By Jan Lopatka
PRAGUE, April 4 (Reuters) - The Czech centre-right coalition plans to push pension reform plans through Parliament this year, but its final shape is yet to be agreed in the alliance which has been shattered by attacks among its three member parties.
A string of corruption scandals has rocked the political scene, damaging mainly Prime Minister Petr Necas' Civic Democrats, long the dominant party on the political right.
A last-minute agreement in December averted a break-up of the coalition in a no-confidence vote called by the opposition because of a corruption scandal in the Environment Ministry.
The conflict has added to other coalition divisions just as the government needs to push through the major reforms of pensions, healthcare, taxes and welfare. []
A draft of the pension reforms has won sharp criticism from the left and the unions who call it anti-social, but also from private sector economists who say it falls short of what is needed while raising taxes significantly.
Following are the main risks to watch:
COALITION STRAINS
The main fault lines lie between the Civic Democrats and the conservative TOP09 dominated by Finance Minister Miroslav Kalousek, party number two but effectively leader.
The rifts focus on dozens of suspicious public tenders revealed by the press, with parties trading accusations of graft.
Necas has a reputation of being an untainted politician, but analysts say he lacks strong influence over regional party bosses and is weak in dealings with coalition partners.
In February, the finance ministry alleged illegal dealings by subordinates of Necas' key party ally, Defence Minister Alexandr Vondra, at the time he was running the country's EU presidency in 2009.
TOP09 called on Vondra to quit, but Necas has repeatedly backed his close party ally. Coalition partners say they will continue to question Vondra's credibility.
Commentators see this as retaliation for investigations by Vondra, a former anti-communist dissident and friend of former president Vaclav Havel, into defence tenders worth billions of dollars that have been connected with Kalousek's friends. There have been no convictions and all involved deny any wrongdoing.
The smallest coalition partner, the centrist Public Affairs, threatened not to support the government in the December no-confidence vote called after an alleged corruption affair at the Environment Ministry. It backed off hours before the vote.
The three-party coalition still has the strongest majority in the lower house since the break-up of Czechoslovakia in 1993 with 118 of 200 seats -- a unique chance to push through reforms.
What to watch:
-- Friction between the Civic Democrats and TOP09 could worsen, especially if Vondra is forced to quit. Necas has said from now on, he would fire any minister demanding the resignation of a cabinet colleague. That could easily break up the coalition.
-- The new and somewhat unpredictable Public Affairs may become more volatile as it seeks to reverse its popularity drop in the past months.
-- Public Affairs demand that planned tax hikes and pension reforms, key items on the government's agenda over the coming months, should be softened.
-- Tensions within parties: Regional Civic Democrat party bosses have disobeyed Necas by forming coalitions with the centre-left Social Democrats at the municipal level. Analysts see this, and his approach of appeasement with coalition partners, eroding his standing in the party.
LABOUR PROTESTS
The government partially met demands from doctors' unions in the face of a threat by 3,800 doctors to quit over pay this month. Now more professions are demanding pay hikes.
Strong opposition is forming against pension reform, mainly a plan to hike the value-added tax to 17.5 percent from 10 percent on a wide range of items.
Trade unions held a two-hour public sector strike against austerity measures in December, the biggest protest in years.
Czech unions are weak but may flex more muscle in solidarity with others in Europe and by making common cause with the opposition Social Democrats.
What to watch:
-- Given that the government is unlikely to back off its fiscal reform plans, will state workers' unhappiness lead to bigger strikes involving workers at private companies, which have already faced job and wage cuts in the economic crisis?
-- Following doctors, other professions such as policemen may threaten crippling walkouts.
FRICTION OVER PENSION AND HEALTH REFORMS
The government agreed the outline of pension reform, opting for a milder version than earlier proposed with the switch from the current pay-as-you-go system to a system partially based on private savings. []
Further reforms of the health and welfare systems are likely to bring clashes between the centre-right parties and the more socially-oriented Public Affairs.
What to watch:
-- Talks on the details of pension reform, drafting of individual reform laws. The legislation must go to parliament by mid-year to be approved before the end of the year.
-- Lobbying by the fund industry among political parties may lead to clashes between parties on policy options. For political risks to watch in other countries, please double click on [] (Editing by Sonya Hepinstall)
