French President Emmanuel Macron is about to set in motion the appointment of a caretaker government until negotiations to find a new prime minister bear fruit.

Following a cabinet meeting on Tuesday, Macron may formally accept the resignation of Prime Minister Gabriel Attal of behalf of the government, as he suggested in an open letter to the French people last week. Attal could then stay on at the helm of a caretaker administration, with weakened powers, until such time as his successor is appointed by Macron.

The president needs to make his move before Thursday to ensure his ministers can participate in a parliamentary vote to select the head of the National Assembly, who organises and leads debates in the lower house, appoints administrative authorities and is consulted in times of crisis. Sitting ministers who are also lawmakers aren’t allowed to take part in this vote.

The caretaker government is supposed to handle daily business and/or emergencies. But it is unable to hold cabinet meetings, bring new bills or adopt budget measures. If it does move to initiate legislation, the measures could be cancelled by an administrative court judge - but it’s not a given, as there is no clear definition of the notion.

The caretaker administration could be led by Attal or by a new prime minister if one emerges, until such time as a new government is appointed, according to Melody Mock-Gruet, a legal expert who teaches at Sciences Po.

According to constitutional experts, the caretaker government cannot be brought down by a no-confidence vote, and is subject to no specific time limit. But it can’t last forever either: In September, parliament is supposed to discuss a budget law for 2025. Parliamentary business is also complicated in unprecedented ways by the fact that Paris hosts the Olympics this month.

Macron gambled when he called snap elections last month after his defeat in European Parliament voting. His coalition lost more than 80 seats in the Assembly, while Marine Le Pen made her strongest showing to date with 143 seats for her far-right group. But the biggest bloc is the left-wing New Popular Front, which says it wants to govern but is struggling to pick a premier as moderate socialists spar with Greens, Communists and the far-left France Unbowed to agree on a candidate.

According to the French constitution, it’s the president who names the prime minister. While Macron has no obligation to choose a member of the biggest group in parliament, he’s likely to choose somebody with broad appeal whom he hopes won’t be vulnerable to a no-confidence motion, and who could build majorities on a case-by-case basis to pass legislation. The French leader, who is legally barred from calling fresh election for at least a year, has repeatedly ruled out resigning before the end of his mandate in 2027.

With no party commanding an absolute majority in the National Assembly, it may prove hard to undo Macron’s pro-business legacy, which includes a flat tax on capital gains and largely scrapping the wealth tax. While the Left won the largest number of seats, they still don’t have enough to enact their program, which includes boosting the minimum wage and rolling back Macron’s pension reform.

There’s still a risk that whichever government is in place in September may face a no-confidence vote over the budget. That could force it to basically run on autopilot for the coming months - perhaps the least worst outcome for investors.

  - Bloomberg