Czech president appoints aide as PM

By bne IntelliNews June 26, 2013

bne -

President Milos Zeman named his economic aide Jiri Rusnok as caretaker prime minister of the Czech Republic on June 25, setting up a fight with parliamentary parties on all sides. Meanwhile, attention has turned to the major policy decisions on the agenda, with the final call on the tender to expand the Temelin nuclear power plant looming.

As he had threatened, the power-hungry Zeman announced he is backing an interim government in the wake of the June 17 resignation of PM Petr Necas over recent raids by anti-corruption police. The move sweeps aside a bid from the current ODS/Top09 coalition to build a new cabinet to see out their term, which ends in May 2014, despite claims the same day that it had secured a parliamentary majority to back its candidate: Miroslava Nemocova.

The president, who has sole authority for the meantime to name a new government leader, has also sidelined the demands of the opposition CSSD for early elections. Although he acknowledges that is the likely eventual outcome, Zeman is playing the percentages to boost his own power. The left-leaning CSSD - which Zeman led as PM over a decade ago before falling out with the current leadership - is a certainty to win any new election.

"The only way to initiate early elections in the Czech Republic is to name a technocratic government," Zeman said at a press conference, according to Bloomberg. "I believe that most of the public, and I don't mean just my voters, wouldn't want" a continuation of the current coalition "with or without Necas." A snap election would come in 60 days at the earliest.

While Rusnok - a former CSSD finance minister - will clearly not find the simple majority support demanded by the constitution in parliament, he could still fill in for close to a year, unless the lower house forces snap elections. Analysts at Erste Bank point out that since any second attempt at finding a PM also rests with the president - the third one rests with parliament's speaker - and since there's no strict time limit stipulated as far as the second attempt is concerned, "such a government, with no confidence, can theoretically be in office until regular elections in June next year."

Voting for Christmas

That leaves the departing coalition with a dilemma: to endure 12 months of effective rule by the president - who has been gunning for the government since he arrived in Prague Castle in March - or support the CSSD in its push for early elections, which would be tantamount to a turkey voting for Christmas given the depths to which the parties' ratings have sunk.

"Waiting for early elections would be like Waiting for Godot," Zeman said, according to Bloomberg. "The opposition doesn't have the power to get 120 votes and the ruling coalition hasn't so far shown any interest to be a part of the 120 votes."

However, Erste notes that there may be a third option, should the coalition be in the mood for a fight. Should Zeman play hardball and retain a Rusnok cabinet in office despite a lack of support in the lower house, "parliament can then turn to Constitutional Court (41 MPs suffice for this) [to ask] it to rule whether or not such conduct is in line with constitution."

The weakened centre-right parties may well push that in order to get the chance to draw up a 2014 budget in line with its strict austerity - one of the first items on the list according to Rusnok.

Nemcova called Zeman's decision "an irresponsible step," insisting it's the president's "fault that we're wasting time," according to AP. Miroslav Kalousek, deputy head of Top09 and outgoing finance minister, called Rusnok "an irresponsible friend of an irresponsible president."

"They both have to know that such a government has no chance to win confidence in parliament," Kalousek continued. "They are well aware that such a government has no chance to push through the budget. The only government that is capable of winning confidence and approving the budget is the government of Miroslava Nemcova."

Such a thought will have most of the country shuddering, with Kalousek's harsh austerity over the past three years or so having helped sink the country into its longest ever recession. The pledges of the CSSD to move to raise extra revenue from tax rises in order to loosen the state purse strings has helped the opposition into a position from which victory is certain at the next elections, whenever they may fall.

On to business

Rusnok, who said he will act quickly to have his government sworn in within two weeks, called the preparation of next year's financial plan a "key task". Other major issues on the agenda in the next three months or so include an increase of minimum wage and a decision on a controversial defense procurement contract for fighter jets.

However, the interim PM appeared to rule himself out of making any call on the €8bn-€10bn nuclear tender to expand the Temelin plant, reports the Wall Street Journal. "I won't make strategic decisions," he said when asked about the September deadline set by state-controlled CEZ for selecting a winner from the Russian and US/Japanese offers. Hence, any extension of the caretaker government could disrupt the process.

"For now, nothing is changing, but next week we should have a clearer understanding of the timeline and will be better able to comment," CEZ spokesman Ladislav Kriz told Dow Jones.

However, Erste points out that, "Zeman is well known for his positive stance towards nuclear energy," noting that as PM in 1998, he approved the first two blocks at Temelin. The US bidder will likely be wary of any decision under the temporary administration given the president's well-documented connections with Russian business, in particular Lukoil - the country's second-largest oil producer.

"In the current period of depressed electricity prices, the Temelin project - built without subsidies - has a net negative effect on the valuation," of CEZ, note analysts at Russian investment bank VTB Capital, who go on to suggest that the ongoing crisis revives doubt that the project will even eventually happen. "We think this has long since been priced into CEZ's valuation. However, the increased political noise around the final decision worsens sentiment and delays clarity over whether subsidies will be provided to CEZ, and whether CEZ will build new Temelin units or not."

Hospodarske noviny notes that the last caretaker government - led by Jan Fischer - made several controversial decisions on major projects after its rule was extended by the Constitutional Court. Eventually, it ran the country from May 2009 to July 2010. Petr Soukenka of the NGO Anti-Corruption Endowment suggests that due to the swift and temporary nature of cabinet appointments in caretaker administrations, they "play into the hands of various manipulators."

Such governments have been unusually common in the Czech Republic since the overthrow of communism, and business tends to eventually find a way to proceed. Zeman and his cohorts are unlikely to leave the huge sums involved in the Temelin expansion dangling for too long should snap elections not follow swiftly.

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