Centre-right plans austerity coalition after Czech poll win

CZECH centre-right parties began talks on the formation of an austerity-minded coalition government this weekend after their surprisingly decisive election victory over left-wingers 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 per cent of gross domestic product, is only half the EU average and less than a third of 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.

Mr Necas has held meetings with the heads of both potential coalition partners – the conservative TOP09 late on Saturday and centrist Public Affairs yesterday 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," Mr 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 per cent of GDP in 2011, down from a goal of 5.3 per cent 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 per cent," 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.

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 per cent against the euro on Friday on fears a hung parliament could lead to protracted government talks.

The election was a big defeat for the left-wing 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 per cent of the vote, more than any other party. However, 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 yesterday, 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 the possibility of co-operation among parties from the right," he said.

The left failed to convince Czechs of the credibility of its generous pledges to raise welfare payments while at the same time cutting the country's budget deficit.

"When you look at how quickly the debt is rising, it is a tragedy," said Martin Balcar, a 43-year-old warehouseman.

"I like the result. I voted for a party that can lower our debt."