Game of chicken continues as Czech PM wins party vote

By bne IntelliNews November 5, 2012

bne -

The ruling Czech coalition faces a tense start to the week ahead of a vote on its latest austerity package on November 7 after Prime Minister Petr Necas of the senior partner Civic Democrats (ODS) defeated a challenge to his leadership at the party's congress at the weekend. While the smart money remains on the right-wing's instinct for self preservation, things can veer off course in a game of chicken.

Necas was re-elected ODS head on November 4, and now faces two days of negotiations to agree a compromise with rebels who last month helped defeat a bill seeking to raise VAT by 1 percentage point (pp) and raise taxes on high earners. The government attached a confidence vote to the bill after it failed in its first parliamentary vote in a bid to head off the rebels, and has since been backpedalling to delay a second vote ahead of the congress.

Following the leadership vote, the PM yet again threatened to take the ODS down with him should the rebels block the bill. "If the government loses support for its budget policy, it will lose the purpose for its rule," Necas told the 600 delegates in Brno, according to Reuters. "We should not square over 1pp in one tax rate for one year when the alternative is opening the way to the left, which has already said it wants to raise taxes by 3pp of GDP."

The bill, pushed by Finance Minister Miroslav Kalousek, seeks to increase the taxes to raise an extra CZK22bn (€871m) next year as the cabinet tries to cut the deficit to below 3% of GDP. That continues a harsh austerity drive which has won the hearts of investors - bond yields remain around historic lows - but has provoked fury among the population. It also has many analysts worrying that it is now holding back an economy that dipped into contraction in the fourth quarter of 2011, and remains there. As a concession to win more support, Necas has offered to soften the bill, but without joy.

While the rebels claim to oppose the bill due to their ideological opposition to tax rises, as well as the effect of austerity on the recession, it's the worst kept secret in Prague that the crux of the issue is actually a factional fight inside the ODS. Therefore, although reinforced by a vote of 351 to 178 to remain party leader, Necas must move quickly to find a deal with the rebels - something he has failed to do for over a month now.

The coalition lost its nominal majority in the 200-seat lower house last week as one of the group of rebels left the ODS, leaving the government with 99 declared seats. While it may be able to whip up the necessary support to push the tax hike through among independents, that avenue appears unlikely given that it has clearly failed to do so for weeks. The repeat parliamentary vote on the bill has been put off twice in that time.

Not for the first time this year, Necas has threatened early elections should he fail to garner the support he needs. The rebels insist that the government could limp on with a different cabinet - admissible under Czech law. With the right-wing parties making up the government - including ODS - facing almost certain annihilation at the polls, that leaves the country victim to a squalid game of chicken, with most assuming that outgoing president, and ODS founder, Vaclav Klaus is Necas' ultimate foe.

"Our aim is not a fall of the cabinet, no early election, but we are saying no to tax increases," said Ivan Fuksa, the losing challenger for the ODS leadership. "I believe we will hold more negotiations and reach a compromise," he added, according to Reuters.

Necas made similar threats to call early elections earlier in the year, in an attempt to prop up the coalition's majority as junior partner VVV collapsed. However, he pulled back from the brink when it became clear that his attempts to cajole MPs to pledge their support would fail, forcing the government to limp on with a one seat majority, until it lost even that this month.

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