Czech Cabinet Turmoil Deepens With Premier's Resignation U-Turn

  • Premier seeks dismissal of finance minister over his business
  • Tycoon finance chief Babis rejects allegations of tax evasion

The Czech government sank deeper into crisis six months before general elections after Prime Minister Bohuslav Sobotka withdrew an offer to resign and proposed firing billionaire finance minister, Andrej Babis, instead.

The reversal is emblematic for the ex-communist European Union member, whose history has been fraught with political instability that has left it often without clear leadership. Inconclusive elections and infighting among ruling coalition parties have created a revolving door in the government office, bringing in nine cabinets in the last 15 years, none of which served a full four-year term.

Sobotka withdrew his offer to quit on Friday after President Milos Zeman said he’d reject the proposal for the whole government to resign and ask only the premier to step down instead. In doing so, Zeman weighed in firmly on the side of Babis, who Sobotka has been trying to remove after accusing him of engaging in financial “tricks” when building his chemicals and media empire. Sobotka submitted a request for Babis’s dismissal, deepening a tussle with his main political rival, who has denied wrongdoing and whose ANO party has a strong lead in opinion polls before the elections slated for October.

“It’s the beginning of a political battle, and everything signals that it will be a rough one,” said Josef Mlejnek, a political analyst from the Charles University in Prague.

Read more about conflicts between premier and finance minister

Despite the political turmoil, the export-oriented manufacturing economy has proven largely resilient, with output more than doubling to $185 billion. The koruna gained as much as 0.2 percent and was trading at 26.79 to the euro at 1:05 p.m. in Prague. Government borrowing costs dropped, with the yield on the 10-year note down 2 basis points at 0.65 percent.

Sobotka has targeted Babis following a plunge in popularity for the Social Democrats. 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 to raise wages and pensions.

The prime minister’s unexpected reversal followed the surprise move by Zeman, who questioned the constitutional procedures related to government resignations. The premier said his initial offer to quit was meant for the entire cabinet, which has been the practice in the past, and that Zeman, who once led the Social Democrats but has since forged ties with Babis, had overstepped his role.

“Such an interpretation means that the finance minister, who is facing widespread scandals, would stay in the government,” Sobotka told reporters at the government headquarters.

‘Desperate Move’

Zeman’s spokesman, Jiri Ovcacek, called the u-turn “a desperate move.” Babis has refused to step down, saying he would wait for Zeman’s decision on Sobotka’s proposal to sack him.

“I categorically reject the supposed reasons for my dismissal,” Babis told the state television. “It’s a campaign against me.”

Despite holding a government role for three years, Babis, 62, is running as an anti-establishment figure, pledging to streamline state finances and attacking the parties that have held power since the fall of Communism as corrupt, 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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