Czech Republic on cusp of snap elections

By bne IntelliNews August 9, 2013

Tim Gosling in Prague -

The Czech Republic is on the cusp of snap elections after political parties from the right and left put forward a motion towards dissolving parliament. A session to vote on the issue is now set for August 16 as the parties seek to oust the puppet government that was installed by President Milos Zeman in July.

Zeman's cabinet, which he pushed into office following the June collapse of the centre-right coalition between the Civic Democrats (ODS) and Top 09, lost a vote of confidence in the lower house on August 7. The president said ahead of the vote, however, that he would not appoint a replacement interim government for weeks at the earliest.

While his man Jiri Rusnok has been leading the country from the prime minister's office, the left-leaning head of state has been pushing to re-assert his influence over the Social Democrats (CSSD), the party he formerly led before falling out with parts of the current leadership a decade ago, and a shoe-in to win the next election.

The vote of confidence also revealed cracks in the right-wing coalition, as it failed by one vote to muster the majority that would have given it greater legitimacy to pressure Zeman to appoint its own candidate as prime minister - a move it has been pushing for since former PM Petr Necas of the ODS fell in the midst of a spying and corruption scandal. Top 09 was furious that two ODS deputies failed to even turn up for the confidence vote.

That appears to have pushed the coalition over the edge. After spending August 8 in talks with CSSD and communist KSCM, Top 09 offered its support to the motion to head for early elections. That vote, set for August 16, will need a constitutional majority of 120 of the 200 seats in parliament. A total of 126 MPs signed the petition to set up the vote.

"We have these new votes guaranteed by Top 09," CSSD leader Bohuslav Sobotka announced, according to Reuters. "I really hope that...(besides the three factions), other parties also join us. I think it would be a great signal for citizens... We will act so that the Czech Republic remains a parliamentary democracy."

Citigroup Global Markets thinks an early election could be held within the next two months, with three-fifths of MPs in the lower house in favour. "CSSD, KSCM, and Top 09 have enough votes," Citigroup says.

There are in fact three scenarios left. The most likely are those early elections as soon as possible. However, the snap vote could be delayed to allow time for the new left-right front to push through constitutional changes currently being prepared in reaction to Zeman's power grab.

It's still possible, analysts say, that the president could sow enough dissent to block early elections, allowing Rusnok to govern until the next scheduled vote in May 2014.

However, a major option has now been taken off the table, with the wily Zeman having obliterated the right. "We no longer expect the renewal of the right-wing coalition as the incentive for Top 09 to cooperate with ODS is gone," the Citigroup analysts suggest with classic understatement.


The timing of the Chamber of Deputies' dissolution and period to hold the early election will be important. The constitution says that the early election must be held within 60 days after the dissolution of the lower house (more exactly, after the president dissolves the lower house based on the lower house request to do so). Hence, if the lower house is dissolved next week (Tuesday, Wednesday), the election must take place on October 11-12 or earlier. However, if there is some agreement by political parties that some important laws have to be approved first, the dissolution of the lower house could take place later, pushing back the election date.

Indeed, Citigroup paints a nightmare scenario for the right. "We argue that if the lower house is dissolved, it does not exist anymore and the legislation process (excluding the approval of state budget, Constitution, election law) will be in a triangle - (Presidential) government (that decides which laws should be approved), left-wing Senate (that will approve the laws) and left-wing President (who will co-sign the approved laws). This could be a somewhat risky combination for Top 09 or ODS to agree... without any conditions."

However, they still bet that the snap vote will take place in October at the latest, although add that it will likely come earlier to secure the approval of the 2014 state budget.

Erste Bank analysts, meanwhile, look at the likely results of early elections. "Although the possibilities are essentially endless here and the post-election negotiations are going to be interesting, the scenario which we view with highest subjective probability is the left-wing coalition led by CSSD and with open or silent support of KSCM," they write in a note.

"In that case," they add, "we can expect fulfillment of few promises of CSSD: 1] reintroduction of progressive taxation of personal income and thus complete abolition of flat tax rate, 2] higher taxation for small unincorporated entrepreneurs, 3] special taxes and/or tax rates for specific sectors (telecoms, banks, energy companies); 30% has been floated, 4] higher corporate tax income for all companies (from 19% to 21%)."

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