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Czech parliament set to confirm new govt in vote

Published 08/10/2010, 04:53 AM
Updated 08/10/2010, 04:56 AM

* Confidence vote for new centre-right govt after 1200 GMT

* Three-party coalition has strong majority in lower house

* 2011 budget next important task

By Jason Hovet and Robert Mueller

PRAGUE, Aug 10 (Reuters) - The new centre-right Czech government looks certain to win a confidence vote in the lower house on Tuesday, clearing an early hurdle as it seeks to push tough budget cuts and reforms through parliament.

The three-party coalition aims to deliver on an election promise to slash spending and improve a fiscal position analysts say is already among the best in central Europe.

That has made Czech government bonds and the crown safe havens in a volatile region.

But it must balance a 10 percent cut to the public wage bill and lower welfare benefits with an unemployment rate of 8.7 percent and worries that belt tightening may stifle an export-led recovery that has largely bypassed consumers.

The right-of-centre Civic Democrats, the conservative TOP09 and centrist Public Affairs have the largest majority of any government since the creation of the Czech Republic in 1993 after winning 118 seats in the 200-member lower house in May.

While the coalition has run into a minor dispute over which ministries will face the largest budget cuts, analysts say Prime Minister Petr Necas' government will easily win Tuesday's vote, a constitutional requirement for it to stay in power.

Clawing its way out of a 4.0 percent economic contraction last year, the government expects 2010 growth of 1.6 percent.

The next major task will be drawing up a 2011 budget, in which the coalition aims to cut the fiscal deficit to 4.6 percent of gross domestic product from 5.3 percent this year.

The government aims to hit European Union's 3 percent fiscal deficit ceiling by 2013, a goal it hopes will help keep in check an overall public debt burden of around 38 percent of GDP -- about half the EU average.

Prague's cost cutting contrasts with other countries in central Europe. In Poland, tough reforms are likely to be put off until after a general election next year while the new Hungarian government, defying the IMF and the EU, is looking to soften next year's budget goal.

Public Affairs initially opposed plans to freeze ministries' spending to help meet the 2010 budget target. October municipal and Senate elections may also cause extended budget wrangling.

The government's commitment to austerity has been partly behind the crown's rise to 21-month peaks against the euro this month, while the benchmark 9-year bond yield has dropped to a lifetime low.

(editing by Paul Taylor)

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