CZECHS GO to the polls tomorrow to choose between a party that pledges to push through tough reforms to prevent possible financial collapse and another that vows to protect the country’s poorest people from the worst ravages of economic crisis.
Surveys suggest the centre-left Social Democrats (CSSD) will narrowly win a ballot held tomorrow and Saturday, but may struggle to find coalition partners and could be forced to rule as a minority government with the support of the Communist Party.
The centre-right Civic Democrats (ODS) say that it would be a disaster for the Czech Republic, giving power to parties that will spend too much on benefits and bureaucracy, swelling the national debt and budget deficit and pushing the country towards a “Greek-style” crisis.
The Czech Republic has escaped the kind of pain that Hungary, Romania and the Baltic states have suffered during the global downturn, and its economy is expected to grow by 1.4 per cent this year and 1.8 per cent in 2011, after shrinking by 4.2 per cent in 2009.
The country also has one of the lowest debt ratios in the European Union, standing at 35.4 per cent of gross domestic product (GDP) in 2009. But analysts note that the ratio has grown rapidly from 30 per cent in 2008, and that the state’s budget deficit hit 5.9 per cent of GDP in 2009 compared to a forecast of just 1.6 per cent before the crisis struck.
“The left-wing programme dramatically increases spending,” said ODS leader Peter Necas.
“We are convinced that if the CSSD programme is implemented, public finances will evolve in a way that would undoubtedly worsen the Czech Republic’s rating and most probably lead to a Greek scenario.”
Social Democrat leader Jiri Paroubek scoffs at such claims and pledges to reduce the budget deficit over the coming years, even while guaranteeing healthy pensions and other benefits which he plans to fund from higher taxes and a campaign to root out costly corruption.
“If we simply take hasty savings actions, the economic crisis will return in some form,” Mr Paroubek said recently.
“Using state bankruptcy as a threat not only harms the Czech Republic’s reputation abroad, but it is also economic nonsense,” he added. “There is no threat of a debt trap.” The ODS wants to overhaul the health and pension systems while making it harder for people to claim unemployment benefit for long periods. The party is opposed to tax rises that it claims would stifle economic recovery.
“We want to form a cabinet of fiscal responsibility,” said Mr Necas. “Similar to the United Kingdom, the pressure of the budget situation and the economic situation will lead to a very significant acceleration of negotiations.”
The biggest fear for many Czechs, and international investors, is that the election will leave parliament split down the middle and poised for the kind of arduous coalition talks that followed previous ballots. At the last election, the two main parties and their allies took 100 seats each.
The fractious, ODS-led government that emerged from long negotiations collapsed in March 2009, embarrassing the country during its tenure as presidency-holder of the EU.
A non-partisan caretaker cabinet has ruled since then, winning praise for its competence but lacking the political support to push through reforms.
“A situation when no political party would be able to form, in a reasonable time, a functioning government able to push through a budget next year that saves, is a risk,” Raiffeisen Bank in Prague said in a recent note to investors.
“A financial market reaction to unclear election results may be massive.”
