Czech Premier Seeks to Save Coalition With Health Compromise

Czech Prime Minister Petr Necas will try to save his coalition today by seeking a compromise on a health-care overhaul after his partners threatened to leave the government and strip his parliamentary majority.

Leaders of the three ruling parties began a meeting today at 4 p.m. in Prague to debate the legislation after a spat in April triggered a government shuffle. Public Affairs, the smallest party, said it may quit the government if Necas refuses to accept its demands for Cabinet changes.

“We can’t exclude the possibility of more severe tensions ahead, particularly in June, when a confidence vote is likely to take place,” Jaromir Sindel, Citigroup Inc.’s Prague-based chief economist for the Czech Republic and Slovakia, said in a note to clients on May 30. “This could hamper key reforms that are on schedule in the near term.”

The koruna has weakened as the coalition’s bickering threatens the government’s budget plans that helped boost Czech bonds. Necas, who last year assembled the largest majority since independence in 1993, pledged to cut the budget deficit to less than the EU’s limit of 3 percent of economic output, calling the health-care overhaul a centerpiece of his agenda.

The yield on five-year government debt fell 9 basis points to 2.73 percent in the past year, the second-best performance among European Union members behind the U.K, according to data compiled by Bloomberg. The yield on German debt of similar maturity rose 76 basis points in the period.

Koruna Drops

The Czech currency has weakened 2 percent against the euro since April 26, the first trading day after Necas said his government would have no reason to stay in power unless it can pass legislation to cut public spending by the end of June. That was the world’s third-worst performance behind the Maldives rufiyaa and the Turkish lira.

The Cabinet will send laws overhauling spending to parliament by the end of June and will tie them to a confidence vote, Necas said on April 19.

The EU’s second largest ex-communist economy had two minority governments and two interim Cabinets in the past 13 years, stalling budget measures. In 2009, the administration of Mirek Topolanek lost a no-confidence motion halfway through the country’s six-month term as EU president.

The koruna is still up 5.3 percent since the May 2010 elections, the best performance among 25 emerging-market currencies tracked by Bloomberg. It was 0.16 percent stronger at 24.517 to the euro as of 5:30 p.m. in Prague, after weakening 0.2 percent yesterday.

The government’s goals include overhauling the deficit- plagued pay-as-you-go pension system, boosting private savings for retirement, and revamping the state health program which may make exclude some treatments from public insurance.

Deputy Premier Quits

Tensions inside the Cabinet rose when Public Affairs leader Radek John quit as deputy prime minister on May 11, accusing Necas interfering with his right to select his own team for fighting corruption.

Public Affairs also demand that Necas dismiss Defense Minister Alexander Vondra, Finance Minister Miroslav Kalousek and Agriculture Minister Ivan Fuksa. The smallest party holds two Cabinet posts, two less than agreed in the coalition treaty.

Public Affairs, also known as VV, “recommends to its ministers and members of parliament to leave into opposition” if Necas “doesn’t fulfill the coalition agreement, doesn’t give VV a respectable position in the government and doesn’t abandon personal attacks against VV,” according to a resolution approved at a party meeting on May 29.

While the coalition parties agreed that workers will be able to divert part of their mandatory pension insurance payments into private accounts beginning in 2013, the ministries have yet to draft the required legislation.

‘Key Reforms’

“The debate about the personnel makeup of the Cabinet can’t take precedence over an agreement on key reforms,” he said yesterday.

Even with the squabbling, Public Affairs may not want to trigger early elections because its popularity has declined since the 2010 elections.

Public Affairs would get 2.3 percent of the vote if elections were held now, below the 5 percent needed to gain seats in parliament, according to a poll by Prague-based Stem conducted May 2-9. Public Affairs won 10.9 percent in last year’s elections.

Poll Results

Necas’ Civic Democrats were backed by 13.8 percent of those surveyed, compared with 20.2 percent during the elections. Support for TOP09, the third coalition member, was 10.3 percent, down from 16.7 percent. The poll of 1,219 people had a margin of error of 1.5 to 2.5 percentage points.

The three parties, which hold 115 votes in the 200-seat lower house of parliament, wouldn’t be able to form a majority government if elections were held today, according to the poll. The opposition Social Democrats were the most popular party in the poll, garnering the support of 27.8 percent of those surveyed, up from 22.1 percent last year.

“We know that VV will be finished in parliamentary politics as early as elections are held,” Jiri Pehe, a political analyst and director of New York University in Prague, said by phone on May 30.

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

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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