Czech President Mulls Technocratic Cabinet After Spy Scandal

Czech President Milos Zeman is considering an interim technocratic Cabinet to replace the three-party coalition brought down by a scandal over illegal spying and graft charges.

“A government of experts” is a realistic option, Zeman said on state radio yesterday. The president, a critic of the administration of Prime Minister Petr Necas who resigned June 17, said that he had pledged to end the rule of Necas’s Cabinet. Zeman has the sole right to pick the next premier and will announce his decision tomorrow.

“I have made up my mind in principle and my decision won’t disappoint my voters,” said Zeman, the Czech Republic’s first directly elected head of state, adding he was considering four people as the possible leaders of a technocratic Cabinet. “A government of experts, as a replacement of the current ruling coalition, may stay only until early elections. This combination can’t be at all ruled out.”

Necas was forced to resign after the scandal reached his closest advisers. The parties in his three-way coalition proposed Parliament Speaker Miroslava Nemcova as the next premier as they maneuver to prevent an early election sought by the poll-leading Social Democrats. The main opposition party has pledged higher taxes and more state spending to revive the $217 billion economy currently mired in a record-long recession.

Necas’s Austerity

The spying scandal added to public discontent with austerity measures that hurt household spending. Necas, who quit after three years in power, credits deficit cuts with helping cut borrowing costs. Necas’s Civic Democrats would get 8 percent in an election, compared with the 20 percent they received in the 2010 ballot, the Prague-based polling company PPM Factum said June 21.

The yield on the Czech Republic’s 10-year koruna bond fell to an all-time low of 1.48 percent on May 17, according to data compiled by Bloomberg. It has risen 34 basis points since June 12, one day before the crisis started, to 2.4 percent today, holding below comparable U.S. Treasuries.

Zeman’s idea of a technocratic government “is not such a big surprise,” Nemcova said in a live interview on state television today. “What is more surprising is that he is probably considering it at the time when all parliamentary parties have said they won’t support such a government.”.

The political turmoil erupted June 13 after nighttime police raids resulted in the detention of eight people including the head of the premier’s office, former ruling-party lawmakers, as well as the current and former heads of military intelligence.

Lacking Majority

The coalition that backed Necas controls 98 seats in the 200-member parliament and has relied on the votes of former coalition deputies who defected their parties to pass legislation.

According to law, any future government will need to secure a simple majority to win a confidence vote in the lower house of parliament within 30 days of being appointed. If it fails, it stays in office as a caretaker Cabinet and Zeman has no constitutional deadline for naming a replacement before the next regular elections scheduled for May 2014

A technocratic administration “probably wouldn’t last long,” according to Ceska Sporitelna AS analysts Lubos Mokras, Martin Lobotka and Petr Bittner, in a not to clients today. “Because all parties are against it, a dissolution of parliament and a new election would very likely follow.”

Tax Promises

The Social Democrats, led by Bohuslav Sobotka, promised to raise some income taxes to pay for higher spending the party says is needed to revive the economy. The party would get 29 percent in an election, compared with their 22 percent showing in 2010, according to the June 14-20 poll of 945 people by PPM Factum, which didn’t provide a margin of error.

Sobotka said his party wouldn’t support a technocratic Cabinet and will seek to secure the 120 votes in parliament needed to dissolve the assembly and force a snap election.

The Czech Republic has a history of political instability. It’s had seven governments led by six prime ministers since Zeman finished his four-year term in 2002 and two interim Cabinets since 1998.

“A technocratic government would enhance Zeman’s standing within the political system as the only elected representative with a direct mandate,” Otilia Simkova, an analyst at Eurasia Group in London, said by phone yesterday.

Before it's here, it's on the Bloomberg Terminal.