Kenny Proposes Ireland's First Grand Coalition to Break Deadlock

  • Kenny offers principal rival `full-partnership governnment'
  • Talks to intensify before parliament meets on April 14

Ireland’s acting Prime Minister Enda Kenny sought to jump-start talks on forming a government, formally offering to put together an unprecedented coalition between the two parties that have dominated politics almost since the foundation of the state in the 1920s.

Fine Gael leader Kenny will meet Fianna Fail’s Micheal Martin for a second time on Thursday, after offering a grand coalition in discussions in Dublin on Wednesday. Parliament is due to meet again on April 14 to try to elect a prime minister after two failed attempts.

Kenny “made a formal offer for the formation of a full-partnership government which would have the potential to provide a stable and lasting government,” his party said in a statement late Wednesday.

While there’s little between the two parties ideologically, with each side tracing their roots back to the nation’s bitter Civil War, they had been reluctant to begin talks until exhausting all other alternatives. In an interview with broadcaster RTE on Thursday, Fianna Fail’s director of elections, Billy Kelleher, said a grand coalition isn’t the only option, hinting that his party may be prepared to support a minority government led by Kenny.

“We expect the two to eventually reach some form of an agreement but there is likely to be resistance from Fianna Fail to enter a formal coalition,” said Juliet Tennent at Goodbody Stockbrokers in Dublin.

While no party won a majority in February’s election, Fine Gael and Fianna Fail control more than 90 seats in the 158-seat parliament. Three alternative outcomes are possible from the talks between the two leaders:

  • An alliance between the two parties, probably the only recipe for a stable government
  • Fianna Fail props up a minority Fine Gael administration -- that could be short-lived
  • Talks fail and Ireland faces another election

Investors have thus far remained relaxed. Ten-year Irish bonds yielded 0.75 percent on Thursday, narrowing the spread between benchmark bonds and German securities of a similar maturity to 66 basis points from 83 basis points just before the election.

“Huge challenges still remain,” Cantor Fitzgerald LP in Dublin said in a note. “But there is some degree of comfort to be taken from the fact that the endgame is now quickly approaching.”

Before it's here, it's on the Bloomberg Terminal.