Week Ahead (30 March)

W/C Monday, 30th March – With Oireachtas unable to approve legislation, Irish Government formation talks set to accelerate

Fine Gael and Fianna Fáil moved closer to agreement last week on government formation, spurred by the need to respond to Covid-19 and the Seanad elections – two issues which are closely linked. The outcome of elections to the Seanad, which is a key part of the legislative process in Ireland, and consists of members elected from various panels, including 11 nominations by the Taoiseach, will be known by Friday 3 April. Leo Varadkar and Fine Gael will negotiate from a position of strength relative to last week, as the latest opinion poll shows support for the party up from 21% in the general election to 34%. Fianna Fáil by contrast has seen its support fall four points to 18%.

Improvements in opinion polls notwithstanding, as "caretaker" Taoiseach, Varadkar cannot nominate members. As such, from today the Seanad will not be legally formulated, and the houses of the Oireachtas as a result will not be able to pass emergency legislation to deal with Covid-19. With talks between Fine Gael and Fianna Fáil (73 seats) likely to produce agreement, attention will then shift to the identity of the coalition partners which would provide a working majority of 82-85 TDs – necessary for a “strong and stable” coalition, according to Varadkar. To facilitate this, there are likely to be enough independent TDs with similar outlooks to the main parties, but each will have a shopping list of requirements before they agree to enter government.

W/C Monday, 30th March - Eurogroup to meet to discuss further response to Covid-19 outbreak

After EU leaders failed to reach an agreement on Thursday on how best to respond to Covid-19, the Eurogroup of EU Finance Ministers will meet again this week to discuss options. Disputes at Thursday’s EU Summit teleconference centred on the proposed introduction of a joint debt instrument, or "corona bond".

As outlined in our 26 March Covid-19 update, the ECB has already intervened in a significant way with its Pandemic Economic Purchasing Programme, PEPP, significantly increasing the borrowing capacity of Italy and other Eurozone states for as long as it lasts. The barrier of self-imposed issuer limits has been removed, and the limits on the purchase of securities have also been altered dramatically. This may have diminished the sense of urgency for EU leaders to agree a common response.

Eurogroup President Mario Centeno said after the video meeting that he would convene the Eurozone’s finance ministers this week in order to advance “swiftly” with the leaders’ mandate. For the time being, the mandate is unlikely to include further scrutiny of the idea of joint debt instruments as the Netherlands and Germany remain entrenched in their opposition to the proposal. Centeno explained that finance ministers will try to conclude work on how the European Stability Mechanism, the EU’s bailout fund, could be used to support national economies. He added that the Eurogroup will also “pursue other innovative solutions”.

Tuesday 31 March, Eurozone flash inflation figures for March 2020

Tomorrow, Eurostat will provide flash inflation figures for March 2020. The numbers are expected to reflect the chaos that has engulfed the Eurozone for most of March. The collapse in the oil price and the closure of restaurants, bars and retail outlets are likely to push inflation towards zero. There may be some inflationary pressures associated with stockpiling of consumer goods but this is unlikely to compensate for the shutdown of economies across the Eurozone. Nor will the commencement of the pandemic emergency purchase programme on 26 March have had a significant impact on the numbers at this stage. The data release of weekly purchases will be released today.

Wednesday 1 April, Eurozone Manufacturing PMI

The Eurozone’s largest economies will be among those presenting confirmed manufacturing PMI data, after this week’s flash indicators. Flash projections for the Eurozone overall showed manufacturing PMI at 44.8 – well below the 50 mark representing a contraction but ahead of survey expectations of 39. April is projected to be worse however and in France, the Eurozone’s second largest economy, manufacturing contracted at the fastest rate since 2013.

Services PMI will follow on Friday and flash estimates show it imploded in Germany, hitting 34.5, well below survey estimates of 43. Similarly, services PMI in France was at 29 – well below survey estimates of 40.