Czechs Vote in `Referendum' on Austerity That May Weaken Cabinet Stability

Czech Prime Minister Petr Necas’s three-month-old government may be weakened by municipal and Senate elections that began today amid growing anger over spending cuts.

All three parties in the ruling coalition have lost support since they took power in July and announced saving measures, including a 10 percent reduction in public wages, according to public opinion polls. Necas’s Civic Democrats trail in the capital, Prague, which they have led since the Czech Republic became an independent state in 1993.

The government has pledged to cut the budget deficit to the European Union limit of 3 percent of economic output by 2013, from 5.8 percent last year, pushing bonds and the koruna higher. Those policies have drawn the ire of state workers, with as many as 30,000 marching through Prague in protest on Sept. 21. Voting started at 2 p.m. across the country and will continue tomorrow.

“These elections will be to some extent a referendum on the performance of the government parties,” said Jiri Pehe, director of New York University in Prague. “It will be a test of government stability” that may prompt the coalition’s “smaller parties to reconsider their participation.”

Necas’ party was backed by 16.2 percent of voters in a survey by the Stem polling agency last week, down from 20.2 percent in the May elections. Support for the two smaller coalition parties, TOPO9 and Public Affairs, dropped to 12.9 percent from 16.7 percent and 9.1 percent from 10.9 percent, respectively, according to the poll of 1,228 people.

Support for the main opposition, the Social Democrats, was 22.7 percent compared with 22.1 percent in May, according to the survey conducted Sept. 3-13. The poll found 18 percent undecided and had a margin of error of 1.5 percentage points.

‘Unpopular’ Measures

The coalition, which has 118 votes in the 200-member parliament, would have won 10 fewer seats if the national election had been held in September, Stem estimated.

The poll “shows that Public Affairs and TOP09 are probably bearing the burden of unpopular government measures,” Stem said in a report accompanying the survey.

Public Affairs ran in national elections for the first time this year.

The party may “start thinking that participation in the government may not be have been the right path” if the election results show a decline in its popularity, said Pehe, who was a political adviser to former President Vaclav Havel.

History of Breakups

The Czech Republic has a history of government breakups due to internal disputes. The country has had two minority governments and two interim Cabinets in the past 12 years.

The Czech Republic’s A debt rating may be raised if the government follows through on pledges to reduce spending, including an overhaul of the pension system, Standard & Poor’s said Aug. 10. S&P revised its outlook on the rating to “positive” from “stable.”

The yield on the benchmark 10-year government bond fell to 3.453 percent as of 2:00 p.m. on Oct. 15 in Prague, from 4.339 percent before the May 28-29 elections. The koruna gained 5.7 percent against the euro, making it the world’s best performing currency after the Swiss franc in that period, according to data compiled by Bloomberg. The koruna weakened 0.2 percent to 24.507 to the euro today.

Fare ‘Badly’

“If the parties fare very badly, that may reshuffle the reform plans for the next year,” said Pavel Sobisek, chief economist at UniCredit SpA in Prague. “They can’t abandon the fiscal consolidation path and the deficit targets,” though they may choose to reduce the deficit by raising taxes rather than cuts in government spending, he said.

Finance Minister Miroslav Kalousek, a TOP09 member, has been instrumental in drafting legislation to reduce spending on public wages. The cuts are key to narrowing the deficit, which widened to 5.8 percent of gross domestic product in 2009 when the country fell into the worst recession since the end of communism two decades ago, Necas and Kalousek said.

Transportation Minister Vit Barta of Public Affairs in August stopped all railway construction and suspended work on 12 road projects to reduce spending, sparking protests from towns plagued by heavy traffic. Barta on Sept. 14 allowed the railway projects to resume and said road building would continue after lower prices from suppliers were negotiated.

Support ‘Reforms’

Necas, 45, who became the Civic Democrats’ chairman in June, appealed to voters to endorse his party in the municipal elections.

“I need your support for reforms,” he said in a series of newspaper ads.

Necas is also in a fight to protect his party’s leadership of Prague, Europe’s fifth-richest city by per capita GDP, according to the EU.

The Civic Democrats trailed TOP09 in the capital, according to a poll published Oct. 11 by the newspaper Mlada Fronta Dnes. TOP09 was supported by 29.6 percent of respondents, ahead of the Civic Democrats at 24.4 percent, the survey of 501 people by Factum Invenio showed. No margin of error was given.

“If the TOP wins Prague elections, it will be a big problem for the Civic Democrats,” Pehe said. “It will destabilize Necas’ position inside the party. It will affect interactions inside the government and may weaken the government’s stability.”

To contact the reporter on this story: Peter Laca in Prague at placa@bloomberg.net

To contact the editor responsible for this story: Willy Morris at wmorris@bloomberg.net

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