US embassy cable - 05PRAGUE1203

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? 
--------------------- 
 
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. 
 
--------------------------------- 
NEW LEGISLATION & NEW SCANDALS? 
--------------------------------- 
 
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 
--------------------------------------------- -------------- 
 
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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