By Peter Laca and Krystof Chamonikolas
May 30 (Bloomberg) -- The Czech Civic Democratic Party and others that pledged to cut spending won the most votes in parliamentary elections as Czechs chose budget restraint amid the European debt crisis.
The results are a blow to the Social Democratic Party, which campaigned to increase welfare spending. The party led pre-election opinion polls and were the single biggest vote getters at 22.1 percent, according to unofficial results from the Czech Statistical Office in Prague.
The Civic Democrats were second with 20.2 percent, followed by TOP09, with 16.7 percent, and Veci Verejne at 10.9 percent. All three campaigned for spending cuts, indicating they may be able to form a cabinet committed to reducing a deficit that swelled to 5.9 percent of gross domestic product last year, almost twice the European Union limit.
“It’s almost certain that there will be a center-right coalition, which would mean that for the first time since 1996 there will be a government with a strong majority,” said Jiri Pehe, a political analyst and director of New York University in Prague. “It will also be a government that will have a quite coherent right-wing program, a government that wants to make budget savings.”
Initial Talks
Civic Democrat leader Petr Necas met with TOP09 chief Karel Schwarzenberg late yesterday and with Veci Verejne Chairman Radek John today to discuss program priorities for the coalition, the newspaper Mlada Fronta reported on its website.
If the coalition is formed, it would have 118 deputies in the 200-seat lower house, according to the statistics office.
John said he is “convinced” that his party, the Civic Democrats and Top09 will be able to reach agreement on a coalition. The elections show the Czech Republic is “moving in the right direction,” he said.
The country has been ruled by an interim government for the past year. That has slowed implementation of policies to help strengthen the Czech Republic’s economic recovery after the global economic crisis triggered its first recession since the end of communism two decades ago.
Governments across Europe are battling to cut budget deficits after reduced tax revenue and spending to revive economic growth boosted shortfalls to more than the EU’s limit of 3 percent of GDP. Spain had its AAA rating cut May 28 to AA+ by rating company Fitch amid a debt crisis in Europe that’s prompted policy makers to offer a bailout package of almost $1 trillion to bailout the region’s weakest economies.
Changing Landscape
The results were the worst for the two biggest parties since 1996, showing Czechs were tired of politics as usual, Pehe said. TOP09 and Veci Verejne were voted into parliament the first time they contested national elections, and the Communists failed to place in the top three for the first time, placing fourth with 11.3 percent of the vote.
President Vaclav Klaus, who will name the prime minister and cabinet, said the results from 8.3 million eligible voters showed “a significant weakening” of the main parties.
“People showed their discontent with the extreme polarization of the political scene with the two big parties,” Pehe said. “It’s clear that the voters decided to give new parties a chance.”
The Social Democrats had promised to pay bonuses to pensioners and boost medical benefits, partly financed by dividends from state-controlled power company CEZ AS in Prague. While party leaders pledged to increase taxes on the wealthy, they said cutting spending too quickly would hurt the economy.
‘Different Path’
“It looks like people may have chosen a different path from what the Social Democrats offered,” party leader Jiri Paroubek, who resigned after the party’s poor showing, said at a news conference.
Finance Minister Eduard Janota said May 27 the country needs a “trustworthy” plan to curb the deficit in order to eliminate risks to its credit rating that would increase borrowing costs. The government plans to sell a record 280 billion koruna ($13.5 billion) of debt this year, including bonds denominated in euros.
The Czech Republic has an A1 credit rating at Moody’s Investors Service, the fifth-highest investment grade, an A rating from Standard & Poor’s and A+ from Fitch.
‘Responsible Budget’
“If the results confirm the estimates, then there would be a chance for a coalition for a responsible budget,” Civic Democrat leader Petr Necas said. Before the vote he ruled out any coalition with the Social Democrats or the Communists.
The koruna posted its biggest weekly decline in more than five months this week, dropping the most among 177 currencies tracked by Bloomberg, over concern the elections would end in stalemate. The koruna fell as much as 1.4 percent against the euro and closed down 1 percent at 25.880 yesterday.
The currency has lost 3.2 percent since reaching a 17- month high on April 14, the third-biggest drop among 25 emerging-market currencies tracked by Bloomberg. Only the Polish zloty and Hungarian forint have fallen more.
“Declarations to cut the deficit without stronger tendencies to raise taxes are attractive for the markets,” said Michal Brozka, a Raiffeisenbank analyst in Prague. “The markets should react positively to this outcome if the coalition of center-right parties is formed.”
The EU has told the Czech Republic to cut its budget deficit in half by 2013 to meet the bloc’s requirements and adopt the euro.
--With assistance from Lenka Ponikelska, Douglas Lytle, Ladka Bauerova in Prague. Editors: Alan Crosby, Willy Morris
To contact the reporter on this story: Peter Laca in Prague at placa@bloomberg.net
To contact the editor responsible for this story: Willy Morris at wmorris@bloomberg.net
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