Tycoon’s Win Puts Czech Leader on Defensive Year Before Vote

  • Sobotka’s Social Democrats suffer defeat in local ballot
  • Billionaire’s ANO party secures most votes in regions

Czech Prime Minister Bohuslav Sobotka pledged to overhaul his party’s policies in a fight to hold on to power after it suffered a crushing weekend regional election defeat from its coalition partner, billionaire Finance Minister Andrej Babis’s ANO party.

With a year to go before general elections in the country of 10.5 million tucked between Germany, Austria, Poland and Slovakia, ANO won the most votes in nine out of 13 regions. Babis’s party eclipsed Sobotka’s Social Democrats, who finished first in two. While local administrations have limited relevance for the central government in Prague, the two-day vote was a blow for the Social Democrats, who were defending leadership posts in 11 regions after dominating the same ballots four years ago.

As Sobotka has championed boosting pensions and wages, Babis, the country’s second-richest person, has tapped into Czech fiscal conservatism with a campaign to improve the management of state finances and cut debt. His five-year-old party has also pledged to root out corruption and it opposes hosting immigrants from the Middle East and Africa, fitting the pattern of the upstart, anti-establishment forces that are eroding the backing of traditional leftist and conservative groups across Europe.

“It was a very strong signal for the Social Democrats that something is going wrong and that they have to change,” said Josef Mlejnek, a political analyst at Charles University in Prague. “Andrej Babis, although he is in the government, is still able to present himself as a partly opposition politician. He’s trying to portray the traditional political parties as something bad, and is presenting himself as a non-political figure.”

For the story on turbulent coalition relations, click here.

While they’ve enjoyed success as coalition partners, Babis and Sobotka are also rivals and disagree over the state’s role in the economy. Their ruling alliance has been shaken by infighting over issues including conflict-of-interest rules, spending on public wages and pensions, and the leadership of the organized-crime police.

Despite the turbulent relations, the two leaders have reversed an austerity drive imposed by the previous administration, fueling a recovery from a recession and fostering a record budget surplus this year. Sobotka said his party needed to expand its policies to win back voters.

“We have a very strong competitor in ANO, which is benefiting from the fact that it’s a member of a successful government, and, at the same time, it’s acting as if it were in opposition,” Sobotka, 44, said in an interview broadcast on the Seznam.cz website on Sunday. “We have to look at themes like environmental protection, culture, the digital economy -- the virtual space in general, as that’s where the young generation is. This is where I see some shift in priorities.”

Rising economy is helping to increase state budget income and fueling a rally in government bonds this year. State securities with maturity of up to 6 years trade with negative yields, while yield on the the 10-year koruna bond stood at 0.34 percent on Monday, 32 basis points above German bunds.

For the story on Czech fiscal performance, click here.

ANO leads opinion polls, and Babis is the most popular party leader. He owns assets in chemical and food industries as well as the largest mainstream newspaper. With a fortune of at least $2.2 billion, according to the Bloomberg Billionaires Index, Babis has fought off conflict-of-interest allegations since joining politics. He says he isn’t running his empire, which includes 250 companies and employs 34,000 people in 18 countries.

The ANO leader said he entered politics to stop the largest parties, which have rotated in power over the nearly three decades since the fall of Communism, from mismanaging the state and to fight graft.

“The problem is that the traditional parties have programs that they aren’t fulfilling much,” Babis told the iDnes.cz website, which is part of the Dnes newspaper that he owns. “We’re a centrist party with right-wing elements and social sentiment.”

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