* Right hopes for quick government deal after election
* Polls indicate very tight race
* Markets see risks in stalemate, left-wing minority govt
By Jan Lopatka
PRAGUE, May 26 (Reuters) - The Czech Republic could face
prolonged political deadlock after this week's election, with
voters' support split between budget-cutting conservatives and
leftists who want to protect those hit by the economic crisis.
After a decade of weak governments that have caused the
European Union state to lag its neighbours in reforms, extended
horse-trading to form a workable coalition could further hamper
policymaking and threaten long-term Czech financial health.
The left-wing Social Democrats lead all opinion polls ahead
of the May 28-29 vote but will fall far short of a majority and
may find it difficult to find partners to form a government.
The main Czech right-wing party pledged on Wednesday to form
a government quickly if like-minded forces gained the most seats
in parliament.
The leader of the Civic Democrats (ODS) said he would try to
create a government with conservative TOP09 and others to tackle
a budget gap and cut debt he says could lead to a Greek-style
meltdown.
"We want to form a cabinet of fiscal responsibility," Necas
told a news conference.
"Similar to the United Kingdom, the pressure of the budget
situation and the economic situation will lead to a very
significant acceleration of negotiations."
He said a new cabinet could be formed within two months.
An inconclusive election result could delay the formation of
a coalition for months and further thwart badly needed pension,
healthcare and other reforms in the NATO member state.
Both right and left-wing parties have pledged to narrow the
budget deficit, which reached 5.9 percent of GDP last year, to
4.8 percent next year and 3 percent by 2012-2013.
Analysts in a Reuters poll said a right-wing grouping would
do a better job. []
A caretaker cabinet has ruled since an ODS-led government
collapsed in March 2009, winning praise for competence but
lacking the political support to push through reforms.
The land-locked country of 10.5 million people suffered from
the drop in demand in its export markets, mainly Germany. Its
economy shrank 4.1 percent last year but has begun to recover.
BUDGET BATTLE
Bookmaker Fortuna has put the odds for wins for both the
centre right and left at 1.8 to 1. Its most likely government
scenario was a minority Social Democrat cabinet backed by the
Communists, with odds of 2-1.
But markets see a risk in the possibility of a minority
Social Democrat cabinet backed by the far-left Communists, heirs
to the former totalitarian party that ruled former
Czechoslovakia for four decades until 1989.
Such a government would be less business-friendly and less
fiscally disciplined and wedded to reforms than any other
option, analysts said.
Rightist parties have warned a leftist victory could fuel
spiralling deficits and lead to state bankruptcy, an accusation
some economists say may be overblown as state debt is just 35
percent of GDP and half of the EU average.
But the country's pay-as-you-go pension system is expected
to show growing deficits and state spending on health and debt
servicing are also set to rise.
The Social Democrats promise to raise welfare payments and
tame the deficit with growth and higher taxes, including a new
38 percent bracket for top earners and higher corporate levies.
Rather than relying on the Communists, the Social Democrats
may try to form a cabinet with smaller parties, a combination
that would be more acceptable to the markets.
They have also pledged to abolish fees for healthcare,
introduced by the previous centre-right cabinet that collapsed
last year. Party chief Jiri Paroubek has dismissed talk of a
Greek-style financing collapse.
"There is no threat of the debt trap," he told the daily
Hospodarske Noviny this week.
