FUTURE OF CZECH GOVERNMENT IN QUESTION AS JUNIOR

C O N F I D E N T I A L SECTION 01 OF 02 PRAGUE 000232

SIPDIS

E.O. 12958: DECL: 02/16/2015
TAGS: PGOV EZ
SUBJECT: FUTURE OF CZECH GOVERNMENT IN QUESTION AS JUNIOR
COALITION PARTNER TURNS ON PRIME MINISTER

REF: PRAGUE 184

Classified By: Political Economic Counselor Michael Dodman for reasons
1.4 B+D


1. (C) SUMMARY. The simmering debate about shady financing
of PM Gross's apartment escalated into a crisis for the Czech
government on Feb 15 when Miroslav Kalousek, head of the
junior coalition partner Christian Democrats (KDU-CSL),
threatened to call for Gross's resignation, and the head of
the opposition Civic Democrats (ODS) raised the question of
early elections. Gross, who returns late Feb 16 from a visit
to France, will meet separately on Feb 17 with his coalition
partners and ODS to discuss next steps. Several outcomes are
possible: Gross weathers the storm and continues to govern
until elections next year, but with Kalousek's hand
strengthened; Gross is forced to resign but President Klaus
appoints another Social Democrat (CSSD) to reform the
existing coalition (Finance Minister Sobotka is the most
likely candidate); or the government loses a vote of
confidence and the President appoints a government of experts
to manage for the next 16 months. Less likely would be early
elections or a new coalition between CSSD and the Communists.
Under any scenario, an already weak Czech government will
become only weaker. End Summary.


2. (SBU) In recent weeks, PM Gross has been accused of a
series of unethical and possibly illegal deeds (reftel). One
scandal involves the use of publicly funded police officials,
whom Gross allegedly formed into teams to investigate
personal political opponents while he was Minister of
Interior. Another scandal involves the financing of the home
he now occupies. After initially refusing to disclose the
source of the funds used to buy the luxury apartment, Gross
offered several contradictory and increasingly preposterous
explanations. Then this week it was brought to light that a
firm run by the PM's wife bought a piece of upscale real
estate using a loan from a family friend who rents out space
to a brothel and is facing charges of insurance fraud. It
may have been this last bit of news that led Kalousek, leader
of the conservative Christian Democrats, to finally come out
against the Prime Minister.


3. (C) Kalousek's motives are far from clear. Most agree
that the revelations of Mrs. Gross's business ties to a
brothel landlord would hurt Kalousek's standing among the
relatively small but dependable KDU-CSL voters: to maintain
his own standing, Kalousek had to make an attempt to
disassociate himself from Gross's scandals. During a lunch
with the Ambassador on Feb 16, a KDU-CSL MP said that the
termination of Mrs. Gross's business dealings could be
sufficient to placate Kalousek.


4. (C) There are also numerous indications that Kalousek and
ODS leader Mirek Topolanek are discussing the future of the
government. Cooperation between the two has increased in
recent months as it became clear that ODS would easily win
next year's elections, but would likely need KDU-CSL to form
a majority. Several sources have indicated that the two are
in close cooperation this week, including press reports of a
meeting on Feb 14 at a Prague tennis club that included the
participation of President Klaus.


5. (C) In addition to Gross, Kalousek and Topolanek, Klaus is
the other major player, and his motivations are least clear.
He has so far criticized the tarnishing of the Czech
Republic's reputation as a result of PM's housing scandal,
but has not directly criticized the Prime Minister or
otherwise intervened. Klaus is the founder and Honorary
Chair of ODS, but is no fan of Topolanek. He also harbors a
grudge against KDU-CSL, whose withdrawal from a coalition
government he headed in 1997 brought down his government
(which was replaced with a government of technocrats until
early elections were held the following year). President
Klaus left for a four-day trip to Jordan and Saudi Arabia the
afternoon of February 16, so won't be directly involved in
the coming maneuvering, nor will he be available to fulfill
his constitutional function of appointing someone else to
form a government -- should that be necessary -- until
February 21.


6. (SBU) The drama plays out as Gross finishes a two-day
visit to France, where Czech journalists have been asking him
about current state of affairs. Gross is quoted as saying
that his wife will interrupt her business career as long as
he holds office, and entrust her affairs to a reputable law
firm. He also stated that the Christian Democrats are free
to leave the coalition. He did not rule out a change in
government, including a new PM, or a minority government
without the Christian Democrats.


7. (C) Jan Mladek, who is a member of the Prime Minister's
party and the PM's Economic Advisor, told poloff on February
16, "There will be a government crisis in the upcoming days."
Mladek doesn't expect early elections, because of the
unwieldy and time-consuming nature of the constitutional
mechanisms (a three-fifths majority of both chambers of
parliament need to approve early elections). Further, except
for ODS, none of the parties would benefit from early
elections (and as one ODS leader reminded us today, ODS would
welcome the chance to run a well-prepared campaign against
the scandal-ridden Gross government in 2006). Mladek
predicted a caretaker government would be appointed to run
things until the parliamentary elections next summer.


8. (C) One scenario that is being discussed is the
possibility that Gross would be eased out and replaced by
another member of his party, such as Finance Minister
Bohuslav Sobotka. In that case, the three-party coalition
could stay intact, and the existing cabinet could be
reappointed with few or no changes. The other scenario, of
course, is that Gross works out a deal with his opponents and
continues to govern. While this may not seem plausible in
the face of the numerous accusations of unethical activity,
Gross is believed to have considerable inside information
about suspect dealings of Kalousek (who has his own luxury
home) and other leading Czech politicians, which would
strengthen his hand in the negotiations ahead. Few expect
Gross to leave without a fight, as this would signal the end
of his political career at the age of 35.


9. (C) Comment: The crisis will take several days to sort
out. A new government is one possible result, but not yet a
given. The main calculus is where Miroslav Kalousek believes
he will come out ahead: with his hand strengthened in a
government headed by a weakened Gross; or outside the
government clearly aligned with his future coalition partner,
ODS; or perhaps calling the shots behind the scenes of a
government of technocrats. On the other hand, Kalousek's
gambit may have unleashed forces that he did not expect:
even if Kalousek really is satisfied with putting Mrs. Gross
out of business, others (perhaps President Klaus) could use
the crisis to settle old scores. Much less likely is that a
wave of public disgust with government corruption will bring
down both Gross and Kalousek and many other leading
politicians. No matter what develops, it seems likely an
already weak government will be replaced by a weaker one.
This will have an impact on our priorities here. An early
indication: opponents of the economic reforms championed by
Deputy Prime Minister Martin Jahn -- who, as an independent,
depends on Gross's political support -- have taken advantage
of the PM's distractions to increase their public attacks on
Jahn in recent days.
CABANISS