Czechs Face Impasse as Social Democrats Look for Partners

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Czech President Milos Zeman casts his ballot during the elections in Prague, Czech Republic, on October 25, 2013. Close

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Czech President Milos Zeman casts his ballot during the elections in Prague, Czech Republic, on October 25, 2013.

The Social Democrats, the winners of the Czech Republic’s snap election, reached out to parties with opposing policy goals after an unexpectedly close race set the course for protracted government talks.

The Social Democrats garnered 20.5 percent support with all votes counted, a record-low tally for an election winner, the Statistics Office said yesterday. ANO, a pro-business party founded by Slovak-born billionaire Andrej Babis, had 18.7 percent. The Communists were third with 14.9 percent.

Czech voters punished parties tainted by corruption scandals as they joined an anti-austerity wave that has brought down leaders during Europe’s debt crisis. Having failed to secure a majority with the Communists, the top vote getter’s natural ally on economic policies, the Social Democrats need an agreement with parties opposed to some of their priorities including tax increases and debt limits.

“Some form of cooperation with ANO and the Christian Democrats is where the Social Democrats should rationally focus their talks,” Bohuslav Sobotka, the 42-year-old Social Democrat leader and a former finance minister, said on the Prima television channel today.

The Social Democrats, the largest opposition party during the past seven years, won 50 mandates in the 200-seat parliament, followed by ANO with 47 and the Communists with 33, according to the Statistics Office. The Christian Democrats won 14 mandates.

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Czech billionaire Andrej Babis, founder of the 'ANO' movement, addresses the media in Prague, after polling stations officially closed on October 26, 2013, the second day of the early general elections. Close

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Czech billionaire Andrej Babis, founder of the 'ANO' movement, addresses the media in Prague, after polling stations officially closed on October 26, 2013, the second day of the early general elections.

Parliamentary Discord

With three other parties elected to parliament, the fragmented legislature threatens to prolong political gridlock that followed the fall of former Prime Minister Petr Necas in a spying and graft scandal in June.

The Social Democrats also showed signs of a potential internal rift, when Michal Hasek, the party’s deputy chairman, questioned Sobotka’s standing after the disappointing result.

“If I was the Social Democrat leader and the party got 20.5 percent in elections, I would resign from my post,” Hasek said in an interview today with the news agency CTK.

President Milos Zeman now has the right to name a leader to try to form a cabinet. If the first pick fails to win a confidence vote, Zeman will have another attempt, with the head of parliament making the third selection.

Party Talks

Zeman won’t name the new premier before parliament meets for an inaugural session in the last week of November, the first directly elected Czech president said today. Government talks may drag on until next year, he said.

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A boy plays at a polling station during the first day of the Czech early elections on October 25, 2013 in Prague. Close

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A boy plays at a polling station during the first day of the Czech early elections on October 25, 2013 in Prague.

“My estimate is that it will take two to three months,” Zeman told the public broadcaster Czech Television.

In June, Zeman roiled political parties by snubbing lawmakers and picking non-partisan Jiri Rusnok as the technocrat prime minister. While Rusnok’s cabinet failed in a confidence vote, it’s staying in power in a caretaker role until a new administration is formed after the elections.

The Social Democrats plan to raise taxes on top earners and businesses including banks, utilities and telecommunication companies to finance spending increases on pensioners and infrastructure. The party is targeting a budget deficit of less than 3 percent of economic output.

Conflicting Goals

While the program is at odds with ANO’s platform, which included pledges against tax increases, the party will consider “tolerating” a minority Social-Democrat government if there is enough policy overlap, said Martin Stropnicky, an actor-turned-diplomat who was elected a deputy for ANO.

The Christian Democrats campaigned for the introduction of constitutional limits to curtail state debt, a proposal rejected by the Social Democrats in the previous election term.

Deficit reductions in the past three years helped secure the highest credit rating among the EU’s post-communist members at Moody’s Investors Service and Standard & Poor’s, on par with Estonia, which adopted the euro in 2011.

The Czech Republic is preparing to install its eighth premier in a decade, more than Italy or any other EU country in the period.

Investors have ignored the political track record as the Czech economy doubled in size from 2003 to $196 billion, according to World Bank data. The yield on the country’s 10-year government bond is the lowest in emerging Europe and has averaged 3.9 percent over the past decade, compared with 5.6 percent for Poland and 3.5 percent for higher-rated France. (GFRN10)

Apart from the austerity fatigue, 94 percent of Czechs see corruption as widespread throughout the government, according to a Gallup survey published on Oct. 18. The elected parties also include a niche group called Dawn, which had campaigned for stricter immigration rules.

“Given there are few, if any, ‘natural’ allies among the parties, the end result will probably be a prolonged period of horse-trading,” Pasquale Diana, a London-based economist at Morgan Stanley, said in a note.

To contact the reporters on this story: Peter Laca in Prague at placa@bloomberg.net; Lenka Ponikelska in Prague at lponikelska1@bloomberg.net

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

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