* Left poised for election victory
* Doubts over pledges to meet budget, euro targets
* May have trouble forming majority
(Repeats to additional subscribers, text unchanged)
By Jan Lopatka
PRAGUE, March 2 (Reuters) - A Czech transport strike set for
Thursday has drawn the battle lines for a general election in
May, giving the left a popular rallying call to protect welfare
but casting the country's euro convergence programme into doubt.
Strikes are rare in this central European EU member, which
has had a relatively good crisis with no bank failures and no
loss of confidence requiring International Monetary Fund aid as
occurred in Hungary, Romania and the Baltics.
But a sharp jump in the fiscal deficit, due mostly to a four
percent economic contraction last year, has pushed euro entry
back into the second half of the decade and made fixing the
budget and protecting jobs the key issues in the May 28-29 poll.
Voters will also vent their frustration with politicians
stained by a series of corruption scandals, which may bring new
parties into parliament and complicate coalition building.
The election should break a deadlock that has gripped Czech
politics since a centre-right cabinet that had limped along for
two years without a parliamentary majority collapsed last year.
The leftist Social Democrats, led by former prime minister
Jiri Paroubek, have a 5-13 percentage point opinion poll lead
over the right-wing Civic Democrats, giving them the best chance
of replacing the caretaker cabinet led by independent technocrat
Jan Fischer. []
But the polls do not guarantee them a solid majority that
would allow for decisive policymaking.
The leftists have lured voters by pledging to raise benefits
including pensions, and pay for it by taxing companies and high
wage earners, and by finding efficiencies.
"We do not want to save on the people but on the operation
of the state," Paroubek told Reuters on Monday.
They are backing the transport strike, called to support
demands to restore tax breaks on employee benefits. The Civic
Democrats, the Social Democrats' main rival, call the strike
blackmail. []
FINE SO FAR, BUT CLOUDS BUILD UP
The leftists have at the same time pledged to stick to the
current euro convergence programme, which provides for a drop in
the budget deficit to 3 percent in 2013 from about 6.6 percent
last year, making euro entry possible in 2015 or 2016.
Private sector analysts said the numbers do not add up, and
taxing consumption rather than income would be a better idea.
"I do not believe they are now ready to stick to the
convergence programme," said Ludek Niedermayer, a former central
bank vice-governor, now at consultants Deloitte.
Neither of the big parties was ready for a thorough spending
overhaul needed for long-term stability, he added.
Political analyst Jan Kubacek also predicts a slippage.
"They will say they are taking over in a more difficult
situation than they had expected," he said.
"It (euro) will move back by a few years, which in itself is
not fatal, because the euro zone is not ready to accept new
members, perhaps with the exception of Estonia," he said.
However, market pressure for reforms will be big and whoever
is in power will simply have to tighten up, Kubacek said.
The Czech Republic was among the first countries to start
fiscal consolidation after the financial crisis, with tax hikes
and moderate spending cuts this year, and it has a history of
macroeconomic stability.
The caretaker government aims to cut the budget gap to 5.3
percent this year, and state debt will reach about 40 percent of
GDP. That is low by European standards -- the euro zone average
will be more than 80 percent of GDP this year -- but a sharp
rise from 29 percent in two years, and the outlook is bleak with
growing costs of debt servicing, healthcare and pensions.
The IMF said in January that without a credible plan "market
sentiment could deteriorate and the cost of public sector
borrowing increase".
CLEAR VICTORY ELUSIVE
Ales Michl, an analyst at Raiffeisenbank, said a clear win
for either party would be the best scenario for the market.
"The best would be a big victory by either side, which would
give a clear picture of what kind of policy will be done, rather
than an unclear result muddying the picture," he said.
But polls suggest a messy outcome is more likely. The Social
Democrats will need partners to form a coalition or, depending
on the result, may opt for a minority cabinet with ad-hoc
backing from other parties including the far-left Communists.
A close result would boost the chances of a grand coalition
between the Social Democrats and the Civic Democrats. There is
also a smaller chance of a centre-right coalition if a handful
of small parties do well.
Newcomers such as the Conservative TOP09 and the little
known liberal Public Affairs led by a former TV journalist have
thrived on growing public frustration with seemingly omnipresent
corruption in the political class, which is reported widely in
the media but almost never leads to convictions.
Both major parties have been linked to suspicious deals but
the Civic Democrats are more exposed due to scandals in their
stronghold, Prague.
"If theft stopped, we would save 80-100 billion from public
budgets. And I am being conservative here," Jaroslav Mil, head
of the country's Industry and Transport Association and former
head of the biggest central European company, the utility CEZ,
said in a newspaper interview last week.
