Czech political risk rises as Klaus vetoes pension bill

By bne IntelliNews September 25, 2012

Tim Gosling in Prague -

Czech President Vaclav Klaus increased the pressure on the country's fragile governing coalition on September 24 when he vetoed its pension reform bill, claiming that the move to finally establish a second pillar in the system would only antagonize the state's fiscal position. The move only increases the chances that the wobbling coalition will eventually lose its balance.

Klaus said that he opposed the bill, which would allow workers to divert a portion of social security payments into private schemes, because it will have a negative effect on the state deficit. "Launching the reform in such a situation is a hazard with people's confidence, a hazard with the stability of the pension system and a hazard with both public and private finances," the president said, according to Reuters.

However, the veto is the latest of several that Klaus has launched against reform bills by the ODS-led governing coalition, with the outgoing president - he finishes his second and final term in March - apparently ready to risk a collapse of the government in a bid to erode support for Prime Minister Petr Necas and increase his own influence inside the ODS, which he founded in the 1990s.

Given the extreme unpopularity of the coalition's harsh austerity drive with voters, a collapse would almost inevitably see the opposition Social Democrats elected in any fresh elections. "Mr. President surely knows that some of his steps, based on the opposition's arguments, do not contribute to the government's political stability," Necas said in a statement.

That leaves the government doubly exposed to Klaus' machinations. The coalition is already facing a tough battle to secure a simple majority of 101 votes in parliament to pass its latest austerity measures after falling seven votes short on September 5 due to a rebellion among some ODS deputies, who - like Klaus - complain the measures will only worsen the recession the country slipped into in the first quarter of the year. The PM is currently in negotiation with the rebels over the next vote on the issue, which will come with a confidence vote attached.

Necas now faces a second challenge to secure such a majority to overturn Klaus' veto on the pensions bill - which would see the Czechs finally introduce a second pillar, several years after their Visegrad peers. That only offers increased risk that the coalition - whose hawkish fiscal management has seen Czech yields drop to record lows - will eventually trip at one or other of the fences, despite having negotiated several so far this year.

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