Czech President swears in centre-left government ending 7-month power gap.

By bne IntelliNews January 29, 2014

Czech president Milos Zeman swore in on January 29 a coalition cabinet led by centre-left Social Democrats (CSSD) ending a seven-month power gap following the collapse of former centre-right government amid a bribery and spying scandal, the president’s office said in a statement.

The new government, comprising also anti-corruption movement ANO and centrist Christian Democrats, takes power three months after the October snap elections narrowly won by CSSD. On January 17, Zeman appointed CSSD’s leader Bohuslav Sobotka, prime minister. Under the Czech constitution, the president first appoints the premier and then individual ministers proposed by the new head of the cabinet.

Restarting Growth

The new government’s main task will be to help economy resume growth after a record-long recession triggered by a three-year austerity drive of the previous cabinet that hurt domestic demand but also helped the country secure emerging Europe’s lowest borrowing costs. According to data compiled by Bloomberg, the yield on 10-year Czech government debt has averaged 3.8% over the past 10 years, down from 5.6% for Poland, the EU’s largest post-communist economy, and 3.5% for higher-rated France. The low borrowing costs and the country’s low debt, which is less than half of the EU average, are among the reasons why the market have ignored the political stalemate.

Sobotka will pursue looser fiscal policies but will seek to keep the budget deficit below the EU’s limit of 3% of economic output. The cabinet will raise pensions and wages and cancel the pension reform introduced at the start of 2013 by the former centre-right government. It will boost welfare and infrastructure spending and support the creation of jobs.

The three-party government has pledged not to raise taxes this year. As of 2015 it plans to lower the sales tax on drugs, books, baby food and diapers by introducing a third VAT rate. Currently there are two VAT rates of 15% and 21%. In 2015 it may slap a levy on sectors such as banks and utilities that would raise some CZK 4bn (EUR 146mn) a year.

Sobotka favours a closer EU integration but has said that his government will most likely not set a target date for adopting the euro during its term through 2017.

Stable or unstable?

CSSD, ANO and the Christian Democrats control 111 seats in the 200-member parliament giving the government a solid legislative support in case that the coalition stays intact. Yet, tension among the two main partners – CSSD and ANO - is already mounting with Sobotka and ANO’s leader and newly-appointed finance minister Andrej Babis feuding over ministry posts. ANO and CSSD already clashed over tax policy and the price CSSD had to pay to form a coalition deal with the pro-business movement was to give up pre-election pledges to raise taxes for big companies and high-earners to finance increased public spending aimed kick-starting the economy. The disagreement between Sobotka and Babis suggests the coalition is fragile and more infighting may soon be in store. Political analysts say ANO may become an instable partner in the coalition as has often happened in the Czech coalition governments with the smaller partners. But ANO has the strength to challenge CSSD.

Power-hungry Zeman, who has a history of feuding with Sobotka, may also hamper the prime minister. After winning the country’s first direct presidential elections in January 2013, Zeman has been seeking a more active role in shaping policy than his two predecessors. He was accused of exercising a power grab by appointing a cabinet of his allies to replace the former centre-right government of Petr Necas against the will of parliamentary parties. Sobotka has said the coalition will draft constitutional changes to limit the president's scope of action.

Czech government list    
Post Name Party
Prime Minister Bohuslav Sobotka CSSD
Deputy PM and finance minister Andrej Babis ANO
Deputy PM and minister of science and research Pavel Belobradek Christian Democrats
Minister of foreign affairs Lumobir Zaoralek CSSD
Minister of defense Martin Stropnicky ANO
Minister of interior Milan Chovanec CSSD
Industry and trade minister Jan Mladek CSSD
Justice minister Helena Valkova ANO
Minister of labour and social affairs Michaela Marksova CSSD
Transport minister Anthony Prachar ANO
Agriculture minister Marian Jurecka Christian Democrats
Health minister Svatopluk Nemecek CSSD
Minister of education, youth and sports Marcel Chladek CSSD
Regional development minister Vera Jourova ANO
Environment minister Richard Brabec ANO
Minister of culture Daniel Herman Christian Democrats
Minister of human rights and equal opportunities Jiri Dienstbier CSSD
Compiled by IntelliNews    

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