Czech Premier's Cabinet Sacrifice Risks Aiding Magnate Rival

  • Row over finance minister’s empire precedes October elections
  • Ending cabinet could fail to boost Sobotka’s support in polls

Czech Prime Minister Bohuslav Sobotka toppled his government to undercut billionaire Finance Minister Andrej Babis, a gamble intended to boost his own popularity that could backfire and hand his rival control over the next cabinet.

With his ruling Social Democrats trailing Babis’s ANO party in opinion polls, Sobotka unexpectedly announced that he’ll submit the cabinet’s resignation to President Milos Zeman. By torpedoing his own administration, Sobotka escalated a conflict with Babis centered on his past business practices. The finance minister has rejected accusations from the premier that he evaded taxes and engaged in financial “tricks” to build his empire.

“Bringing down your own government half a year before elections doesn’t make much sense,” Jakub Charvat, a political analyst from the Metropolitan University in Prague, said by phone. “In the end, it can help Babis.”

Instability has been a political trademark of the European Union member, which has had 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 foster the EU’s lowest unemployment rate.

Bohuslav Sobotka

Photographer: Martin Divisek/Bloomberg

“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.

The Czech koruna weakened 0.2 percent after Sobotka’s announcement, and was 0.1 percent stronger 26.87 against the euro at 2:17 p.m. in Prague. The yield on the 10-year government bond fell 12 basis points over two days to 0.67 percent on Wednesday, holding 36 basis points above the comparable German security.

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 adherence to the bloc’s standards. Fellow EU member Croatia’s coalition broke down last week over the management of food retailer Agrokor.

Sobotka will hand in the resignation to President Zeman at 3:15 p.m. on Thursday, according to Zeman’s spokesman Jiri Ovcacek. Babis is scheduled to meet the head of state at the Prague castle on Wednesday afternoon.

The 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 to remain in a caretaker role until the vote. The Social Democrats also favor such solution, but demand Babis to be replaced as the finance minister. The third ruling party, the Christian Democrats, also prefer the current coalition to stay in a caretaker role until October, possibly with a different premier and finance minister.

“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.”

Read more about clashes between Sobotka and Babis

A Stem poll conducted in early April showed ANO would get 28.3 percent if parliamentary elections were held now and the Social Democrats 16.6 percent. That’s a jump of more than 10 percentage points for ANO since the 2013 elections and a fall of about 4 points for Sobotka’s party despite its push for higher wages and social spending.

Babis, 62, has assumed the mantle of an anti-establishment politician despite having a government role, basing his platform on streamlining state finances and attacking the parties that have rotated in power over the nearly three decades since the fall of Communism as poor managers. He has a fortune of more than $3 billion, according to Forbes, and is the most popular party leader in the country of 10.6 million people.

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