Czech Premier Seeks Accord on Cabinet Posts to Keep Majority

Czech Premier Petr Necas will seek to resolve squabbling over Cabinet posts that threatens to strip his coalition government of its parliamentary majority as lawmakers prepare to debate bills overhauling public finances.

Party leaders will meet today for a final round of talks to discuss demands for government changes by the smallest of the three ruling members, Public Affairs. The party has warned it may leave the coalition unless Necas gives it more ministerial positions and sacks three other ministers.

The Cabinet’s agenda, including a boost of private savings for retirement, has helped Czech government bonds outperform German debt in the past year. Lawmakers in the lower house in Prague will also start a session today to open debate on bills including an increase in the value added tax rate meant to finance a revamp of the deficit-making pension system.

“If the coalition breaks up, the story of reforms would fade away,” Ales Michl, an economist and portfolio strategist at Raiffeisenbank AS in Prague, said by phone. “The first victim would be pension reform, the second consequence would be a threat to the deficit target for next year.”

Necas, who last year assembled the largest majority in parliament since independence in 1993, pledged to cut the public finance shortfall to less than the European Union limit of 3 percent of economic output, calling the overhaul of the pension and health-care systems the key goals for his Cabinet. The government plans to narrow the deficit to 3.5 percent of gross domestic product in 2012, from the planned 4.2 percent in 2011.

Tensions

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

Public Affairs also demanded that Necas sacks Defense Minister Alexander Vondra, Finance Minister Miroslav Kalousek and Agriculture Minister Ivan Fuksa. The party now holds two ministries, two fewer than set out in the coalition treaty.

“There is no agreement at this moment,” John said after the last meeting on June 5. “The situation is serious,” he said. Public Affairs deputies will debate their options before parliament convenes for a session today at 2 p.m. in Prague.

The Czech koruna has fallen 1.2 percent against the euro since April 26, the first trading day after Necas said his government had no reason to stay in power unless it could pass laws to cut public spending by the end of June. It was the third worst performance among more than 20 emerging-market currencies tracked by Bloomberg in the period.

Yields Fall

The yield on five-year government debt fell 30 basis points to 2.63 percent in the past year, the third-best performance among European Union members behind the U.K and Hungary, according to data compiled by Bloomberg. The yield on German debt of similar maturity rose 88 basis points in the period.

The Czech Republic has a history of political infighting. 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.

While the coalition 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 submit the required legislation. The Cabinet will send laws overhauling spending to parliament by the end of June and will seek a vote of confidence in the assembly, Necas said June 3.

Waning Popularity

Even with the squabbling, ruling parties may not want to seek early elections because their 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.

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.

“Early elections don’t seem as a likely option because the ruling-coalition parties would suffer a bitter defeat,” Josef Mlejnek Jr., a political scientist, wrote in a column in Lidove Noviny newspaper yesterday.

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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