US embassy cable - 05PRAGUE822

C O N F I D E N T I A L SECTION 01 OF 03 PRAGUE 000822 
 
SIPDIS 
 
E.O. 12958: DECL: 05/23/2015 
TAGS: PGOV, PREL, ECON, EZ 
SUBJECT: NEW CZECH GOVERNMENT: GOOD FIRST IMPRESSIONS 
 
REF: A. PRAGUE 720 AND PREVIOUS 
     B. PRAGUE 707 
 
Classified By: Deputy Political Counselor Mark Canning for reasons 1.4 
b+d. 
 
1. (C) SUMMARY: New Czech PM Jiri Paroubek, who won a vote of 
confidence on May 13 (ref A), has gotten off to a stronger 
than expected start.  His foreign policy looks to be a 
continuation of that of the previous Gross Government, marked 
by support for transatlantic policies.  Notwithstanding his 
lack of foreign policy experience, a thin one-vote majority 
in parliament and his own reputation for deal-making at 
Prague City Hall, Paroubek stood down efforts by left-wing 
CSSD deputies to have a more "pro-European" (less 
pro-American) foreign policy and to bring back UN Ambassador 
Kmonicek -- and close protege of former FM Kavan -- as the 
new First Deputy Foreign Minister.  The new government's 
program sets out a significant list of priorities, but most 
of these are not likely to be fulfilled during the twelve 
months remaining until the next general election.  Paroubek 
has acknowledged that he wants to focus his government's time 
in office on the passage of the EU Constitutional Treaty, 
limited economic reforms and xxxxxxx, with the former the 
overriding priority.  We expect several politically popular 
steps on social policy before the election; progress on 
pressing economic reforms is unlikely, although Paroubek 
continues to list passage of a bankruptcy law and conflict of 
interest law as top priorities.  In his early weeks Paroubek 
has deftly avoided several potential pitfalls and imposed 
discipline on the government that had been sorely lacking in 
recent months.  Nevertheless, the potential for corruption 
allegations to be made public concerning his time as Deputy 
Head of the Prague City Hall with responsibilities for city 
contracts are a vulnerability that may be exploited by the 
opposition/media, although that has not yet occured.  END 
SUMMARY 
 
KEEPING THE DIRTY LAUNDRY IN THE LAUNDRY ROOM 
2.  (SBU) Paroubek was tested early, in his first few days in 
fact, when he first sacked the woman he had brought with him 
from the Ministry for Regional Development to be the 
Government's press spokeswoman.  In another instance, his 
Justice Minister and coalition partner Pavel Nemec publicly 
challenged his Attorney General, Marie Benesova, over a case 
involving a Qatari prince accused of sex with under aged 
girls.  This is a serious case, involving allegations of a 
bribes in exchange for extradition, and Paroubek took the 
necessary steps to impose discipline on his subordinates and 
kept the matter in the courts, where it is being investigated. 
 
NEW GOVERNMENT - OLD FOREIGN POLICY 
3.  (SBU) Paroubek also deftly handled the attempts by CSSD 
left-wing deputies Jan Kavan and Vladimir Lastuvka to 
pressure the new Prime Minister into giving them greater 
influence over foreign policy in exchange for their votes of 
confidence (ref A).  Paroubek agreed with their request that 
a CSSD appointee become the second in command at the Foreign 
Ministry, but rejected attempts to fill the slot with Kavan 
protege Hynek Kmonicek, current Czech UN Ambassador and a 
sharp critic of FM Svoboda.  Instead, current Czech 
Ambassador in Moscow Jaroslav Basta will take the job, with 
Svoboda's approval, this summer; portfolios for the new 
deputy ministers have not been determined). 
 
4. (C) The foreign and security portions of government 
program, approved as part of the May 13 vote of confidence, 
are nearly identical to those of the Gross government.  More 
important are the personal assurances by Paroubek and nearly 
all senior officials that there will be no significant 
changes in foreign policy under Paroubek.  Several MPs, 
including Kavan himself, Milos Titz, (CSSD - Security 
Committee) and  Jaromir Talir (KDU-CSL Parliamentary Club 
Chair), all told Poloff the same in recent days.  Kavan: 
&there will be no change; there is no need for change.8 
Talir: "No change."  Titz: "Absolutely no change."  Kavan 
went on to say that he thought former PM Gross knew little 
about foreign issues and went along with whatever suggestions 
Svoboda made in order to keep his coalition partner happy. He 
thinks Paroubek  knows more about foreign issues, and will 
get involved from time to time.  An early example of 
Paroubek's role in foreign policy was his announcement during 
a press conference with British PM Tony Blair in London May 
23 that he wants Czech military police who are now training 
Iraqis near Basra to stay in Iraq after their mandate runs 
out on December 31, 2005. 
 
EU CONSTITUTION: COMPROMISE WITH THE OPPOSITION? 
6.  (SBU) Getting the EU constitution ratified is Paroubek,s 
&Superpriority.8  The Czech Republic is the only country 
that has not decided whether to use a popular referendum or a 
parliamentary vote to ratify the document.  Under Gross, the 
Social Democrats proposed seeking authorization for a 
referendum on the constitution as part of a bill that would 
make it easier for the government to call for a referendum on 
other topics in the future, but ODS opposed this. ODS prefers 
a bill authorizing a one-time referendum on the issue (in 
either case, a constitutional majority is required, so the 
coalition requires some ODS support).  On the other hand, ODS 
would like the referendum to take place this fall.  The 
ruling coalition, seeing the referendum as a chance to pry 
some pro-EU voters away from ODS, and also to increase 
turnout among pro-EU CSSD voters, would like any referendum 
to coincide with next June's elections.  Paroubek has taken 
the first step towards a compromise, agreeing to limit the 
request to a one-time referendum, and called on ODS to accept 
the June timeframe.  Both sides have shown little willingness 
to abandon their positions, making it likely that the EU 
Constitutional Treaty's ratification will be handled by the 
parliament by default. 
 
OTHER PRIORITIES - UNFINISHED BUSINESS FROM PREVIOUS 
GOVERNMENTS 
7.  (U)  Paroubek has just over a year to achieve enough to 
turn around the sagging fortunes of the Social Democrats, 
whose polling numbers have fallen into the high single 
digits. Among the other items mentioned as government 
priorities are new laws on bankruptcy and conflict of 
interest. 
 
8. (SBU) Gross, former economic advisor and CSSD MP Jan 
Mladek thinks Paroubek will succeed in passing a new 
bankruptcy law, which remains a top priority for the business 
community, and one that the embassy has strongly supported. 
Mladek explained that opposition to changes in the current 
bankruptcy regime have been led by the bankruptcy 
administrators, primarily lawyers.  There is support for 
reform in this area within the ruling coalition and 
opposition ODS, but still the window for cooperation between 
these two groups will close in the coming months as the 
summer 2006 elections begin to loom on the horizon. 
 
9. (SBU) Passage of a new conflict of interest law seems less 
certain.  The drafts that are being considered are, according 
to Mladek, targeting ODS, which controls most of the regional 
and municipal governments, where the majority of contracts 
are let.  ODS also has the best contacts among construction 
firms, and is therefore in the best position to benefit from 
overpriced or unnecessary construction projects.  One aspect 
of the debate taking place in parliamentary circles is how 
far down the political totem pole the mandatory disclosure 
requirements should go.  In smaller and medium-sized cities, 
many officials are part-time members of the government and 
full time businessmen who would give up the former rather 
than make their business affairs public. The cabinet has 
passed a draft of a conflict of interest bill that doesn't 
require the spouses of political figures to disclose their 
assets.  The draft now goes to parliament.   Deputy State 
Prosecutor Jaroslav Fenyk told the Embassy May 13 that he 
thought there wasn't time during Paroubek's term to pass 
meaningful conflict of interest legislation.  And he argued 
that since ODS strongly opposes any strengthening of the 
government's role in fighting corruption, it is somewhat 
unlikely that it will be passed during the next government's 
term in office either. 
 
10. (SBU) There is little expectation that this government 
will tackle any of the serious economic reforms identified in 
the government program, including health care, pensions, and 
tax reform.  The latter has the potential to be a political 
hot potato in the run-up to next year's election, with ODS 
loudly touting its flat tax proposal (ref B), and CSSD 
equally loudly claiming this would disadvantage lower income 
citizens.  More likely in the run-up to the election are the 
sort of populist reforms that the Gross government also 
favored, including public support for newlyweds and young 
families, increased wages for police and other influential 
groups, and support for public housing.   In the health care 
sector, where U.S. and other foreign pharmaceutical firms are 
complaining of unfair treatment, we are encouraged that 
Paroubek has decided to play an active role in overseeing the 
work of the Health Ministry, but will need to remain engaged 
to ensure that Paroubek hears the investors' arguments. 
(Note:  Ambassador has not yet been able to schedule his 
initial call on Paroubek.) 
 
11. (C) Comment: In contrast to the inactivity and public 
posturing that marked the prolonged crisis that led to PM 
Gross's resignation, the relative lack of public infighting 
between coalition partners and within CSSD itself has 
represented a real changeis striking.  Gross's  nemesis, 
KDU-CSL Chairman, Miroslav Kalousek, has been almost 
invisible (as has Gross himself, who retains the position of 
CSSD Chairman)giving Paroubek some more breathing space than 
his predecessor, who had to struggle with his ruling 
coalition allies.  With a strong Czech economy (GDO growth 
around 4% annually) and a seemingly restored ruling 
coalition, there is already a move underway within the CSSD 
to have Paroubek lead the party in the next elections. 
Paroubek's biggest vulnerability, however, is his service as 
Deputy Head of the Prague City Council, where he was in 
charge of city contracts and where he earned a reputation for 
corruption as a deal-maker.  If credible allegations of 
corruption were to be made public -- and this is a real 
possibility -- this could seriously impair the government or 
even bring it down.  It would also foreclose the chances of 
Paroubek replacing Gross at the CSSD's helm.  The ODS is 
widely expected to win the 2006 elections by a fairly sizable 
margin, but a year is a long time in politics and Paroubek is 
already showing signs that it could be premature to write off 
CSSD. 
CABANISS