(Repeats to additional subscribers)
By Jan Lopatka
PRAGUE, May 21 (Reuters) - Czechs will elect a new
administration on May 28-29 that will face the task of narrowing
the budget gap and reforming the country's pension and health
systems to halt a slide into deep deficits.
The election will be closely contested between right- and
left-leaning parties -- polls show the result may be
inconclusive and it may take months to create a new government.
The Czechs have not had a strong majority government since
1996, and a stalemate in the last election in 2006 led to a
seven-month hiatus before a weak centre-right, three-party
cabinet was installed.
That collapsed in March last year in a no-confidence vote
after defections left it in a minority. The country has been run
by a caretaker cabinet since.
The markets see a risk in any lengthy stalemate that would
delay decisive action on the fiscal side. []
The Czechs are aiming for a fiscal gap of 5.3 percent of GDP
this year, and total debt load of just below 38 percent. That is
low by European standards, but is caused mainly by structural
factors that rating analysts say need to be addressed to avoid
downward pressure on ratings. []
The following are the main options for the composition of
the next government.
CENTRE-RIGHT MAJORITY
If three to four centrist and right-wing parties win more
than 100 of the 200 lower house seats, they would be able to
form a centre-right cabinet led by the Civic Democrats (ODS).
Some opinion polls have suggested this outcome but it
remains far from certain, in part because the smallest centrist
party, the Christian Democrats, may not cross the 5 percent
hurdle needed to win representation. []
The other parties that may take part in this coalition are
the centrist Public Affairs and the conservative TOP 09.
A centre-right cabinet would be the most welcome outcome for
the financial markets, if the parties make good on pledges to
kick-start reforms, avoid tax hikes and slash the budget gap
fast. []
SOCIAL DEMOCRAT CENTRE-LEFT CABINET
The Social Democrats command a big lead over the Civic
Democrats and will almost certainly be the biggest single party.
If the Social Democrats together with the far-left
Communists win a majority, as some polls show, the Social
Democrats will be in the strongest position to form the cabinet.
All parties say the Communists, heirs to the former ruling
party whose totalitarian reign ended in 1989, are unacceptable
as a coalition partner, so an outright leftist coalition of the
two is highly unlikely.
The Social Democrats may therefore try to form a coalition
with small centrist or conservative parties.
The smaller parties have mostly been hostile to the Social
Democrat chief, Jiri Paroubek, making any deal hard to reach.
But past experience shows a lengthy stalemate could push the
parties into a more conciliatory stance, although policy
differences, especially between the Social Democrats and the
TOP09, are huge.
Such a government could combine reforms demanded by the
centrist and right-wing parties with some tax hikes and social
spending advocated by the Social Democrats.
This scenario is seen as neutral for markets on a scale
where a centre-right coalition would be the most favourably seen
and a minority left-wing government the most negative.
SOCIAL DEMOCRAT MINORITY
The Social Democrats may also try to form a minority cabinet
that would be backed in parliament by the Communists.
This option could meet resistance from President Vaclav
Klaus, who appoints the prime minister and has in the past
resisted any Communist-backed government.
This would be the least acceptable option for the currency
and bond market, implying higher taxes and more social spending
and raising investor concerns about the ability to tackle
long-term structural reform and to cut the budget deficit.
GRAND COALITION
A close result and lack of simpler alternatives could lead
to a grand coalition between the two biggest parties, the Social
Democrats and the Civic Democrats.
The two parties have rejected that option but some party
officials from both sides have said a lack of other reliable
partners for a strong cabinet could lead to a deal.
Such a coalition would have a very strong majority but
policy differences could hamper its effectiveness.
Some observers fear a grand coalition would cement a
monopoly on power and lucrative procurement deals by the biggest
established parties.
(Reporting by Jan Lopatka; Editing by Elizabeth Fullerton)
