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The Czech koruna so far resistant to domestic politics

The Czech koruna so far resistant to domestic politics

15.10.2012 14:26

The Czech elections (regional and first round of Senate) brought unpleasant surprise to the ruling center-right coalition. Leftist Social Democrats (CSSD) was the outright winner, with 23.6% of the vote and victories in nine of the 13 regions, but it lost 75 seats in the regional assemblies, to 205. The Communists were the big winners in the regional elections. They took 20.4% of the total vote and increased their seats in the regional assemblies by 68, to 182. Meanwhile, the governing coalition won only one region.

The election results clearly strengthened the rebels in the largest coalition party (ODS). According to the Czech daily Pravo the rebels may be willing to bring down the government ahead of Presidential elections to help outgoing president Vaclav Klaus to reinstall its influence in ODS. Although it is only a speculation, the risk of early elections clearly grows in the Czech Republic.

The crucial test for the government comes at the end of the month, when the Parliament should vote once again on the controversial tax package. The government has decided to combine with the vote on the tax package the vote of confidence. Few days later there is the election congress of ODS, where the position of Prime Minister Petr Necas is going to be questioned.

The Czech koruna is typically not very susceptible to domestic political tension. At present, however, investors focus their attention, much more than in the past, on budgetary discipline, and an escalation of political tension (early elections) would certainly take the wind out of the sails of Czech bonds as well as the koruna.


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