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Week Ahead (17 February)

W/C Monday, 17th February - Irish parties to continue talks to form viable government in aftermath of historic election

Talks will continue this week on government formation in Ireland. The likelihood of Sinn Féin (SF) entering government has receded somewhat as it appears that elements within Fine Gael (FG) are less inclined to enter opposition than initially indicated. While a “grand coalition” between FG and Fianna Fáil (FF) would likely weaken their medium term prospects and allow SF to present itself as the only opposition force, the leadership of both parties appears open to such an arrangement. The view of the grassroots and backbench elements appears less inclined to support such an arrangement however and we should not consider a deal inevitable.

The FG parliamentary party will meet today to discuss the next steps for the party. With government formation in Ireland taking an average of six weeks, we would not anticipate a quick deal between FG and FF, despite the obvious similarities in their respective manifestos. In order to avoid significant future electoral losses, FF in particular will want to ensure that the arrangement is sufficiently stable to last a full five year term but also sufficiently radical to satisfy the country’s appetite for change. Both parties will look to co-opt the Green Party into government who themselves will be keen to see an additional grouping join them, in order to avoid the fate that junior coalition parties have traditionally suffered in Ireland. Given these developments, we are revising our probabilities as follows:

“Grand coalition” - FF, FG, Greens, Social Democrats/Independents (40%)

Second election (35%)

SF/FF/Greens (13%)

FF/Greens/Soc Dems/Labour/Independents (12%)

The new Dail will meet on Thursday and barring something remarkable no Taoiseach will be elected. Under the constitution of Ireland, the Taoiseach and his ministers remain in office until his successors are elected by Dail Eireann.

W/C Monday, 17th February - Search for new leader of CDU begins

Annegret Kramp-Karrenbauer, who resigned as the leader of the Christian Democrats, has said that the search for her successor will start this week. Kramp-Karrenbauer indicated in her resignation that she would stay as leader in the interim, and that she would head the search herself. Angela Merkel, while no longer leader of the CDU, remains German Chancellor and will do so until the end of the year. It is understood that Jens Spahn, the current Minister for Health, Freidrich Merz and the head of the North--Rhine/Westphalia state assembly, Armin Laschet, will meet with Kramp-Karrenbauer in the coming week to discuss their candidacies.

Kramp-Karrenbauer has said that the process of selecting a new leader will take some time, but that it is hoped that the successful candidate will be identified before the summer recess.

Tuesday, 18th February - G20 Finance Ministers to hear plea for Global Digital Tax

A meeting of the G20 finance ministers and central bank governors on Tuesday will hear calls to intensify efforts to reach a global deal on a digital taxation regime by the end of 2020. Negotiations on a digital tax agreement are continuing at OECD level, but have been fraught with difficulty in recent times, with major disputes breaking out between the United States and the European Union over proposals from France to introduce a tax at national level to capture revenue from the online activities of the major tech companies operating in French territory. While France has suspended collection of the digital tax, other countries including Austria and the UK have said that they will bring in local digital taxes as a temporary measure which will fall away once agreement is reached at OECD level. Other countries are believed to be drawing up plans which will come into effect should an international agreement not be reached by the end of 2020, which might well signal the start of a global trade war early next year.

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