Czech right leader to form govt, Fitch ups outlook

Czech President Klaus asked right-wing Civic Democrat leader Necas to lead talks on forming the next government.

Czech right leader to form govt, Fitch ups outlook

 

Czech President Vaclav Klaus asked right-wing Civic Democrat leader Petr Necas on Friday to lead talks on forming the next government, after centre-right parties won a decisive majority in an election last weekend.

The victory of parties promising fiscally prudent reforms cheered investors. On Friday, Fitch Ratings revised the Czech Republic's outlook to positive from stable based on the election result.

The Civic Democrats have been negotiating with two new centre-right parties on forming a coalition, and talks are expected to last for several weeks as parties overcome differences.

The trio -- the right-wing Civic Democrats, the conservative TOP09 party and the centrist Public Affairs -- won a combined 118 seats in the 200-member lower house, which could give it the largest majority of any government since the nation came into existence in 1993 in the split-up of the former Czechoslovakia.

The comfortable margin that previous governments lacked should help the new government, if it is formed, push through key economic reforms.

"There is a clear majority in favour of fiscal consolidation and fundamental public finance reforms, including of the pension and healthcare systems," Fitch said.

Necas, the likely new prime minister, said the outlook upgrade by Fitch can lead to lower debt spreads and cut borrowing costs, helping the 2011 budget.

Update in to weeks 

Klaus asked Necas to report back in two weeks whether he is able to form a cabinet. The mandate given to Necas is a traditional political act rather than an official appointment.

The three centre-right parties signed on Wednesday a declaration on their intention to form what they called a "government of budget responsibility, rule of law and (the) fight against corruption".

A priority will be to produce a 2011 budget. The Civic Democrats want to cut the deficit to 4.0-4.5 percent of annual economic output, a bigger reduction than the outgoing cabinet planned, from 5.3 percent forecast for this year.

The party's promise not to raise taxes clashes with a plan from Public Affairs to raise corporate tax by 1 percentage point and increase the tax paid by high earners.

Czech government debt is among the lowest in the European Union at around 35 percent of GDP, less than half the EU average.

But it is set to grow in the next few years and centre-right parties campaigned against leftist spending promises that they said would lead the country into a Greek-style debt trap.

The Czech crown traded flat on the day at 25.8 to the euro, little moved after the announcement.

Reuters

Last Mod: 05 Haziran 2010, 00:16
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