Czechs Trigger Early Election to End Political Turmoil

Czech lawmakers agreed to shorten their term in office and initiate an early election to end policy paralysis that’s curbing the country’s ability to revive economic growth after a record-long recession.

The motion to cut parliament’s tenure, a condition for calling the snap ballot, was backed by 140 deputies in the 200-seat assembly in Prague with seven against. President Milos Zeman, who must formally dissolve the chamber, has said he’ll schedule the vote for Oct. 25-26 after approval of the motion.

An early ballot would end political turmoil that erupted after illegal-spying and graft allegations toppled ex-Prime Minister Petr Necas’s pro-austerity government in June. Zeman snubbed Necas’s coalition by naming his own interim cabinet, which lost a parliamentary confidence vote this month, extending the crisis and hindering the $196 billion economy’s pursuit of measures to aid the economy’s recovery.

“The current political situation is limiting the ability of the technocrat government to untie the overly tight fiscal straitjacket,” Vaclav France, an analyst at Raiffeisenbank AS in Prague, said by phone. “The government that will emerge from the next election will have room to loosen the fiscal stance, of course in compliance with the European Union limit.”

While Czech borrowing costs have risen since the start of the political crisis, those of regional peers Poland and Hungary have increased more, according to data compiled by Bloomberg. The yield on 10-year koruna bonds was at 2.34 percent as of 4:34 p.m. today, holding at 49 basis points, or 0.49 percentage point, below comparable U.S. Treasuries.

Election Push

The three parties that backed Necas’s previous administration had wanted a chance to form a new government before the confidence vote. Their alliance disintegrated during the session, prompting the TOP09 party to agree to join the Social Democratic Party in its push for an early ballot.

The Social Democrats have increased their lead in opinion polls since Necas’s cabinet collapsed and had 34 percent support in a June 14-July 14 survey by Prague-based Median, more than the 22 percent the party got in the 2010 election.

The Communists were next with 18.5 percent in the survey of 1,377 people. TOP09 had 15 percent support, while Necas’s Civic Democrats had 13 percent, according to the poll, which was published July 24 and had a 1 percentage point margin of error for smaller parties and 3 percentage points for larger parties.

Budget Savings

The previous government focused on narrowing the budget gap by trimming investments and raising taxes. While undershooting 2011 and 2012 deficit targets helped cut borrowing costs, it frustrated the public and curbed private consumption, contributing to six quarters of economic contraction that ended in March, the central bank has said.

The Czech economy exited its longest recession on record in the second quarter, when gross domestic product advanced 0.7 percent from the previous three months, preliminary data released last week showed. GDP will drop 0.4 percent this year, the International Monetary Fund predicts.

The Social Democrats want to support the economy with more state spending, while keeping the fiscal shortfall below the EU’s 3 percent of GDP limit, shadow Finance Minister Jan Mladek said Aug. 15. If in power after the election, the party plans to boost state revenue by increasing taxes for higher earners and some businesses, including financial, energy and telecommunications companies.

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