France risks gridlock after Macron handed hung parliament

Summary

• Macron's camp fails to win absolute majority in parliament
• Will now seek alliances with other parties
• Risk of political paralysis if no deals

President Emmanuel Macron faced calls for his prime minister to resign on Monday and doubt hung over his ability to rule decisively after his camp lost its parliamentary majority.

Macron's centrist grouping is under pressure to secure support from rivals to salvage Macron's reform agenda after weekend elections delivered a hung parliament. If it fails, France could face a long spell of political paralysis.

Macron will invite all political parties able to form a group in the new parliament for talks on Tuesday and Wednesday, a source close to Macron said on Monday.

The loss of his Ensemble alliance's absolute majority is a painful setback for Macron, who won a second term just two months ago. French governments have long relied on a lower house of parliament that shares their political line and largely rubber-stamps proposals.

"We must think about a new way of functioning on an institutional level," European Affairs minister Clement Beaune, a close ally of the French President, told LCI television.

Sunday's second-round vote left Ensemble as the biggest party, with a fledgling leftwing alliance in second place, the far-right stronger than ever and the conservatives as potential king-makers. 

"It's going to be complicated," government spokeswoman Olivia Gregoire told France Inter radio. "We're going to have to be creative."

Macron now needs either to form a wider coalition or accept leading a minority government that negotiates with opponents on a bill-by-bill basis. His only consolation: the opposition groups are themselves bitter rivals and in some cases riven by internal rifts.

"Such a fragmented parliament will likely result in political deadlock, with a much slower reform agenda," said Philippe Gudin of Barclays.

"This will likely weaken France's position in Europe and endanger the country's fiscal position, which is already weak."

Senior hard left and far-right figures demanded Prime Minister Elisabeth Borne resign after just over a month in office.

Gregoire said Macron would soon reshuffle his government.

What next?
It is unclear whether the broad leftwing Nupes alliance of Jean-Luc Melenchon can stay united and what influence Marine Le Pen's strong far-right contingent will wield.

"We will try to bring others on board with us, especially to convince the few moderates in parliament to follow us," Gregoire said.

One key question is whether Macron will try to strike a coalition deal with the conservative Les Republicains (LR) - who have for now rejected that option - or enter into messy negotiations with lawmakers on a bill-by-bill basis.

A few lone voices aside, lawmakers from LR who gathered on Monday to discuss the election fallout, have so far rejected a coalition pact - but the door may be open to deals on a case by case basis.

Les Republicains chief Christian Jacob said again on Monday he opposed striking any deal with Macron.

"We just had a debate and what I am telling you here is our almost unanimous position, reflecting an overwhelming majority," Jacob told journalists as he headed out of a meeting.

Ensemble and LR have compatible platforms on economic matters, including pushing up the retirement age and promoting nuclear energy. Together, they would have an absolute majority.

Asked about possible defections from LR, Jacob said his lawmakers "have been campaigning together and we will stick together without any difficulties".

First tests
If no agreement with the opposition can be found, the euro zone's second biggest economy faces political deadlock and possible snap elections down the line.

A first major test will be a cost-of-living bill which Gregoire said the government will put to lawmakers in eight days, when the new parliament sits for the first time.

Proposals in the summer on renewable energy will test the solidity of the left, which is divided over nuclear power.

Final figures showed Macron's centrist camp won 245 seats - well below the 289 needed for an absolute majority, Nupes 131, the far-right 89 and Les Republicains 61.

Macron himself has yet to comment on the election result, and the opposition urged him to break his silence.

Painful setback
The vote was a painful setback for the 44-year-old president, whose victory in April made him the first French president in two decades to win a second term, as voters rallied to keep his far-right opponent Le Pen out of power.

In his final term, he had wanted to deepen European Union integration, raise the retirement age and inject new life into France's nuclear industry.

Financial markets took the result largely in their stride, with little impact on the euro and stocks in early trading on Monday. French bond spreads saw some widening pressure.

"The hope that some foreign exchange traders placed in Macron in 2017 evaporated some time back, so that election victories or defeats do not play a major role for the euro exchange rates any longer," Commerzbank analyst Ulrich Leuchtmann said in a note.