.
With the EU studying telecom sector reform, Montebourg will push his view that European operators be allowed to consolidate and achieve scale to compete with global giants such as Google and Facebook - a position not always shared by Brussels' anti-trust authorities.
Even with the imminent nomination of junior ministers, the new government team will be smaller than the 38-strong original line-up that was accused of amateurishness and internal splits.
Hollande's Greens coalition partners refused to take part in the Valls cabinet in protest at the new premier's conservative stances on issues such as immigration, a move which could weaken support for the government's economic reforms in parliament.
Yet the promotion of Montebourg and the naming as education minister of prominent left-winger Benoit Hamon was an attempt by Hollande to please everyone in his Socialist Party, which still has a slender majority in parliament.
"This is a delicate balancing act. Naming Valls was a signal to the right-wing (of his party)... but at the same time you get the impression he does not want to cut off the left wing of the party either," said Gilles Moec, an economist at Deutsche Bank.
Royal's "green" credentials - she has called for France to wind down its reliance on nuclear power and invest in renewable energy - could help to persuade Green deputies to maintain their backing for the government.
The first test will be the formal parliamentary vote on the new government set for next Tuesday, with a separate vote due on the responsibility pact and planned public spending savings to be held around the middle of the month. ($1 = 0.7249 Euros)
(Additional reporting by Nicholas Vinocur, Leila Abboud and Brian Love; editing by David Stamp)