Czech centre-right parties began talks on forming an austerity-minded coalition government on Sunday after their surprisingly decisive election victory over leftists who advocated higher welfare spending.
Three centre-right parties, led by the Civic Democrats under new leader Petr Necas, won 118 seats in the 200-seat lower house in Saturday's parliamentary vote, defying expectations for a tight result.
The right has promised to push through fiscal austerity measures to avert the risk of a Greek-style debt crisis.
The European Union member's debt, which totals 35 percent of gross domestic product (GDP), is only half the EU average and less than a third that of Greece.
But economists say the debt burden will rise quickly unless the new government implements budget reforms, including an overhaul of the pension system.
Civic Democrat leader Petr Necas has met the heads of both potential coalition partners -- the conservative TOP09 late on Saturday and centrist Public Affairs on Sunday morning -- to discuss forming a coalition.
"These discussions, which for the moment are informal, confirmed the common will of our parties to work on this project," Necas said in a debate on Czech television. "We are on a good path."
He said he supported belt-tightening that goes beyond plans by the current caretaker government to cut the budget gap to 4.8 percent of GDP in 2011, down from a goal of 5.3 percent for this year.
The party plans to reduce spending in ministries and cut social benefits, crack down on welfare abuse, and push people off dole lists if they refuse retraining or potential work.
"It is our duty to be more ambitious. That means making a bigger cut to the deficit to somewhere around the level of 4 or 4.5 percent," he said.
Analysts said negotiating with the inexperienced Public Affairs party could be difficult but was not an insurmountable challenge. If the parties agree on a deal, they will have the biggest majority any Czech government has had since the country was created in 1993.
Austerity may slow recovery
A centre-right coalition would be the outcome most welcome to financial markets because investors believe it would be the government best equipped to launch needed reforms.
It could also boost the crown currency, which fell 0.8 percent against the euro on Friday on fears a hung parliament could lead to protracted government talks.
"These elections suggest decisive action on the budget and pension reform," said Timothy Ash, an analyst with Royal Bank of Scotland. "They should significantly ease market concern over any vulnerabilities."
But he said fiscal austerity might hurt a fragile recovery in the Czech economy, which shrank 4.1 percent last year and is expected to grow by around 1.5 percent this year.
The election was a big defeat for the leftist Social Democrats, who had expected to win by a large margin and to be the decisive force in building any coalition.
The Social Democrats won 22.1 percent of the vote, more than any other party. But the Civic Democrats trailed them by less than two percentage points, and the popular new TOP09 and Public Affairs helped them steal victory from the left.
Social Democrat leader Jiri Paroubek quit on Sunday, acknowledging his party had little chance of finding partners to form a government. First deputy Chairman Bohuslav Sobotka said that as the strongest party, the Social Democrats had earned the right to try to form a government but he was not optimistic.
"We are looking at the situation realistically. We see there is the possibility of cooperation among parties from the right," he told Czech television.
The left failed to convince Czechs of the credibility of its generous pledges to raise welfare payments while at the same time cutting the budget deficit.
"When you look at how quickly the debt is rising, it is a tragedy," Martin Balcar, a 43-year-old warehouse keeper. "I like the result. I voted for a party that can lower our debt."
ReutersLast Mod: 30 Mayıs 2010, 17:56