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Czech centre-left cabinet gets to work after winning confidence vote

Source: Reuters - Tue, 18 Feb 2014 22:05 GMT
Author: Reuters
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* Government pledges less fiscal restriction to help growth

* Three-party coalition wants more integration with EU, move closer to euro

* Disagreement on tax hikes will make it tough to rasise investments, pensions

By Robert Muller

PRAGUE, Feb 18 (Reuters) - The new Czech centre-left cabinet won a required vote of confidence on Tuesday, receiving a mandate to ease restrictive budget policies to boost growth and bring the country back into the European mainstream after years of euro sceptic cabinets.

Social Democrat Prime Minister Bohuslav Sobotka's three-party coalition won 110 votes in the 200-seat lower house of parliament.

His government was appointed formally by President Milos Zeman on Jan. 29 and, under law, needed to win a confidence vote within a month.

The Sobotka-led cabinet will fill a power void after the fall of a centre-right administration in the middle of 2013. A caretaker cabinet led the country after that but lacked support to push any strong legislation through parliament.

Sobotka, 42, a former finance minister a decade ago, aims to raise pensions and minimum wages after the austerity policies of the previous cabinet, while keeping the budget deficit below 3 percent of gross domestic product, a softer target than previous cabinets' plans to eliminate the deficit.

Sobotka will get help from an accelerating recovery in the $200 billion per year economy after the central European country's longest recession in two decades ended last year.

Powered by exports, gross domestic product jumped by a surprisingly strong 1.6 percent quarter-on-quarter at the end of 2013. Economists see about 2.0 percent expansion this year.

Sobotka has pledged to end euro sceptic policies of his predecessors, starting with the symbolic joining of the EU's fiscal compact, an agreement on budget responsibility.

But he wants to delay implementing the pact's tough conditions on structural deficit -- the part of the spending gap that is not caused by the economic cycle -- that would force the government to cut spending faster.

"This will be among the first issues the new government will tackle," Sobotka told parliament ahead of the vote.

"We need to raise our influence in Europe, to be able to secure our national interests, we cannot stand on the sidelines but have to take part in the debate on what Europe will look like in the years ahead."

The cabinet has also pledged to take steps to bring the country of 10.5 million closer to the euro zone, although it has made no commitment on any euro adoption dates.

TENSIONS IN CABINET

The approval of Sobotka's cabinet ends a period of uncertainty that followed the collapse of a centre-right cabinet in June last year in the midst of a corruption scandal.

The Social Democrats narrowly won an early election in October, and took over two months to form a coalition.

The Social Democrats may face tensions in the coalition, especially from the side of the new centrist ANO movement of Finance Minister Andrej Babis.

Babis, a billionaire owner of hundreds of firms in the food, chemicals and media sectors, faces accusations of massive conflicts of interest.

He also opposes any tax hikes on companies, especially utilities and banks, proposed by the Social Democrats, provoking questions about where Sobotka will find money to pay for plans to raise investments as well as pensions and wages.

The Czech Republic is used to unstable cabinets, having gone through 11 prime ministers and 13 cabinets in the past 21 years.

Its borrowing rates are the lowest among central Europe as investors have largely ignored political upheavals, given the country's relatively low debt at around 45 percent of gross domestic product and strong banking system.

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