Czech Premier Seeks Partner to Avoid Vote as Coalition Falls

Bloomberg: Czech Prime Minister Petr Necas is seeking supporters to avoid snap elections and push through deficit cuts after the breakup of his coalition.

The three ruling parties agreed yesterday to dissolve the coalition as of April 27, while pledging to back bills in parliament that the Cabinet approved through April 11. Necas gave Deputy Premier Karolina Peake, who left the Public Affairs party last week, until today to secure the support of at least 10 lawmakers who defected with her to guarantee a majority for the Cabinet or he will initiate snap elections in June.

“While we do expect Peake to generate sufficient support for a new coalition-supporting faction and thus avoid elections in June, failure to do so could negatively impact the koruna,” Royal Bank of Scotland Group Plc analysts David Petitcolin and Imran Zaheer Ahmad said in an April 20 report.

Governments across Europe have lost power in the past two years as German Chancellor Angela Merkel pushes for austerity to prevent the euro area from breaking up.

Dutch Prime Minister Mark Rutte will meet his Cabinet today to discuss a strategy for passing a budget that meets European Union targets. Early elections will probably be called after the Freedom Party withdrew its support for the minority government on April 21.

French bonds slid after results from a weekend presidential election showed Socialist Francois Hollande took a greater share of the first-round vote than incumbent Nicolas Sarkozy.

 

Austerity Measures

The Czech coalition broke up over Cabinet personnel decisions and trimming the deficit as Necas’s 20-month-old administration prepares tax increases and a cut in spending on pensions to bring the fiscal gap to within the EU limit of 3 percent of gross domestic product next year. The fiscal goals have attracted investors into Czech bonds, pushing the government’s borrowing costs to a record low.

A fall of the Czech Cabinet may compromise the fiscal plans “which have helped distinguish the country in a period of severe market scrutiny on public finances, and position itself as a regional safe haven,” the RBS analysts said.

 

Yields Fall

Measures to narrow the fiscal gap, including an overhaul of the pension system, have helped curb funding costs. The yield on the Czech Eurobond maturing in 2021 fell to an all-time low of 3.232 percent today, according to data compiled by Bloomberg. The koruna weakened 0.5 percent to 25.064 per euro as of 11:17 a.m. in Prague.

The breakup of the coalition ends the largest government majority in parliament since the Czech Republic became an independent state 19 years ago. Since taking power in 2010, the parties have repeatedly quarreled over personnel issues and measures to cut spending. The administration averted a collapse in June 2011 when Public Affairs requested an overhaul of the Cabinet.

Necas is also facing public discontent with his budget policies. About 90,000 people marched through Prague on April 21 demanding early elections in a protest against spending cuts, the newswire CTK reported, citing police estimates. Trade unions, which organized the rally, said it was the largest popular protest since the fall of communism in 1989.

 

Parties Clash

Public Affairs clashed with the other two government parties over its demands to secure more money for teachers’ salaries and transportation infrastructure. Cuts in all budget allocations are needed to meet the government goal of reducing the deficit to 2.9 percent of GDP next year from a targeted 3.5 percent in 2012, before balancing public finances in 2016.

Necas’s Civic Democrats and the TOP09 party hold 93 of the legislature’s 200 seats, while Public Affairs had 21 before Peake’s exit. Peake is negotiating with several former Public Affairs deputies to join her new faction in parliament, she said in a debate on the Prima Television yesterday.

Necas refused to cooperate with Vit Barta, the former head of Public Affairs’ parliamentary caucus and the party’s sponsor, who was convicted of bribery on April 13. Barta, who owned a detective and security company before he was elected to parliament, rejected the charges and appealed the verdict.

The Civic Democrats will start “intensive” preparations for an election campaign, the party said in a statement on April 18.

 

History of Infighting

The Czech Republic has a history of political infighting. It’s had two minority governments and two interim Cabinets in the past 14 years, stalling previous efforts to control the budget deficit. In 2009, Prime Minister Mirek Topolanek lost a no-confidence motion halfway through the country’s six-month term as EU president.

Public Affairs’ support in opinion polls has fallen the most among the three coalition parties since the elections. It wouldn’t reach the 5 percent threshold to enter parliament if elections were held now, according to a poll by the CVVM company.

The opposition Social Democrats would win elections now, followed by the Communist Party, according to the CVVM survey, which was conducted among 1,048 respondents and released April 18. Necas’s Civic Democrats, or ODS, and TOP09 wouldn’t get enough votes to create a majority government together, the poll showed. The CVVM didn’t publish a margin of error for the poll.

“The reform-minded government would almost surely be ousted” in early elections, Andras Oszlay, a Budapest-based analyst at DZ Bank AG, wrote in a report today. “A possible new Social Democrat government would likely undo some of the reforms that gained credit to the Czech Republic among investors.”

reporter on this story: Peter Laca in Prague