As expected, the President has asked the leader of the winning party ODS (Civic Democrats), Mirek Topolanek, to form a new Government. Note that Topolanek will try to form a Government together with the Greens and Christian Democrats (KDU), which however, gives them only 100 seats (out of 200). Topolan should inform the president on the process by mid-next week. Topolanek also said that he is prepared to hold discussions with all parties expect for the Communists. We see a higher probability in formation of a little stable centre-right Government or a grand-coalition (ODS – CSSD) then early elections.
Therefore, neither radical right nor left reforms should be expected with concessions to be made by all parties. CSSD’s leader, Jiri Paroubek, said that he would support ODS’s Government only if it gave up flat tax, simplified pension system, overhaul of the healthcare system and sale of public companies, including CEZ. We repeat a slight positive impact on CEZ given the removal of the risk of fast capital market’s privatization (ODS) as well as the risk of electricity price control (CSSD and Communists). Zentiva should potential benefit from any, even the mildest, healthcare reform given the support of domestic generic producers by all parties. Banks should be also positively affected by removal of Government’s regulation of the banking system (CSSD).