Czech government wobbling again

By bne IntelliNews April 18, 2012

Tim Gosling in Prague -

The Public Affairs party (VV) appears to have pushed the Czech governing coalition to the edge of a precipice for the second time in as many weeks. As it pushes tough austerity measures, the government faces losing its majority after several senior VV members walked out of the party on April 17.

Led by Deputy PM Karolina Peake, a handful of VV MPs including Transport Minister Pavel Dobes split from VV saying that they intend to form a new "platform," the vagueness presumably intended to keep their options open. Peake told reporters at a press conference that the latest government crisis created by VV in early April was the last straw. "It is a final and irreversible decision," she said, according to CTK.

However, the group splitting from VV pledged they will continue to support the government. Peake has said that she wants to set up a new faction including up to 10 of VV's 21 MPs, which would allow the coalition - with 93 of the 200 seats in parliament held by senior members ODS and Top 09 - to continue to enjoy a majority.

Prime Minister Petr Necas admitted that a clear majority is vital for the coalition and that he will discuss the situation with Peake at a scheduled government meeting on April 18. "The coalition includes those who declare their support to the government and its policy statement," Necas told CTK.

As the trial of founder and former leader Vit Barta wrapped up in Prague on April 13, the stresses inside VV - already a troublesome member of the coalition - have begun to pull the party apart. Meanwhile, with the awkward collection of centre-right parties forming the government enjoying only a slender majority in the parliament, it faces growing risk of collapse.

Angered by the sharp drop in popularity provoked by the government's harsh austerity programme, VV leaders threatened - for the sixth time since joining in 2010 - to collapse the coalition at the start of April. However, the senior partners met the threat head on, and claimed - amidst no little vicious rhetoric - that they were ready for early elections.

A vote now, however, would usher in the opposition Social Democrats, so it was little surprise that the three partners found agreement eventually on April 11. What was more surprising was the emergence of an even stronger raft of extra austerity measures from the government meetings.

The package of tax hikes and spending cuts is aimed at slashing the budget deficit to 0.9% of GDP by 2015. Whilst investors and Brussels are for the most part delighted with the Czech government's hard-nosed approach, protests around the country are growing. Unions have called a nationwide strike for April 21 - a Saturday.

Speaking at an economic forum, Finance Minister Miroslav Kalousek justified the latest measures, claiming that the savings to be made on the country's debt make it worthwhile.

"None of the measures please us. Only a psychopath enjoys coming up with bad news," Kalousek said, according to Reuters. "But this ... makes it possible for us to finance Czech debt at below a level of 4%, an interest rate for which most of my colleagues (in Europe) envy me today." He claimed each percentage point on bond yields would add up to CZK8bn (€323m), or about 0.2% of GDP, to annual debt servicing costs. However, some economists worry that the government may be sacrificing growth.

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