CZECH PM STANISLAV GROSS: SHROUDED IN CONTROVERSY

C O N F I D E N T I A L SECTION 01 OF 03 PRAGUE 000184

SIPDIS

E.O. 12958: DECL: 02/07/2015
TAGS: PGOV PREL PINR EZ
SUBJECT: CZECH PM STANISLAV GROSS: SHROUDED IN CONTROVERSY
AND FACING FIRST REAL CALLS FOR RESIGNATION

REF: A. PRAGUE 1857

B. PRAGUE 1758

Classified By: Political Officer Renata Sykorova Turnidge for reasons 1
.4(b) and (d).


1. (C) Summary. Czech Prime Minister Stanislav Gross is
under increasing pressure from the opposition and the public
to explain the unclear origin of money used in 1999 to
purchase the family's luxury Prague apartment, or to resign.
His inability to explain his source of financing for the
apartment is one of many scandals he has faced in recent
months. So far, Gross has failed to clear his name. The
current scandal is the first during Gross's brief (six month)
tenure as Prime Minister that could actually force him from
his position. However, the lack of a clear successor is the
primary factor many cite in their expectation that Gross will
weather this storm and be confirmed as party chairman at the
Social Democratic Party (CSSD) Congress in March. Even if he
survives, the scandals will surely weaken his position and
have emboldened the opposition Civic Democratic Party (ODS).
The latest scandals are a reminder of Gross's biggest
vulnerability: the lack of transparency surrounding his
political and personal life. They threaten to overshadow
Gross's efforts to implement basic economic reforms prior to
the 2006 election and his plans to revitalize CSSD. On
foreign policy issues of importance to USG, Gross continues
to pull through, most notably on the recent parliamentary
extension of the military police deployment in Iraq. End
Summary.

--------------
Scandal-Ridden PM
--------------


2. (C) The youngest Prime Minister in Czech history, Gross
(34),has been embroiled in controversy over the years, but
the media started paying closer attention recently. Some
speculate that this is part of a concerted smear campaign
against Gross prior to the March 25-27 CSSD Congress,
although there is little evidence to support this claim. The
unexplained financing for the CZK 4.2 million (USD 180,000)
Gross family luxury flat in an exclusive Prague neighborhood
is only one of the recent scandals. The scandals have
damaged Gross's reputation and have prompted calls this week
for his resignation -- so far these calls are isolated, but
they are the first since Gross became Prime Minister last
August. Gross's purchase of a flat that is beyond his means
serves as proof of corruption for some political observers,
who have talked about the PM's murky business dealings for
years (the additional news this week that Gross's wife
purchased an expensive piece of real estate in Prague, whose
financing is also unknown, has added fuel to the fire). Many
who know him personally claim that Gross, who has a
working-class background (born to a driver and secretary, and
is a former train technician) is simply taking advantage of
the side benefits of high-level politics, nothing unusual for
Czech politicians.


3. (C) Just as disturbing as suspicions regarding his
unethical behavior in office are reports that Gross, while
Interior Minister, overstepped his authority when he created
the "Mill" police squad, a secret unit that answered directly
to him and allegedly gathered information on political
opponents and big financial cases. He and current Interior
Minister Frantisek Bublan face an official inquiry from the
Chamber of Deputies to explain the squad's operations.
Gross, who recognizes the importance of information, is well
known in political circles for his ability to gain useful
information on political opponents. He reportedly built the
backbone for his network of information sources at the
Ministry of Interior in the mid-1990s when he befriended
former directors fired by then Interior Minister Jan Ruml as
part of purges of former Communist officials from the
Ministry. Gross still has sensitive information on various
political figures, according to CSSD insiders.

--------------
Gross and All His Men
--------------


4. (C) Gross's biggest problem lies with his bad judgment in
choosing advisors. Some argue that he does not have a good
feel for people. However, Gross's pragmatic approach to
politics and love of power suggest that Gross intentionally
chooses his advisors to help him get ahead. Many of the
people who helped Gross rise to the top of party ranks and
have been employed for years behind the scenes have ties to
the former Communist regime. Among the most well known are
former First Deputy Interior Minister and CSSD parliamentary
caucus chair Petr Ibl, once a guard in a prison where
political dissidents were held, and former Deputy Police
President Vaclav Jakubik, another prison guard under the
Communists, who performed his duties without a proper
security clearance. Ibl and Jakubik both attended the Police
University prior to 1989. Perhaps Gross's main misstep was
his appointment of a former leader of a police unit
responsible for dispersing crowds during the 1989
demonstrations, Pavel Pribyl, as the chief of government.
Pribyl later resigned under public pressure, but the damage
was done.


5. (C) It is unlikely that Gross will get rid of these
people, because he is indebted to these old-timers who helped
him into his current position. Their futures are tied.
Gross, however, also has made some good personnel choices.
He invited more economic experts into his advisor team,
something CSSD lacked in the past. He chose an experienced,
well-educated economist Jan Mladek as his special economic
advisor, and the dynamic and young non-party member Martin
Jahn as Deputy PM for Economic Policy. He has earned kudos
for these decisions from non-partisan economic experts.
Gross recently also has gotten rid of lobbyist Andrej Surnak,
whose PR agency Crane Consulting masterminded the expensive
but ineffective "I mean it sincerely" pre-election campaign
for the failed November '04 Senate and regional elections.

--------------
What Makes Gross
--------------


6. (C) Gross was once held up as a prime example of a new
generation of leaders: young, smart, untouched by
corruption, and part of a new era of politicians with no ties
to the Communist regime. However, Gross has failed to meet
most of these expectations. He is a mixture of
contradictions. On the one hand, he is sharp, politically
savvy, and hailed within CSSD for his communication skills
(the sort of skills that former PM Spidla lacked). On the
other, he lacks vision, clear moral principles, and life
experience outside of politics. His Machiavellian drive for
power overrides other guiding principles and fuels his
flexible, pragmatic approach to politics. Party insiders
agree that he owes his meteoric rise to the top spot in CSSD
to his extraordinary talent for political negotiations, as
well as his access to information. Other words used to
describe him are workaholic, gifted manager, and a regular
guy. Gross likes to portray himself as man with a common
touch, and until recently enjoyed the public's trust, leading
in popularity in opinion polls for five years. He generally
says few things of substance or comes down clearly on
controversial issues, and tries to avoid conflict at all
costs. He is known as a loner, and even those closest to him
are unable to define his character or beliefs. Many older
Czechs find his age a problem and view it as a sign of lack
of maturity for the job of premier.


7. (C) Although young, Gross is an experienced politician.
Since entering politics in 1989, he joined the re-established
CSSD where he was elected chair of the Young Social Democrats
in 1990. He quickly rose through the senior party ranks and
became deputy in the lower house in 1992. In the late 1990s,
his posts included chairman of the CSSD parliamentary caucus
and vice speaker of the Chamber, partly because he was able
to make friends with the right people at the right time.
Former PM Milos Zeman recognized Gross's mass appeal and made
him Interior Minister in 1999. Gross was considered CSSD's
crown prince for a while, but quickly went from crown prince
to former PM Zeman's arch enemy. He was elected first
vice-chairman at the 2001 party congress. Despite his
initial hesitancy, his party allies helped propel Gross to
position of acting chair and PM after removing Vladimir
Spidla as party chair in summer 2004.

--------------
It's Not All Bad
--------------


8. (C) While the controversies involving Gross overshadow
all else related to the government these days, Gross has had
some positive impact on the political scene and his party.
He managed to put together a working governing coalition
after Spidla's ouster in July 2004, and consolidated the
CSSD, albeit temporarily, after taking over as acting party
chair. Due to inherent conflict within the party (ref A),
neither Gross nor any other CSSD leader is capable of uniting
the party for the long-term at this time. Together with
Finance Minister Bohuslav Sobotka, he is making an effort to
revitalize the troubled and divided party, which has lost
more than half its voters since winning the 2002 elections.
Their plans include transforming CSSD into a more centrist,
modern European Social Democratic Party. At the January
party program conference, Gross pushed through a pre-2002
election strategy that encompassed a drop in income tax for
low and medium wage-earners, but the rejection of school
tuition or co-payments for medical treatments is a reflection
of the strong opposition from the left wing in the party to
any shift toward the center. In addition, even though his
interest does not lie in foreign policy, Gross is making a
concerted effort to be well-informed about important issues
and to fulfill all obligations toward NATO and the EU. He
has been forthcoming in our dealings, and fought for the
parliamentary approval to extend Czech troops in Iraq until
end of 2005, although it was not a popular move within CSSD.


--------------
Comment
--------------


9. (C) Scandals surrounding politicians purchasing housing
beyond their means are common in the Czech Republic, as in
many countries. Indeed, allegations and rumors about Gross's
1999 purchase have circulated for years; the fact that many
top Czech politicians from across the political spectrum have
acquired expensive housing led many to believe that Gross
would prove as adept at weathering this scandal when it
resurfaced in the press last week as he had the many others
during his political career. However, Gross's missteps (he
has offered three separate and contradictory explanations for
the financing, most centered around the supposed largesse of
a retired uncle) have emboldened his opponents, and this
week's parliamentary plenary session is likely to be
dominated by the affair. While we take the calls for his
resignation seriously, as of today Gross is likely to weather
the storm. The calculus remains the same: ODS is not ready
for early elections (which are constitutionally difficult to
call),and the divided CSSD has no likely successor to Gross,
who has so far skillfully built support within the party in
advance of the March Party Congress. Assuming he does carry
on as Prime Minister, this latest scandal will surely weaken
Gross's political and popular position, no matter how large a
mandate he receives at the Party Congress.


10. (C) Looking ahead, there is no doubt that CSSD will fare
poorly in the summer 2006 elections, which are widely
expected to bring ODS to power after eight years. Without
any strategic vision, many doubt Gross will stick around to
lead the party in opposition since he does not like to be on
the losing side. Gross is young and well connected, and has
left the door open for joining the more lucrative business
world.
CABANISS