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General elections held on the weekend showed a victory of the right wing Civil Democrats

General elections held on the weekend showed a victory of the right wing Civil Democrats

5.6.2006 9:01
Autor: Tomáš Gatěk, Patria Finance

General elections held on the weekend showed a victory of the right wing Civil Democrats (OSD with 35.4%; 81 mandates) followed by the Social Democrats (CSSD) with 33.3% votes (74 mandates), by the Communists with 12.8% votes (26 mandates), by the Christian Democrats (KDU-CSL; with 7.2% votes and 13 mandates) and finally the Greens with 6.3% votes (6 mandates). The result, however, creates a deadlock with the centre-right (ODS, KDU and the Greens) gaining 100 mandates while the left wing, CSSD with Communists having also 100 mandates.

The president is expected to ask the winning party, ODS to create a Government (there are three attempts), which needs to win the vote of confidence in the lower House of Parliament by 101 votes; after a third failed attempt, the president may call new elections.

We note that all of the centre right parties declared that they will not co-operate with the Communists under any circumstances while the President will not support any Government relying on Communists' support. On the contrary, CSSD's leader, Jiri Paroubek said he would like to have a Social Democratic Government back by the Communists.

There are three possible outcomes: (i) ODS will try form a centre-right 100-mandate Government, which however will by unstable an unlikely to win the needed vote of confidence, (ii) a grand coalition between the ODS and CSSD is created (iii) early elections.

We see the highest chance in the second scenario, i.e. a grand coalition between ODS and CSSD while the lowest in early elections.

The result shows that in any case, there would have to concession from both, right and left, therefore, we cannot expect any extreme right nor left reforms, hence the country's economic position shouldn't change.

Implications for Czech blue chips: the elections-most sensitive stock, CEZ are that, any privatization will not probably take place too soon as supported by the ODS and the form may not be stock market (ODS) while a risk of any interference into electricity price setting by the left (CSSD, the Communists) is eliminated too. Zentiva seems to be the winner as health care reform is acknowledged by both and support of generic producers is likely. The result is also slightly positive to banks, Komercni and Erste Bank given the lower probability of state regulation (CSSD). We also highlight the fact that the Communists have lost 6 p.p. from the previous elections in 2002. Therefore, any initial negative reaction reflecting the uncertainty should be short-lived.


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