Czech Voters May Hinder Budget Cuts With Stalemate

[Joanne98]

Source: Bloomberg

May 26 (Bloomberg) -- The Czech political future may look a lot like its recent past after this weekend’s election: a government without the political strength and will to cut the country’s 163 billion koruna ($7.8 billion) budget deficit.

The European Union member will probably emerge from the May 28-29 vote with a minority government or a coalition dominated by the Social Democrats, who promise to increase social spending, opinion polls show. The new administration will have to cut the fiscal gap in half by 2013 to meet EU requirements.

The deficit widened to 5.9 percent of gross domestic product last year, compared with the EU target of 3 percent, as the country’s deepest recession since the end of communism curbed tax revenue. The government plans to sell a record 280 billion koruna of bonds this year as Europe’s sovereign debt crisis drives up bond yields.

“Polls suggest that there will be no easy way to set up a functioning coalition,” said Jaromir Sindel, an economist at Citigroup Inc. in Prague. “We expect the koruna to weaken versus the euro in the short term, reflecting the uncertainty about the fiscal consolidation effort.”



Read more: http://www.businessweek.com/news/2010-05-26/czech-voters-may-hinder-budget-cuts-with-stalemate-update1-.html