US embassy cable - 05PRAGUE232

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