CZECH OPPOSITION ON 05 CAMPAIGN, 06 ELECTIONS

C O N F I D E N T I A L SECTION 01 OF 02 PRAGUE 001203

SIPDIS

E.O. 12958: DECL: 08/04/2015
TAGS: PGOV EZ
SUBJECT: CZECH OPPOSITION ON 05 CAMPAIGN, 06 ELECTIONS

Classified By: Political Officer Mark Canning for reasons 1.4(b) and (d
).


1. (C) SUMMARY. One hundred days after new PM Jiri Paroubek
took office, and 10 months before parliamentary elections,
three shadow ministers from the main opposition party, the
Civic Democrats (ODS),shared with the Ambassador their
expectations for the time remaining before next June's
elections, as well as possible outcomes of that vote. ODS
expects the main coalition partner, the left-of-center Social
Democrats, to pass populist legislation on taxes, health
care, and rent control this year to bolster their voter base.
The three also all predict that if the Social Democrats
receive enough votes to form a coalition government with the
Communists, they will do so, in spite of previous agreements
and traditions prohibiting this. All solidly discounted the
formation of another "Grand Coalition" between ODS and CSSD.
END SUMMARY

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RED STAR OVER PRAGUE?
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2. (C) Recent polls have shown only four parties getting
enough votes to make it over the 5% threshold required for
seats in parliament: two parties on the left, the Social
Democrats (CSSD) and the Communists (KSCM); and two on the
right, the Civic Democrats (ODS) and the Christian Democrats
(KDU-CSL). None of the parties is likely to get enough votes
to form a government on its own, so a coalition will be
unavoidable. Vlastimil Tlusty, shadow finance minister and
head of the ODS parliamentary caucus, said the ODS goal is to
win enough votes to form a government with the Christian
Democrats. Tlusty stated, quite unequivocally, that even if
ODS gets the most votes of the four parties, if ODS and
KDU-CSL together fail to win enough seats to form a
government, the most likely scenario would be a coalition
government between the remaining two parties, the Social
Democrats and the Communists. Tlusty said that the 1997
Bohumin Accord, under which the Social Democrats resolved not
to form cabinets with the Communists, was "history." Tlusty
rejected the idea of a coalition between ODS and CSSD saying
that either ODS would receive enough votes to rule with the
support of the Christian Democrats, or the Social Democrats
would receive enough votes to rule with the support of the
communists. He saw no scenario in which ODS would cooperate
with the Social Democrats. Jiri Pospisil, shadow justice
minister, concurred, and agreed that it is only a matter of
time before the Social Democrats and the Communists join
forces. Pospisil said the two parties are ideologically too
close to each other to not cooperate. He predicted that if
they do not join forces for the 2006 election, they would for
the next vote in 2010. Pospisil sees this as an inevitable
rationalization of the political spectrum.


3. (C) One other scenario that the ODS leaders thought was
possible, but unlikely, was the emergence of a small fifth
party that could add a few, but essential seats to either the
left or right coalitions, enabling them to form a government.
The Greens Party is currently polling at roughly 3%,
considerably short of the 5% needed. If it did succeed,
Pospisil believes the Greens would lend their support to the
Social Democrats and the Communists. Another small party
that is polling between 2% and 3% is the Party of
Independents, led by current MEP and former business partner
of Ronald Lauder, Vladimir Zelezny. Pospisil predicted that
the Independents would support ODS and KDU-CSL if they passed
the threshold. However, both Tlusty and Pospisil said they
were unaware of any party efforts to reach out to potential
new, small partners.

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NEW LEGISLATION & NEW SCANDALS?
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4. (C) Tlusty predicted that the current governing coalition
would pass populist measures between NOW and next June's
election, but that nothing controversial or long-awaited,
such as needed pension reform, would get any attention.
Tlusty felt that progressive tax reforms proposed by the
Social Democrats, which in contrast to the flat tax proposed
by ODS would bring greater benefits to those with lower
incomes, would pass. He estimated the bill's chances of
passage as 100 percent. Tlusty and Shadow Health Minister,
Senator Tomas Julinek, also believe the Social Democrats'
reforms for health care, which would not include any
co-payments by patients, will pass, though they could be held
up for a couple of months by the Senate, and a month by the
President. Tlusty also foresees a pay raise for civil
servants and the sacking of 3 or 4 of the least popular
cabinet ministers in October or November. Pospisil predicted
that his draft for a new law on bankruptcy, written with
assistance from the American Chamber of Commerce, would not
pass because it is perceived as benefiting large, profitable
banks at the expense of small entrepreneurs.

5. (C) Tlusty complained about the nexus of businessmen and
politicians NOW in power. He said businesses had "invested"
a great deal in the current government leaders and would take
any and all measures they could to keep these people in
power. Tlusty, however, feels that two scandals could become
campaign issues this fall. The first of these involves the
bankruptcy of IBP, a bank that had been the third largest in
the Czech Republic. The bank was put into forced
administration in June of 2000, by a Social Democrat
government, after a central bank probe discovered a shortfall
of more than US $1 billion in the bank's reserves. Nomura
Securities owned 46.6% of the bank and suffered heavy losses,
for which it is NOW seeking compensation. Tlusty estimates
that the award to Nomura could potentially be as high as US
$1.5 billion. The second potential scandal involves bonds
worth 170 million Euros that were issued after floods in
2002, when current premier Jiri Paroubek was in charge of
Prague's finances. The transaction was handled by Deutsche
Bank, which, according to Paroubek's critics, was selected in
a non-transparent tender. In addition, the city lost more
than US $5 million through interest rate speculation on the
Euro denominated bonds.

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PROBLEMS IN THE ODS CAMP - OPPOSITION WITHIN THE OPPOSITION
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6. (C) There are several reasons why ODS is not looking as
strong as the shadow ministers would like, in spite of this
spring's resignation by CSSD PM Stanislav Gross. First of
all, the party's leader, Miroslav Topolanek, faces opposition
within the party and has spent much of the past few months
overseas including a recent 5-day trip to China and Mongolia.
In addition, the party has been split on some issues, such as
the recent vote on fees for public television. Finally, ODS
stalwarts at the local and regional level are not personally
motivated to help the party in next summer's parliamentary
election. There are actually two sets of elections next year.
The first, scheduled for next summer, is the elections to the
Chamber of Deputies. The second elections, for the Senate,
and local and regional governments, are scheduled for the
fall. ODS should do very well in the second set of elections,
as it already has 13 of the 14 regional governor positions,
and 37 of the 81 seats in the Senate. Tomas Julinek, ODS
shadow health minister and head of the ODS Senate Caucus,
thinks ODS will pick up as many as four more seats, possibly
giving it a clear majority in the Senate. But both Julinek
and Tlusty said it is difficult to make use of the popularity
of the governors and senators, who as a rule don't campaign
for their colleagues in the Chamber of Deputies and don't
need the shirttails of national party figures in the way
state and local politicians in America do.


7. (C) COMMENT. With elections 11 months away, the political
parties are clearly entering campaign season with a great
deal of posturing and populist appeals to the electorate. ODS
has lost 9 points in the polls over the last few months but
could rebound if it comes up with a better strategy and more
disciplined leadership. Nevertheless, because of the
numbers, Tlusty's scenario of likely coalition partnerships,
including a CSSD-Communist coalition is plausible. The Social
Democrats and the Communists together won 110 of the 200
seats in the 2002 election, and since then have consistently
done, as well as, or slightly better than the combined votes
of the Civic Democrats and the Christian Democrats. Some of
this is ODS fearmongering. Even Jan Kavan, the leader of a
left-wing faction within the Social Democrats told poloff
that the current leadership of the Communist party,
particularly party Chief Miroslav Grebenicek and one of the
five party vice-chairs, Vaclav Exner, NOW 63, are too
hardline for CSSD. Kavan explained that KSCM would have to
undergo some sort of reform, such as increasing the role of
young moderates like vice-chair Jiri Dolejs, before CSSD
would be willing to renounce the Bohumin Agreement and make a
formal alliance with the Communists. Tlusty, nevertheless is
adamant that if the Social Democrats finish the election with
the choice of either ruling with some form of support by the
Communists, or not ruling, they will choose the former. END
COMMENT.

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