Czech govt may win key vote, but not stability

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A last minute deal to end an eight months political crisis is unlikely to bring stability and badly needed economic and social reforms to the Czech Republic.

Late on Tuesday two leftist deputies agreed to ensure Prime Minister Mirek Topolanek's centre-right coalition has a majority in a crucial vote in parliament on Friday, ending months of political paralysis.

But analysts said on Wednesday a government based on the support of a few renegade MPs would be weak and lack the broader support in the lower house to push a reform programme that is needed to put the EU member back on track to adopt the euro.

"The only thing that one can be certain about is that the political crisis is not going to end on Friday," said Ivan Hoffman, political commentator at the public Czech Radio.

"Using business terminology, a hostile takeover will take place without the winner gaining a real majority. In such a situation, it is difficult to strategically plan, compete and share dividends."

Political paralysis in the lower house was brought about by a June general election which saw leftist and rightist parties both win 100 seats in the 200-seat chamber.

Months of talks on forming a government produced few results, and much animosity between Topolanek's Civic Democrats and former Prime Minister Jiri Paroubek's Social Democrats, who will go into opposition if the government wins the confidence vote, as expected.

The Czech economy breezed along unencumbered by the turmoil. Foreign investments continued to fuel strong growth and the crown currency.

But analysts said businesses and investors were biding their time hoping for a resolution that would provide a stable platform to launch reforms of the pension system and healthcare, issues that must be addressed before euro adoption can get back on track after the government scrapped a 2010 target date.

Instead, they are disappointed with the outcome.

"The country may finally have a government with a mandate," said Pavel Sobisek, chief economist at HVB bank in Prague.

"However, pushing through the needed economic reforms will be a difficult task not only because of the coalition's weak position in parliament, but also because the way the government is set to win the confidence vote may reduce the motivation of the opposition to play a constructive role."

The crown currency eased against the euro on Wednesday, tracking a weaker tone on central European markets and suffering from concerns over a deteriorating external gap as well as a fragile governing coalition.

But analysts said the news of a government had failed to inspire the market.

"I do not consider the news as positive, because the government will be susceptible to blackmailing (from the opposition deputies)," said David Navratil, economist at Ceska Sporitelna in Prague.

[PRAGUE/Reuters/Finance.cz]