* Social Democrats win election by slim margin
* Leader sees cooperation with ANO and Christian Democrats
* ANO emerges as second strongest party in lower house
* Talks on forming new government could take months
By Jason Hovet
PRAGUE, Oct 27 (Reuters) - The Social Democrats will look to new centrist party ANO to help form a government after narrowly winning a Czech election that punished the establishment for sleaze and budget cuts, their party leader said on Sunday.
Bohuslav Sobotka faces the difficult task of cobbling together a majority after seven parties won seats in a national election on Saturday, while taming voices in his party that blame his leadership for a suprisingly weak election showing.
Talks could last several months and the country is likely to start 2014 with a provisional budget, which limits spending to this year’s levels.
A quarter century after the fall of Communism in the 1989 “Velvet Revolution”, Czechs have grown disillusioned with their political class and used their vote to rail against established parties that have been stained by corruption scandals.
The Social Democrats had high ambitions after seven years in opposition but only won 20.5 percent of the vote, the lowest tally of any winner in the country of 10.5 million.
Centre-right parties that ruled until their cabinet collapsed in corruption and spying allegations in June suffered a crushing defeat and said they would be in opposition.
But instead of the left, the benefactor of voters’ anger was the anti-corruption group ANO, founded two years ago by billionaire businessman Andrej Babis, likened in the media to Italy’s Silvio Berlusconi.
ANO, which describes itself as a centrist party but has a leader who emphasises a pro-business focus, emerged as the second strongest party, putting it in a king-maker role in the central European country.
Sobotka, a former finance minister, said he would talk to all parties, but added that ANO and a traditional small centrist party, the Christian Democrats, seemed to be logical partners.
“Mathematically, there could be a centre-left government with some form of cooperation with ANO and the Christian Democrats,” Sobotka said on a television talk show.
“I think the Social Democrats should focus on these talks.”
Sobotka’s Social Democrats won 50 seats in the 200-member lower house versus 47 seats for Babis’s party. The Christian Democrats won 14 seats.
The Social Democrats said they could agree with ANO on anti-corruption measures, such as laws requiring the publishing of public contracts or forcing politicians to declare their property.
But they will struggle to follow through on plans to raise taxes for high earners and utilities, telecoms companies and banks because of ANO’s opposition to tax hikes. Babis is also cooler on euro adoption than the pro-European Social Democrats.
As election results trickled in on Saturday, Babis said he was against joining a government. On Sunday the mood seemed to have changed, although ANO has not yet committed to joining a Social Democrat-led government or supporting it in a minority cabinet.
“We are ready to talk if someone asks us to,” said Martin Stropnicky, deputy ANO leader. “When you win 19 percent, you are in a different situation than if you have 12 or 6.”
The fragmentation of the lower house has dashed Sobotka’s hopes of forming a minority cabinet supported by the Communists, and any coalition would thus be closer to the political centre.
President Milos Zeman, who has the right to appoint prime ministers and will play an important role in the talks, said on Sunday he expected it could take two to three months to put a new government in place. The parliament will convene on Nov. 25.
Financial markets have largely ignored the election but long coalition talks could unsettle investors. Local markets are closed on Monday for a state holiday.
Zeman, a former Social Democrat who has had a long rivalry with Sobotka, angered parties in July when he pushed through a caretaker cabinet made up of his allies which will continue to rule the country until a new government is formed.