Week Ahead (26 August)

Tuesday 27 August, Deadline for alternative coalition government to be found in Italy

Following the resignation of Giuseppe Conte as Prime Minister last Tuesday, on Wednesday and Thursday last week President Mattarella held consultations with all political parties in order to determine whether an alternative majority can be found.

Mattarella’s priority is to safeguard the public finances and therefore favours establishing a longer-term political government. Following his consultations, Mattarella addressed the public. He indicated that there were two options on the table for government continuity. These are a new M5S/PD government and, less likely but still possible, a revamped M5S/Lega government. Mattarella was clearly irritated by Lega’s last-ditch efforts to stay in power but felt, as head of state, that he had a duty to leave all avenues open towards a functioning government. Either way, the parties will have until tomorrow work this out, when Mattarella will hold a new round of consultations. A new Prime Minister would then be sworn in on Wednesday 28 August.

Should these efforts fail, Mattarella is faced with dissolving parliament which would result in an election in the midst of the approval process for the 2020 budget. Alternatively, he could install a technical government tasked with approving the 2020 budget before going to elections in spring. Neither option is particularly politically palatable.

Tuesday 27 August, Corybn to convene anti-Brexit forces in an attempt to rule out no deal

Following last week’s attempt to reach out to MPs across the political divide, Jeremy Corbyn will convene a meeting tomorrow in order to discuss tactics to avoid a no deal Brexit. The invitees include backbench conservatives Guto Bebb, Dominic Grieve, Oliver Letwin, Nick Boles and Caroline Spelman, as well as former Conservative MP Anna Soubry. The leaders of the Scottish National Party, Green Party and Liberal Democrats, the latter of whom initially ruled out working with Corbyn, are also invited.

Reports suggest that while the above-mentioned party leaders are expected to attend, alongside Anna Soubry, the position of Conservative backbenchers is less enthusiastic. At the time of writing, Caroline Spelman and Nick Boles have declined the invitation. Given that there will be around 5-6 Labour MPs that won’t support Corbyn’s efforts to prevent a no deal Brexit, he will need to have at least that many Conservative MPs onside if he is to head a “national unity” government aimed at blocking Brexit.

Thursday 11 August, Eurostat flash inflation for August

On Thursday, Eurozone flash inflation figures for August will be assessed for any indication that the currency zone is inching toward more robust price growth. Figures for July put Eurozone headline inflation at 1.0% in July, down from 1.3% in June. PMI data shows the Eurozone economy is slowing, with the latest manufacturing data for Germany showing the sector is in recessionary territory.

Even if flash inflation figures for August surprise to the upside, which appears unlikely given the slew of poor economic data which, inter alia, shows Eurozone employment data at its weakest for three years, we continue to expect a significant ECB easing package in September.