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Necas in a bind: The Eurozone fiscal compact and the Czech Republic

By Tanweer Ali.

The Czech Prime Minister Petr Necas could have done without this month's fiscal compact. The size of his government's majority might give a misleading impression of stability, in a three-party coalition which is fractious and riven with rivalries; the strains became apparent not long after the government was formed in the summer of 2010. Moreover, the past few weeks have seen a spate of ministerial resignations amidst evidence of impropriety, and the government is badly trailing the opposition Social Democrats in the polls.

Petr Necas leads the Civic Democratic Party (Obcanska Demokratická Strana, or ODS), the country's main centre-right party, and a member of the European Conservatives and Reformists Group in the European Parliament, alongside the British Conservative Party. ODS was founded at the beginning of the 1991 by the current President Václav Klaus, and has championed radical free-market policies from the outset. Although Klaus is no longer a member of ODS, he still has many followers in the party, and his staunchly eurosceptic outlook and rigid free-market doctrine are core tenets for most members. It might indeed be argued that Klaus carries even more influence on his old party that the low-key Necas who is regarded by many as a weak and ineffective leader, concerned more with the survival of his government than matters of ideological purity.

Necas' coalition partners are two new centre-right parties, both of which were formed in the run-up to last year's general election. One of the parties, Public Affairs (Vecí Verejne, or VV), imploded earlier this year, seemingly unable to recover from serious infighting, and in most opinion polls they are below the 5% threshold needed to gain seats in parliament. The more powerful of ODS' partners is TOP 09, founded in 2009, and now in control of the ministries of finance and foreign affairs. TOP 09 shares much of ODS' free-market ideology, but is more pro-European. In the 2010 election TOP 09 came only a few points behind ODS, and the party's leaders are hoping to position it to overtake its rival to become the main centre-right party. Paradoxically, whilst ODS is by far the most eurosceptic party on the Czech political scene, their electoral base comprises some of the more pro-European sections of Czech society, and this could benefit their more Europhile rival. Moreover it is widely believed that Václav Klaus is planning to form a new eurosceptic party once his term as president ends in early 2013 – this would most probably take the form of a Czech version of UKIP, possibly also including more extreme elements. If Klaus does form his new party he is likely to attract current members of ODS, increasing the vulnerability of the party which he himself founded.

In this political climate the fiscal compact leaves Petr Necas in an unenviable position. The majority of his own party is virulently eurosceptic, and would be delighted to see him refusing to support the new agreement. On the other hand, the leaders of TOP 09 are firmly committed to the agreement, and have hinted that this could be a resignation issue, which would spell the end of the coalition. Beyond this balancing act, there will be pressure from Václav Klaus, who besides commanding support in ODS, has never hesitated to use his high media profile in support of his controversial views, and who, as president is entitled to attend cabinet meetings. Supporting the agreement would also put Necas on a collision course with the Czech National Bank. The majority of the central bank's Board of Governors are Klaus appointees and the atmosphere at the bank is firmly eurosceptic. The bank is also against increasing its funding of the IMF in order to support the Eurozone. So Necas could keep his coalition together, at the expense of alienating many in his own party and risking the wrath of President Klaus and the opposition of the central bank. Or he might placate his party and avoid provoking a conflict with Klaus, only to see his government fall apart. He will also be acutely aware that the government in neighbouring Slovakia (which unlike the Czech Republic is in the Eurozone) fell this year precisely over the issue of support for an earlier rescue package.

A further complicating factor will come early in 2012 when both chambers of parliament debate the Czech opt-out from the Lisbon Treaty's Charter of Fundamental Rights. The opt-out was demanded by Václav Klaus as a precondition for signing the treaty, the last step in the process of ratification. The Czech Republic was the last country to ratify the Lisbon Treaty, the delay being the result of cases brought in the Constitutional Court by Klaus supporters. Klaus' official reason for this demand was the concern that the Charter might be used by members of the country's former German population to reclaim property that was confiscated at the end of the Second World War. This issue was never raised by Klaus during the process of negotiating the Lisbon Treaty, and it would appear fairly transparent that it was primarily a face-saving ploy when Klaus finally signed the treaty in late 2009. The validity of his claim as well as the legality, under the constitution, of his decision to withhold his signature are the subject of lively debate amongst constitutional lawyers. Nevertheless, the European Union did grant the Czech Republic the requested opt-out, which now has to be ratified by all member countries. Ironically, it is now clear that the opt-out will not be ratified in the Czech Republic, where it needs to pass both chambers of parliament. Since elections last Autumn the opposition Social Democrats have had a majority in the upper house, the Senate, and are committed to voting down this opt-out, which they see as an attempt to curtail workers' rights. This will leave Klaus and his supporters incensed and in no mood to countenance further European treaties.

In conclusion the Czech government is bitterly divided on the question of whether to support the fiscal compact and the safest course of action for the Prime Minister is to delay a binding decision until as late as possible. Hence the Czech decision taken at the summit was not to support the agreement, but to consider the country's position. Neèas has made it clear that a final decision will only be made once the full details of the deal are clear, which will not be until the Spring. Meanwhile he has been forging alliances with other potential dissenters, with a highly publicized telephone conversation with David Cameron in recent days and a personal meeting with the Hungarian Prime Minister Victor Orban, all the time being careful not to make a commitment either way. In his own words: "the fiscal compact reminds one of the Yeti, everyone talks about him, but nobody has actually seen what he looks like." Necas must surely be hoping that this particular Yeti will die its own death before he is forced to face the moment of truth.

Sadly the FPC website is unable to display the 'hacek' that should be found on the c in Prime Minister Necas' name.