UPDATE 1-Czech parties finalise deal on coalition government

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By Jan Korselt

Three Czech right-wing and centrist parties finalised an agreement to form a coalition government on Thursday, Jiri Cunek, head of the centrist Christian Democrats, said.

The parties rushed to iron out last minute differences with Prime Minister Mirek Topolanek, who has been seeking a way to end more than half a year of political crisis following an inconclusive June election.

The three parties have just 100 seats in the 200-seat lower house and will need the support of rebels from the leftist Social Democratic Party to survive a confidence vote required by the constitution once a government is appointed.

"We found an agreement even in the most difficult areas where I thought there would be trouble," Cunek told reporters after meeting Topolanek.

Topolanek's rightist Civic Democrats and the Christian Democrats will be joined by the Green Party, which has already agreed to be part of the coalition.

Topolanek plans to meet President Vaclav Klaus at 1400 GMT, when he is expected to present his cabinet.

If the new cabinet survives an initial confidence vote, it will try to push reforms aimed at cutting budget deficits and revamping the pension, social and health care systems.

The country needs to cut its growing budget deficit so that it can adopt the euro currency after 2010.

Analysts said that a government backed by rebels would be inherently weak and might find it impossible to win support for its reforms from the leftist rebels, and the possibility of an early election would remain in place.

If the leftists block the reforms, the government may try to trigger early elections by blocking parliament for at least three months, using an option given by the constitution.

Cunek and other party leaders have refused to say which ministries his party will head. Czech media have reported the finance ministry would go to former Christian Democrat leader and budget committee chairman Miroslav Kalousek.

Topolanek now leads a Civic Democrat-only cabinet which lost a confidence vote and resigned in October but remains in office while politicians try to form a new administration.

[PRAGUE/Reuters/Finance.cz]