Czech PM's support shrinks to minority as rebel deputy quits

Reuters News
Posted: Oct 31, 2012 11:47 AM
Czech PM's support shrinks to minority as rebel deputy quits

By Jan Lopatka

PRAGUE (Reuters) - Czech Prime Minister Petr Necas's support in parliament dwindled to a minority on Wednesday when a deputy quit the ruling party, heightening a rebellion in its ranks and raising the risk of a government collapse next week.

The departure cut the centre-right coalition's official numbers in the lower house of parliament to 99 out of 200 seats, intensifying pressure on Necas before a vote on unpopular tax hikes after a congress of his party over the weekend.

The Prague government has insisted on raising value-added and income taxes to squeeze the budget deficit below the European Union's ceiling of 3 percent of gross domestic product next year.

That has slashed the central European country's cost of borrowing to record lows but also extended a recession that has been strangling the economy since late 2011, the longest decline in emerging Europe.

Radim Fiala, one of six backbenchers in Necas's Civic Democrat party who have stood up against the 22 billion crowns ($1.14 billion) in tax hikes, said he could not agree with the party's policies any more.

"The reason is the deepening of differences mainly in the fundamental question of raising taxes," he said in a statement.

The loss of a majority does not automatically kill the three-party government's chances of survival. It has relied on independent deputies in past votes and could continue to do so, although Fiala's exit weakens Necas's position before the party meeting where he will need to defend his chairmanship.

Necas has formally linked the tax vote with a confidence vote in the cabinet, meaning a loss would force his resignation.

That would make Necas the latest in a string of European prime ministers from the Netherlands in the west to Romania in the east to have fallen because of unpopular austerity steps taken to stem the growth in public debt.

The 99 votes Necas's coalition now has includes the other five rebelling backbenchers who are also refusing to back the tax hikes, saying they go against the party's program and would further dim hopes for an economic recovery.

The Finance Ministry cut its growth outlook on Wednesday to -1 percent this year from -0.5 percent and to +0.7 percent next year from an earlier outlook of +1 percent.

The central bank slashed rates to an all-time low of 0.25 percent last month and said it could consider selling the crown currency to weaken the exchange rate to further ease monetary policy in the export-driven economy. Analysts expect no changes at a policy meeting on Thursday.

No one has so far risen in his party to stand against Necas, who is seen as untainted by numerous graft scandals that have engulfed other Civic Democrat politicians. But some regional party chapters have failed to endorse him for another term at the party's helm, leave the party meeting's outcome unclear.

Necas has said that an early election should be held if his cabinet falls. The next regular election is due in 2014. ($1 = 19.2718 Czech crowns)

(Editing by Mark Heinrich)