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Czechs vote for austerity in shadow of Greek crisis

Czechs showed concern for their country’s finances when casting ballots in Saturday’s election, ignoring left-wing promises of lavish benefits to vote in thrifty centrists and right-wingers.

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While the left-wing Social Democrats (CSSD) narrowly placed first, the Civic Democrats (ODS), TOP 09 and Public Affairs were in talks Sunday on forming a centre-right coalition that would hold a solid parliamentary majority.

“Voters did the responsible thing when they backed parties offering a more responsible and better economic programme,” David Marek, an analyst with Patria Finance in Prague, told AFP.

“The fact that they paid attention to economic issues, that there was the global economic crisis, that we have a debt crisis now — this played the key role,” he said, adding markets would welcome the result.

Public finances, battered by the global downturn, became a hot issue in the election campaign in this ex-communist country, which is watching anxiously as the eurozone crisis hits its key trading partners, Germany and Slovakia.

Exit polls by the SC&C agency showed that 54 percent of voters considered public finances the top priority, ahead of curbing corruption.

“Voters took fright of what’s happening in Greece and they don’t want to go on living in debt,” said Next Finance analyst Marketa Sichtarova, adding she expected “drastic” reforms from the next government.

Looking set to form the country’s strongest cabinet since 1996, with support from 118 members of the 200-seat parliament, the three centre-right parties agree on the need to put together an austerity programme.

“Voters gave us a big opportunity to create a coalition of budgetary responsibility,” ODS leader Petr Necas said in a TV debate on Sunday as informal coalition talks started.

“We can see a chance the new team will push through the long-postponed health care and pension reforms, which are a necessary prerequisite for the long-term sustainability of public finances,” said Marek.

The CSSD, which failed to impress voters with promises of benefits and extra pensions, said on Sunday it would be fair if it had the first go at putting together a government.

But ahead of talks with the president, who names the prime minister under the constitution, CSSD deputy head Bohuslav Sobotka admitted his party’s chances of building a coalition were thin against the three-party force.

Czech debt is one of the lowest among the 27 European Union states, standing at 35.4 percent of gross domestic product (GDP) in 2009.

But the ratio grew rapidly during the global crisis — up from 30 percent in 2008 — as the government deficit reached 5.9 percent of GDP in 2009 against a 1.6 percent forecast made before the crisis hit.

In its latest forecast, the Czech National Bank predicted an improved economic rebound — 1.4 percent GDP growth for this year and 1.8 percent in 2011, following a 4.2 percent slump in 2009.

But it estimated debt would keep growing to 39.6 percent of GDP this year and to 43.4 percent in 2011, with the public deficit ratio still at 5.9 percent of GDP in 2011 if no belt-tightening was carried out.

Necas said he would like the deficit ratio in 2012 below the three-percent target required for joining the eurozone, though not necessarily with eyes on euro adoption.

“We want to have stable public finances, meet the euro criteria, balance the budget above all for ourselves,” he told AFP in a recent interview.

UniCredit Bank analyst Pavel Sobisek said this would require cutting the deficit to 4.8 percent of GDP next year.

Some analysts see this as tough task for politicians as municipal elections are due in the autumn and parties might be reluctant to cut spending in the budget for 2011, which must be ready earlier.

But Necas dismissed such concerns on Sunday.

“This is the key task, to stop the growing debt… and to meet the wish of the voters who made it absolutely clear that this is what they want,” he added.