Ireland May Be Heading for Grand Coalition, Alan Dukes Says

  • Irish PM Kenny faces sliding support for current government
  • Alliance with biggest opposition party could deliver majority

Five years ago, Ireland’s once-dominant party was politically toxic. Now, it’s a potential kingmaker.

Irish Prime Minister Enda Kenny’s Fine Gael-Labour coalition looks set to lose its majority in the Feb. 26 general election, a poll late Tuesday in Dublin showed. That may push him toward Fianna Fail, which led Ireland into the worst banking crisis since the Great Depression. Bookmaker Paddy Power makes a first-ever grand alliance between the two the most likely election outcome.

A combination between the two centrist parties is “where the logic lies,” Alan Dukes, who led Fine Gael between 1987 and 1990, said in an interview. Both parties want to cut taxes and raise spending, while sticking to the European Union’s fiscal rules.

So far, both parties have ruled out a deal, and they would be “mad” to commit to any alliance in the run-up to the election as it could cost them votes, Dukes said. The parties trace their roots back to the nation’s bitter Civil War, a battle over the treaty which partitioned Ireland in the 1920s. Yet, few ideological differences exist between the two sides and a coalition between them could avoid the instability roiling Portugal and Spain.

“Fianna Fail are likely to be king makers,” said Eoin Fahy, chief economist at Kleinwort Benson Investors in Dublin. “The party will be faced with the difficult choice of opting to govern with Sinn Fein, govern with Fine Gael or precipitate another election.”

The spread between Ireland’s 10-year benchmark government bonds and German securities of a similar maturity has increased to 75 basis points from 44 basis points just over a month ago. Still, the nation’s debt office last week auctioned 1 billion euros ($1.1 billion) of 10-year bonds at a record-low yield, even as an inconclusive election result looms.

Support for Kenny’s coalition is running at 35 percent, according to a Red C poll for the Irish Sun newspaper. To win a second term, the two parties need about 44 percent, according to Philip O’Sullivan, an economist at Investec Plc in Dublin. Fine Gael and Fianna Fail drew a combined 45 percent, the poll showed.

“We are skeptical on the prospect of a FG-FF government, as the latter party is poised for material gains after the hiding it took in the 2011 election,” O’Sullivan said on Monday. “We suspect that it would prefer to continue the rebuilding process in opposition rather than be a junior coalition partner.”

Support for Fianna Fail in the 2011 election fell to 17 percent from 42 percent in 2007. The party was in power between 1997 and 2011, presiding over the nation’s boom and bust before leading the state into an international bailout.

Fianna Fail emerged from groups which opposed the 1921 peace treaty with the U.K. and Fine Gael has its roots in organizations which supported the agreement, and divisions remain.

On Wednesday, Health Minister Leo Varadkar accused Fianna Fail leader Micheal Martin of creating a “fairytale” about his time in power, while his opponents replied that the attack smacked of desperation.

Ultimately, though, a grand coalition may be inevitable, according to Dukes, a former finance minister.

“I think long-term those two parties have to become one, maybe medium term,” said Dukes. “It makes a hell of a lot of sense in terms of the way they see the economy.”

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