Babis Is Running Out of Options in Czech Coalition Talks

Updated on
  • Mainstream parties are opposed to ruling in cabinet with Babis
  • Minority government could be formed if resistance continues

Czech billionaire Andrej Babis is running out of options to form a majority government, edging closer to minority rule if he sticks to his pledge not to team up with extremist forces.

The second-richest Czech, owner of a chemicals, food and media empire with a fortune estimated at $4 billion, has met resistance from mainstream parties in initial rounds of talks after his ANO movement took 78 of parliament’s 200 seats in the weekend elections. Babis has about a month for more negotiations before a fragmented legislature convenes for its inaugural session on Nov. 20.

Andrej Babis, Oct. 23.

Photographer: Michal Cizek/AFP via Getty Images

The bargaining is typical in the country of 10.6 million, where elections usually lead to multi-party governments after lengthy talks. The conservative Civic Democrats, who finished second in the ballot and, like Babis, oppose euro adoption, ruled out any cooperation with him. That followed rejection from Babis’s partners in the outgoing administration -- the Social Democrats and the Christian Democrats -- whose leaders have cited fraud allegations against the former finance minister as their reason. Babis has rejected the criminal investigation as politically motivated.

“A key sticking point may be that parties will refuse to join a government led by Babis, due to his divisive persona and the fact that he faces a criminal investigation,” said James Sawyer, an analyst at Eurasia Group. “One solution would be a minority government -- now our base case -- which would allow parties to support the government without sitting alongside Babis in the cabinet.”

The billionaire, who’s faced accusations from rivals of conflicts of interests stemming from his businesses, has rejected government cooperation with the Communists and the anti-Muslim Freedom and Direct Democracy party, also known as SPD.

The SPD, which wants the Czech Republic to leave the European Union, won 22 seats in parliament after a campaign to keep Muslim refugees out of what has been one of the countries least affected by Europe’s migration crisis. The party’s Tokyo-born leader, Tomio Okamura, stirred more controversy right after the elections by saying the state should take direct control over public television and radio.

SPD will hold a second round of talks with ANO on Thursday, focusing on issues such as the introduction of a law allowing for plebiscites to be held, which is now lacking, Okamura said in an interview on Czech television on Wednesday.

Babis said he wanted the next government to build on the economic successes of the outgoing cabinet, from which he was fired as finance minister in a clash with Prime Minister Bohuslav Sobotka. Babis promised to boost spending on highways and railroads and reduce income taxes for lower earners, without levying a bigger burden on companies. He wants to finance his plans with better tax collection and savings by improving state operations, and would allow a budget shortfall only if it’s caused by investment.

The Czech koruna has gained 0.5 percent to the euro in the past five days as investors focused on the country’s strong economic fundamentals and expectations of monetary tightening. The prospect of higher interest rates has weighed on government bonds, however, with the yield on the 10-year notes rising by about three quarters of a percentage point in the past two months to 1.79 percent on Wednesday.

QuickTake Q&A about Babis’s program and charges against him

Charges by police in a criminal fraud case against Babis before the elections were suspended after the vote outcome renewed his parliamentary immunity against prosecution.

The case still casts a shadow over government negotiations as potential partners cite it as a reason for nor cooperating with the billionaire. The leadership of the Christian Democrats, a center-right party which shares some policy agenda with Babis’s pro-business ANO, has recommended that the party go into opposition. The ODS, which Babis said had a similar economic platform to ANO’s, rejected Babis’s unofficial offer even before meeting with him.

“We have said clearly that we won’t negotiate with ANO about creating a government,” ODS Chairman Petr Fiala told reporters late on Tuesday. “I’m surprised that some people are surprised that we stick to our word.”

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