France dodges far-right win but Macron has no one to govern

France is heading into an extended period of political gridlock after a shock defeat for Marine Le Pen’s far right in Sunday’s elections produced a divided parliament with no clear majority.

A left-wing alliance including the far-left group France Unbowed will be the biggest group with 178 out of 577 seats in the lower house, but still way short of the 289 required for an absolute majority. President Emmanuel Macron’s group was second with Le Pen’s National Rally trailing in third place.

In the runup to the vote, investors had been concerned about the prospect of a far-right takeover after Le Pen’s crushing victory in last month’s European parliamentary elections. But some analysts were even more worried about Jean-Luc Melenchon’s France Unbowed leading the next administration, since he has made spending promises that would destabilize the public finances and risk a market crisis.

The result means that neither Melenchon nor Le Pen will be able to put their plans into action and makes the formation of any effective government extremely difficult.

“The extremes have been averted,” said Antonio Barroso, a political analyst at advisory firm Teneo. “But the problem is that there is no easy path to a government.”

French bonds and the euro were little changed as traders digested the results. The CAC 40 was up 0.3% in Paris trading, adding to last week’s rebound. The French equity benchmark has erased almost half of its losses of recent weeks and remains 3.8% lower than it was before the election was called on June 9.

The leftist alliance, known as the New Popular Front, struck a deal with Macron’s centrists ahead of the second round of voting in order to prevent Le Pen’s from clinching a majority. Le Pen’s National Rally won the biggest share of the vote in the first round but wound up with only 143 seats while Macron’s group took 156, according to the French interior ministry.

“The scenario of political deadlock in France, with an assembly divided into three blocs, is the least worst-case scenario,” said John Plassard, a director at Mirabaud & Cie.

Macron had said that the snap election he’d called following his defeat in the European election was meant to clarify the political situation in France. Instead, it’s kicking off what looks like weeks of negotiations to try to come up with a formation that can govern.

Although the electoral rules of the Fifth Republic were designed to avoid gridlock, France is facing the same political fragmentation that have seen parliaments across Europe plunged into extensive and complex negotiations in order to form majorities.

Dutch Prime Minister Dick Schoof was sworn in this month, almost eight months after his country’s election. Spanish Premier Pedro Sanchez is governing with the support of seven different parties after the conservatives, the biggest parliamentary group, failed to form a majority. Olaf Scholz is leading Germany’s first three-way coalition in more than half a century.

In France, the most likely outcome is a government with a minimal set of policies that can keep the country running without aiming at any major changes, say constitutional and political experts. There are major differences between each of the three main blocs.

That’s an extraordinary outcome in large part because the current French constitution, brought in under Charles de Gaulle in 1958, was created in order to try to avoid the kind of parliamentary paralysis that France experienced following World War II.

Melody Mock-Gruet, a constitutional expert at SciencesPo university, said you have to go back to the presidency of Vincent Auriol from 1947 to 1954 to find a similar situation.

“He would meet with each group in parliament and try to find the least common denominator with them in order to try to build a government,” she said. “This is going to take weeks at least.”

As the maneuvering began on Sunday night, Macron’s prime minister, Gabriel Attal, distanced himself from the president’s decision to call the election and announced that he will offer his resignation. Despite the friction, Macron asked him to remain on an interim basis in order to maintain stability.

Melenchon demanded that Macron recognize his defeat and appoint a left wing premier to replace Attal, telling his supporters that the New Popular Front will implement its program in full. Socialist leader Olivier Faure struck a more conciliatory note, saying it’s the party’s job to “find a path” to respond to the needs and demands of French people.

“It’s not just that the parliament is fragmented, but the parties themselves are split,” said Barroso, the Teneo analyst.

Under the French constitution, the president is allowed to pick whomever he wants as prime minister, but without a majority any government will be vulnerable to no-confidence votes and will struggle to pass laws.

Mock-Gruet said that Macron will likely wait until the National Assembly meets on July 18 before starting any serious negotiations. She said the parties that make up Melenchon’s New Popular Front will most likely form separate groups, potentially providing an opening for Macron to deal with the Socialists or Greens.

Whatever happens next, there’s a consensus emerging that French politicians are going to have to find a new way to operate that involves more compromise. That’s not an easy task in a country that’s used to parliament unflinchingly implementing the program of a president.

“We are leading but not with a full majority,” Socialist Raphael Glucksmann, who has been touted as a potential prime minister, said on TF1. “So we need to start a new era of acting like adults. We will need to debate and have dialogue.”

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(With assistance from Tara Patel, Ania Nussbaum, Samy Adghirni and Phil Serafino.)