Czech government loses confidence vote

PRAGUE Tue Mar 24, 2009 5:46pm EDT

Czech Republic's Prime Minister Mirek Topolanek speaks with journalists after a no-confidence vote in Czech parliament in Prague March 24, 2009. REUTERS/David W Cerny

Czech Republic's Prime Minister Mirek Topolanek speaks with journalists after a no-confidence vote in Czech parliament in Prague March 24, 2009.

Credit: Reuters/David W Cerny

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PRAGUE (Reuters) - Czech Prime Minister Mirek Topolanek's minority center-right government lost a vote of confidence Tuesday and will probably leave office after the country's term as European Union president finishes in June.

Topolanek said he was ready to resign, although the opposition Social Democrats said his government could stay on until Prague hands over the EU's six-month's rotating presidency to Sweden. He said the vote would have no impact on the EU role.

"At the moment this situation has no effect on the role of the President of the European Council," Topolanek said in a statement issued by the EU Presidency.

It was the third government collapse in eastern Europe this year after the leaders of Latvia and Hungary stepped down when their economies were hit by the global economic crisis, although Topolanek's defeat was more to do with domestic wrangling.

The Czech Republic has been less affected than some of its eastern European peers by the financial crisis, and despite the political turmoil the crown currency has held broadly steady after recovering from a drop earlier this year. The crown dipped 0.7 percent to 27.17 to the euro after the vote.

The three-party ruling coalition, weak since its 2007 appointment due to a lack of a majority, lost by one vote after defectors from its camp supported the left-wing opposition.

The opposition has blamed the government for economic mismanagement and criticized reforms including a flat income tax, fees for doctor visits and budget cuts.

Paroubek said a government of non-partisan experts could be formed in the summer to lead the country to early polls in the autumn or next spring. Regular polls are due in mid-2010.

Topolanek said early polls should be held in the summer if there was no agreement on a new government. He said he wanted a fresh chance to form a new cabinet and would not support one of experts.

LITTLE ROOM FOR MANOEUVRE

Topolanek's ousting precedes a special EU summit with President Barack Obama on April 5 in Prague.

The next step is now up to President Vaclav Klaus, who has an indefinite period to nominate a new government.

Given the split parliament, it will be very difficult to form a new cabinet without an agreement of the main rivals, Toplanek's right-wing Civic Democrats and the Social Democrats.

The Social Democrats lead opinion polls but their margin over Topolanek's Civic Democrats had narrowed to 4.5 percentage points in a survey released last week.

The Social Democrats have promoted more tax-and-spend policies and rejected plans to reform the health sector.

But analysts say their margin for maneuver will be limited by their desire to join the euro zone, although no date has been set for euro entry.

The tight rules for euro entry, combined with the fact that interest rates are set by the independent central bank, would curtail any major impact on policy of a change of government.

Reflecting this, financial markets have largely shrugged off the political uncertainty. The crown has gained 10 percent from a mid-February low and outperformed its peers in the region.

"The key to all these things is what happens next," said Neal Shearing, economist at Capital Economics. "If we end up with a technocrat government ... then it could end up being market positive."

"If on the other end you end up with a period of infighting it could be market negative and economy negative and could end up in a big mess," he said.

Although the Czech economy has suffered from a slump in exports, its banks have needed no bailouts, the public has been calm and Czechs are not heavily exposed to foreign debt.

Other issues affected by the ouster could be a government plan to host a U.S. anti-missile radar site opposed by the Social Democrats, already on ice due to a lack of support.

Dmitry Rogozin, Russia's envoy to NATO, told Vesti-24 channel that those who forced Topolanek's government to resign were categorically against the deployment of the radar.

"Just before the meeting of our two (Russian and U.S.) presidents in London on April 1 ... the Americans are now facing practically insurmountable difficulties in deploying their strategic anti-missile defense system in Poland and the Czech Republic," he said.

The fall of the government also calls into question the future of the EU's Lisbon treaty, meant to allow the bloc to function more effectively.

Topolanek had backed the treaty despite opposition from party backbenchers, and said after the vote that, "if I lose control of the situation (in my party), then the Lisbon Treaty will not pass."

(Additional reporting by Jan Korselt; Editing by Myra MacDonald and Louise Ireland)

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