By Robert Muller
PRAGUE (Reuters) - Czech political parties neared agreement on Thursday on holding an early election to end a stand-off with the president that has crippled policymaking for nearly two months as the economy struggles to recover from recession.
Opinion polls show the center-left Social Democrats, who have pledged to undo some of the collapsed center-right cabinet's pension reform and tax utilities and banks to boost public coffers, are likely to win an early vote by a double-digit margin.
Propelled by both conservative and left-wing sentiment in favor of an early election, the lower house is expected to vote on August 16 to dissolve itself, enabling a vote as soon as October. The next regular election would be in May next year.
Markets have been largely undisturbed by the deadlock because Prague boasts the lowest borrowing costs among central European neighbours thanks to its fiscal rigour and low debt load - half the European Union average.
But political gridlock has clouded the formation of the 2014 budget and Czechs want a viable government in place to tackle priorities such as growth after nearly two years of recession.
The main parliamentary parties have been locked in battle with President Milos Zeman since June, when he named his long-time ally, economist Jiri Rusnok, against their wishes to head a new cabinet after the previous center-right government collapsed under the weight of a spying and bribery scandal.
Parties accuse the leftist president, who won the EU member's first direct presidential election in January, of flouting constitutional conventions and making a power grab by appointing his ally.
Rusnok lost a vote of confidence on Wednesday. But the vote also revealed cracks in the center-right coalition, which failed to muster a majority that would give it legitimacy to pressure Zeman to appoint its own candidate as prime minister.
The break prompted the conservative TOP09 party, part of the former ruling coalition, to join the main leftist parties - the Social Democrats and Communists - in support of a new election. TOP09's vote will give a motion to dissolve parliament the needed constitutional majority to pass.
"We have these new votes guaranteed by TOP09," said Social Democrat leader Bohuslav Sobotka. "I really hope that ...(besides the three factions), other parties also join us. I think it would be a great signal for citizens ... We will act so that the Czech Republic remains a parliamentary democracy."
ZEMAN UNDER SCRUTINY
The former ruling Civic Democrat party will likely vote against dissolution, its caucus head said on Thursday.
Rusnok's government, in office for a month and including allies of Zeman, has angered parties by dismissing ministry officials and the heads of state railways, even though it seemed unlikely to win parliament's confirmation.
Under the constitution, parliament's resolution on its own dissolution will go to the president. He then has to dissolve the house and call a new election to be held within 60 days of that decision.
Zeman has no time limit to make the decision, and there was debate among politicians about whether he could delay the election to leave Rusnok in place longer and allow a non-parliamentary party of his allies more time to campaign.
The head of Zeman's office, Vratislav Mynar, was quoted by news website Aktualne.cz as saying Zeman would want to meet party heads before calling an election.
Pavel Rychetsky, the head of the Constitutional Court, told Czech Television the president should not take more than about a week to make the decision. Zeman himself has spoken in favour of early elections.
(Writing by Jana Mlcochova and Jason Hovet; Editing by Andrew Roche)