By Jan Lopatka
PRAGUE, March 3 (Reuters) - The Czech centre-right coalition
has reached a framework agreement on pension reform but
deteriorating relations in the three-party alliance have raised
questions whether it can survive its full four-year term.
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. []
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.
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.
Commentators see this as retaliation for Vondra's
investigations 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 only 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.
-- 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 20 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. []
Details remain to be ironed out, however, and the Public
Affairs have been pressuring for higher compensation for tax
hikes to families and pensioners.
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)
