Czech Prime Minister Bohuslav Sobotka has announced that his government will resign later this week following a breakdown in relations between his ruling Social Democrats (CSSD) and coalition partner Ano.
The move comes as jockeying has intensified between the CSSD and the populist Ano party, which enjoys a lead of around 10 points over the premier's party in opinion polls ahead of scheduled elections in October. However, while Sobotka and billionaire Finance Minister Andrej Babis, the leader of Ano, have been taking pot shots at one another since teaming up in early 2014, the government has outlasted most of those over the last decade and the announcement took most observers by surprise.
The PM has focused in recent weeks on trying to promote scandals over Babis’ personal finances, including a controversial bond scheme at Agrofert – the food and chemicals giant the finance minister owns – that Babis used to avoid tax.
In response, the finance minister has denied any wrongdoing and he said last week that he is ready to be fired by Sobotka, only to back down to insist he must stay to finish his work. That pattern has been seen several times since 2014.
Sobotka reportedly wanted to sack Babis to give his accusations of conflicts of interest and murky financial schemes some momentum as he seeks to make up ground in the polls. However, he has also been wary of making Babis a martyr and giving him more room to throw corruption allegations at the CSSD.
Sobotka told a press conference on May 2 that sacking Babis would have simply given the Ano leader more time to campaign ahead of the scheduled election. "That's the reason I'm opting for the only reasonable solution which is available," the PM said, according to AP. "[The] trust of the public in politics is at stake.”
Sobotka said early elections are one option now. President Milos Zeman announced earlier this month that regular elections would take place on October 20-21. Bringing the elections forward, however, would require a three fifths majority in parliament.
The prime minister suggested the coalition parties could seek to form a new cabinet until elections can be held, but noted that it would hinge on dealing with the issues surrounding Babis’ business dealings satisfactorily.
Babis expressed surprise over the announcement, and called it a desperate move. He said he would prefer the government to serve out its term. However, the collapse of the government may benefit Babis, opening the way for him to openly join with Zeman and smear the CSSD in what is likely to be a highly negative campaign.
Zeman, a former Social Democrat premier who recently has been aligning himself more and more with Babis, could decide to put a technocratic government in charge temporarily. Zeman caused a scandal in late 2013 as he kept a temporary cabinet he had appointed in place for months in a move many critics called a coup.
Whenever the elections are held, neither Ano or the CSSD are likely to be able to gain enough votes to form a majority government alone. Ano currently sits on around 30% in polls; the CSSD on 16%. The communist party ranks third in polls, and has been spoken of as a potential partner for both, despite a lukewarm approach from both parties. The communists have not taken part in any government since free elections were reintroduced in 1990.
Ano, however, may have a chance to form a coalition with current junior coalition partner the Christian and Democratic Union, alongside some of the rightwing parties that were decimated in the 2013 election following a series of corruption scandals. What both of the leading parties will hope is to avoid having to team up again in a new cabinet.
Whatever the outcome, investors are unlikely to worry. Markets have a tradition of casting aside Czech political shenanigans, assured by the strength of the country’s institutions.
“It seems unlikely that this political realignment will have a significant impact on the economy or financial markets,” writes William Jackson at Capital Economics. “The stability of Czech politics over the past three years has been the exception rather than the rule. Prior to that, governments changed frequently. But that was never marked by sell-offs in the markets or sharp swings in the direction of policymaking. This time looks no different.”