PRAGUE, June 28 (Reuters) - New Czech Prime Minister Petr
Necas will have to juggle an immediate pledge to cut the budget
deficit with longer-term reform aims, while struggling with
political rivals within his own coalition.
Following are some key questions over the next few months.
For a story on Necas's appointment, click on []
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WILL THE COALITION SURVIVE?
The three parties building the coalition -- the Civic
Democrats, the conservative TOP09 and the centrist Public
Affairs -- have 118 out of the 200 seats in the lower house --
making it potentially the strongest government the country will
have had since its split from Slovakia in 1993.
Rifts in the coalition may appear between the Civic
Democrats and the TOP09, two conservative parties battling to
dominate the right. The new TOP09 won 16.7 percent of the vote
in the May election, just 3.5 points behind the Civic Democrats.
The two parties have fought over who gets to run the
powerful finance ministry, with TOP09 heavyweight and former
finance minister Miroslav Kalousek the favourite.
Public Affairs is new to national politics and has
threatened to pull out of the coalition talks.
WILL THE PUBLIC ACCEPT CUTS?
The government plans to slash a number of tax breaks for
employees and also cut public sector wage spending.
The Czechs traditionally have very few labour protests, but
last year an attempt to impose a minor tax hike on railway
workers' benefits provoked a sharp union reaction and the
caretaker cabinet backed off the plan.
However, Necas and TOP09 campaigned for austerity and thus
have a very strong mandate for cuts.
HOW BIG IS THE CZECH DEBT BURDEN?
The Czechs have a much lower debt burden than most EU
countries, standing at 35.4 percent of gross domestic product at
the end of the last year, about half of the EU average.
But it is up from 29 percent in 2007 and rising fast, due to
structural reasons rather than one-off crisis-related factors.
Unlike many west European states, the Czechs have not had to
bail out their banks. Last year's 4.1 percent economic
contraction uncovered underlying fiscal weakness that had been
obscured by earlier years of fast growth.
The budget gap will reach 5.9 percent this year unless Necas
finds savings to reach a 5.3 percent target. Necas has pledged
to cut it at least to 4.8 percent of GDP next year; his party's
negotiating stance involves cutting it to 3.6 percent.
WHAT IS THE PLAN FOR BUDGET CUTS?
Outgoing Finance Minister Eduard Janota said the incoming
cabinet needs to find about 68 billion crowns ($3.61 billion) in
cuts to achieve a 2011 deficit target of 4.8 percent of GDP.
This year, at least 10 billion in cuts are needed, he said.
Necas's Civic Democrats have a plan to save 70 billion next
year, but this could clash with a demand for a hike in teachers'
pay from potential coalition partner the centrist Public
Affairs.
WHAT WILL BE THE FALLOUT FROM PENSION REFORM PLANS?
The coalition is discussing how to revamp the pay-as-you-go
pension system, where money collected in social security taxes
is directly re-distributed to current pensioners. This system
will generate increasing deficits in the coming decades.
The coalition parties are discussing various ways to divert
part of the 28 percent social security tax into funds until
retirement. One option is diverting around 3 percentage points
into either private or public funds.
This would cause a hole in the pay-as-you-go system, which
experts have proposed to plug via a hike in value-added tax.
CAN AUSTERITY HURT GROWTH?
The planned fiscal adjustments will likely not be as harsh
as cuts in many other countries, with plans to cut the gap by
some 3 percentage points between 2009 and 2012 or 2013.
Economic growth is expected to rebound to about 1.5 percent
in 2010 and 2.4 percent in 2011, according to finance ministry
estimates. Czech growth is largely driven by demand in the euro
zone but domestic demand is also expected to return.
HOW WILL NECAS MANAGE STATE-CONTROLLED ELECTRICITY MAKER?
CEZ <>, central Europe's biggest firm with a market
capitalisation of $22.5 billion, has opened a tender to build
two units at its Temelin nuclear power plant and possibly three
more at other two sites at home and in Slovakia.
Areva SA <CEPFi.PA>, Westinghouse Electric, a unit of
Toshiba Corp <6502.T> and Russia's Atomstroyexport are competing
for the deal that could be worth some $24 billion.
The outgoing cabinet has appointed Vaclav Bartuska as its
envoy for the tender. Bartuska has spoken sharply against
furthering the country's energy dependency on Russia.
Necas has not excluded reducing the 69.8 percent government
stake in CEZ to help fund pension reform.
CEZ also faces an EU investigation for alleged
anti-competitive behaviour on the Czech power market.
(Reporting by Jan Lopatka; editing by Philippa Fletcher)
