Czech Premier Announces Resignation After Feud With Billionaire Finance Chief

  • Row over finance minister’s empire precedes October elections
  • Dismissing Babis could turn him into a martyr, Sobotka says

Czech Prime Minister Bohuslav Sobotka brought down his government over a clash with his billionaire finance minister, Andrej Babis, six months before the two were to face off in general elections.

With his ruling Social Democrats falling behind Babis’s ANO party in opinion polls, Sobotka unexpectedly announced that he’ll submit his cabinet’s resignation to President Milos Zeman this week. By torpedoing his own administration, Sobotka pushed the intensifying conflict with Babis over the brink after giving the tycoon an ultimatum to explain accusations that he evaded taxes and engaged in other financial “tricks” as he built his empire. Babis has repeatedly rejected the allegations.

“It is unacceptable for a finance minister to be unable to unequivocally prove where his assets came from and whether he is properly paying taxes on his large income,” Sobotka told reporters in Prague. Refraining from dismissing Babis to avoid “turning him into a martyr,” Sobotka said “I cannot bear responsibility as the prime minister in this situation any longer.”

Instability has been a political trademark of the European Union member, which has seen the rise and fall of six cabinets in the past decade. With ANO a clear favorite to win the elections, the premier intensified his offensive against the Slovak-born Babis after years of bickering with him over issues from the Social Democrat’s efforts to raise corporate taxes to the billionaire’s chemicals and media empire. Still, their government has been the longest-surviving Czech administration in 15 years, and it managed to restart economic growth, balance the budget and produce the EU’s lowest unemployment rate.

Bohuslav Sobotka

Photographer: Martin Divisek/Bloomberg

The Czech koruna depreciated as much as 0.4 percent after Sobotka’s announcement, but it erased most of the losses and traded only 0.2 percent weaker at 26.90 against the euro at 3:45 p.m. in Prague.

Regional Unrest

The government’s collapse adds to rumblings across the EU’s former communist east, where protesters have launched anti-government demonstrations in Poland, Hungary, Slovakia, Serbia and Romania over corruption, rule of law, and the adherence to the bloc’s standards. Fellow EU member Croatia’s coalition broke down last week when Premier Andrej Plenkovic dismissed the last minister of the junior Bridge party in a row over the management of troubled food retailer Agrokor.

In the Czech Republic, the members of their three-party coalition may now find an accord on a cabinet to govern until the elections, scheduled for October, or agree on a snap ballot, Sobotka said. Babis said the best option would be for the ruling grouping, which holds a majority in parliament, to remain in a caretaker role until the vote planned for Oct. 20 and 21.

“Our government could have been the most successful in the history of our country,” Babis told iDnes.cz, a news website he owns. “But the prime minister has now destroyed its reputation, as well as the work of all its ministers.”

A Stem poll conducted in early April showed ANO would get 28.3 percent of votes if parliamentary elections were held now. The Social Democrats would win 16.6 percent and the Communists would finish third with 12.2 percent.

Czech Stability

Babis, 62, has a fortune of more than $3 billion, according to Forbes. Now the most popular party leader in the country of 10.6 million, he has fought off conflict-of-interest allegations since joining politics. He says he has transferred his empire, which comprises 250 companies spanning 18 countries and employing 34,000 people, to a trust.

Assuming the mantle of an anti-establishment politician despite having a government role, Babis has based his political platform on streamlining state finances and has attacked traditional parties that have rotated in power over the nearly three decades since the fall of Communism as poor managers.

The Social Democrats have pledged to raise living standards and are pressuring the companies to boost wages. Sobotka is also promising to increase taxes for banks and selected businesses, saying foreign owners take too much money out of the Czech Republic. Still, no major party in the Czech republic advocates changes seen in regional peers Hungary or Poland -- or farther afield in France -- that suggest leaving the European mainstream or tinkering heavily with the export-dominated economy.

“The stability of Czech politics over the past three years has been the exception rather than the rule,” William Jackson, an economist at London-based Capital Economics, said in an email. “Prior to that, governments changed frequently. But that was never marked by sell-offs in the markets or sharp swings in the direction of policymaking.”

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