By Jan Lopatka
PRAGUE, May 29 (Reuters) - The Czech Republic looks set for
a new centre-right government that could launch long delayed
fiscal reforms but there are still question marks over the
stance of the smallest party in that potential coalition.
GOOD FOR MARKETS, STRONG MANDATE
With nearly all votes counted, the leftist Social Democrats
led with 22.2 percent, but three centre-right parties -- the
Civic Democrats, the conservative TOP09 and Public Affairs --
had enough support to form a solid parliamentary majority.
According to preliminary calculations by Czech media, a
centre-right coalition could have around 110-112 seats in the
200-seat lower house, the biggest majority of any government
since the country was established in 1993.
This is the most favourable outcome for financial markets.
Analysts see a centre-right coalition as best equipped to cut
the budget deficit and kick-start reforms needed to make the
pension and health systems sustainable over the long term by
restructuring mandatory spending requirements in the budget.
TOUGH FISCAL PLEDGES CREATE PLATFORM FOR REFORM
All the centre-right parties campaigned on the threat of a
Greek-style financial meltdown -- which analysts said was
somewhat overstated. Still, they now have a strong mandate to
push through reforms.
The Civic Democrats -- who want to cut the budget gap to 3
percent by 2012 and balance it by 2017 -- have proposed
legislation that would set spending ceilings. TOP09 wants sharp
spending cuts in state administration and a rule on balancing
the budget once growth hits 2 percent.
But before investors push the crown higher on Monday, they
should bear in mind several points.
PUBLIC AFFAIRS - UNKNOWN FACTOR
One problem could be the smallest party in a centre-right
coalition, Public Affairs.
Led by a popular former TV host, Radek John, its popularity
has shot up thanks to blunt slogans criticising corruption and
debt, the main topics in the campaign.
But it has almost no record in policymaking, a small
membership and a reputation for a populist streak that could
make the party a volatile partner.
Because some of their supporters lean left, the party may be
want to remain on the fence, said political analyst Tomas
Lebeda.
"There is no guarantee that John will be willing to create a
coalition with rightist parties," he said. "The party has a
number of voters that are close to the Social Democrats, there
are voters coming from the left to the right."
OPEN TO TALKS BUT NON-COMMITTAL
John himself said when results were coming in that he could
see common ground with Civic Democrat leader Petr Necas and did
not trust the Social Democrats to rein in debt.
But he added that his party would not try to force its way
into a coalition government and could back whatever legislation
it saw as positive, whether it came from the right or left.
Political analyst Vladimira Dvorakova said the party may opt
to stay outside the cabinet, only supporting it in parliament --
a stance that would obviously weaken what could turn out to be a
minority government.
STRUGGLE FOR RIGHT-WING DOMINANCE
The other risk is that TOP09, formed by popular pipe-smoking
prince Karel Schwarzenberg and former Christian Democrat leader
Miroslav Kalousek, won so much of the vote that it may clash
with the Civic Democrats over who should lead the political
right.
WILL SOCIAL DEMOCRATS TRY STEP IN?
Another potential hurdle arises from the fact that
traditionally the leader of the biggest party in parliament gets
a political mandate from the president to try form a government.
This would mean that Social Democrat leader Jiri Paroubek
could still try to stitch up a deal -- although it looks
increasingly unlikely that TOP09 or the Civic Democrats would
agree to any form of right-left coalition.
(Editing by Noah Barkin)
