By Jan Lopatka
PRAGUE, Dec 1 (Reuters) - The leading Czech opposition
party, the centre-left Social Democrats, won a majority in the
parliament's upper house in an October election and said they
would use the power to oppose the cabinet's austerity drive.
The result will slightly slow down fiscal reforms planned by
the centre-right coalition government, and help drum up
opposition against the austerity drive, including labour action.
COALITION TIES STRAINED AFTER AUTUMN POLLS
All of the three coalition parties fared poorly in the vote
for the upper house which had been dominated by the right since
its creation in 1996.
Ties have been tense between the centre-right Civic
Democrats of Prime Minister Petr Necas and the conservative
TOP09, with the two coalition parties wrestling for the dominant
position on the political right.
The rivalry also showed in several big cities, where the
Civic Democrats formed coalitions with the left-wing Social
Democrats rather than their government partner, the conservative
TOP09.
The biggest tension is in the capital Prague where
demonstrations broke out against a right-left coalition, souring
the mood in the coalition on the national level.
The three-party government coalition still has the strongest
majority in the lower house since the break-up of Czechoslovakia
in 1993, a unique chance to push through reforms.
What to watch:
-- Friction between the Civic Democrats and the Finance
Minister Miroslav Kalousek's TOP09 could strengthen.
-- The junior coalition partner, the centrist Public
Affairs, fared very poorly in the upper house and municipal
elections. The new and somewhat unpredictable party may become
more volatile as it seeks to reverse its popularity drop.
-- Tensions within parties. Regional party bosses disobeyed
Prime Minister and Civic Democrat chief Petr Necas who had
demanded that grand coalitions with the Social Democrats are
avoided on the municipal level. Pundits see this as a hit to his
position within the party.
LABOUR PROTESTS
Trade unions have called a two-hour public sector strike
against the government austerity measures on Dec. 8. It is
likely to be the biggest labour protest in years, but no match
for multi-day general strikes in some west European countries.
Czech unions are weak but may flex more muscle in solidarity
with others in Europe and by allying with the opposition Social
Democrats, who got a boost from the Senate election victory.
The government has insisted it will go ahead with the
austerity measures including a 10 percent cut in the overall
public sector wage bill.
What to watch:
-- Given the government is unlikely to back off, will state
workers' unhappiness lead to bigger strikes involving workers at
private companies, which have already faced job and wage cuts in
the economic crisis?
BUDGET TO BE APPROVED, CUTS CHALLENGED
The cabinet has agreed a 45 billion crown ($2.55 billion)
austerity package to cut the 2011 public sector deficit to 4.6
percent of GDP from 5.3 percent expected this year and has to
push through legislation enabling the cuts.
The cabinet still needs to push through the actual 2011
budget draft, which seems to be an easy affair, but also faces a
court challenge of the previously adopted austerity package.
What to watch:
-- The Social Democrats threatened to file a constitutional
complaint because the parliament approved the cuts in a
fast-track procedure normally used only in emergencies. The
government says it used a provision that allows an emergency to
be declared in case of a threat of great economic damage.
FRICTION OVER PENSION, HEALTH REFORMS
The government needs to speed up preparing the main reform
it has pledged -- of the pension system -- if it is to meet its
target for introduction of the reform in 2012. Parties have
clashed over how much money should be diverted into private
pension funds and if the diversion would be mandatory.
The coalition needs to find an agreement by the spring in
order to allow the reform's timely approval by parliament.
The other big reforms on the agenda are of the health and
welfare systems.
What to watch:
-- Lobbying by the fund industry among political parties may
lead to clashes between parties regarding policy options.
-- Clashes over the percentage of income to be diverted to
pension funds. Will a state fund be created as well?
-- The leftist opposition is using the example of Hungary,
where the government decided to force taxpayers back into the
state pension system from their private accounts amid budget
constraints, to stir the public opinion against the reform.
NUCLEAR PLANT EXPANSION
The government said it saw delays in the country's
largest-ever tender to build new nuclear power reactors. The
tender is now expected to last until 2013, a one to two-year
delay compared with the original schedule.
Power firm CEZ <>, central Europe's biggest firm
with a market capitalisation of $22 billion, is 69.8 percent
state-owned and a significant source of government revenue.
It plans to build two units at its Temelin nuclear power
plant, and possibly three more at another domestic site and in
Slovakia. The government wants to take more control of the
process. []
Areva SA <CEPFi.PA>, Toshiba's <6502.T> Westinghouse and
Russia's Atomstroyexport are competing for the deal that could
be worth some $24 billion if all five units are built.
The government's special envoy for the tender, Vaclav
Bartuska, has spoken out against furthering the country's energy
dependency on Russia.
What to watch:
-- Any mismanagement of the large deal could shed bad light
on the government and lead to arbitration complaints by bidders.
-- Intensive lobbying is expected not only from the bidders
but also form domestic industry vying for subcontractor work.
-- The government will find it hard to put a price tag on
the deal which some estimate is worth up to 500 billion crowns
($28.38 billion), with one reactor costing some 100 billion
crowns.
For political risks to watch in other countries, please
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(Reporting by Jan Lopatka, Editing by Sonya Hepinstall)
