Czech coalition agreed but election threat remains

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Three Czech centre-right parties finalised a deal to form a government on Thursday after nearly seven months of talks following an inconclusive June election, but the threat of an early election still hung in the air.

The right-wing Civic Democrats signed a coalition agreement with the centrist Christian Democrats and the Green Party, in a second attempt by Czech political parties to form a government since the election gave both centre-right and left-wing camps 100 seats in the 200-seat lower house of parliament.

"It has been shown that this three-party coalition project is the only one that has the parties' support and is willing to undertake reforms," Civic Democrat chief and Prime Minister Mirek Topolanek said after signing the agreement.

President Vaclav Klaus has so far refused to accept Topolanek's cabinet line-up, demanding that he try to win backing from the leftist Social Democrats as well, and protesting against the proposed foreign minister, Karel Schwarzenberg, seen as being too close to Austria.

But Topolanek has refused to budge, and Klaus has acknowledged he will eventually accept ministers proposed by the prime minister.

To win the necessary confidence vote in parliament, Topolanek must now overcome grumbling within his own party, where some officials oppose ceding the powerful finance and regional development ministries to the Christian Democrats.

He also must hope to win support from some defectors from the leftist Social Democrats. One has not ruled out supporting the government in the confidence vote but said he would not support its policies.

If Topolanek fails, another attempt to form a government will be made before the president can dissolve parliament and call an early election.

The three parties pledged to slash the EU member country's fiscal gap to 3 percent of gross domestic product in 2008 and to 2.3 percent in 2010, an ambitious aim given widening deficits at present and the coalition's plans cut taxes.

The country must slash its budget gap to qualify to adopt the euro currency. The coalition agreement did not specify any euro entry date.

Topolanek said if the government proves too weak in parliament to push through its reforms, it will try to trigger an early election via a constitutional provision allowing parliament to be dissolved.

He said he did not know when President Klaus, a former Civic Democrat chief now at odds with his successor, would formally appoint his cabinet but said he would meet him on January 2.

The Czech Republic has seen record economic growth fuelled by exports and rising consumption. The crown currency has probed new highs against the euro, regardless of the political crisis.

Topolanek now runs a Civic Democrat-only government which lost a confidence vote in October but stayed in power as a caretaker cabinet until a new administration is formed.

[PRAGUE/Reuters/Finance.cz]