Czech Social Democrats look to protest party to form government

Reuters

* Social Democrats win election by slim margin

* Leader sees cooperation with ANO and Christian Democrats

* ANO emerges as second strongest party in lower house

* Talks on forming new government could take months

By Jason Hovet

PRAGUE, Oct 27 (Reuters) - The Social Democrats will look tonew centrist party ANO to help form a government after narrowlywinning a Czech election that punished the establishment forsleaze and budget cuts, their party leader said on Sunday.

Bohuslav Sobotka faces the difficult task of cobblingtogether a majority after seven parties won seats in a nationalelection on Saturday, while taming voices in his party thatblame his leadership for a suprisingly weak election showing.

Talks could last several months and the country is likely tostart 2014 with a provisional budget, which limits spending tothis year's levels.

A quarter century after the fall of Communism in the 1989"Velvet Revolution", Czechs have grown disillusioned with theirpolitical class and used their vote to rail against establishedparties that have been stained by corruption scandals.

The Social Democrats had high ambitions after seven years inopposition but only won 20.5 percent of the vote, the lowesttally of any winner in the country of 10.5 million.

Centre-right parties that ruled until their cabinetcollapsed in corruption and spying allegations in June suffereda crushing defeat and said they would be in opposition.

But instead of the left, the benefactor of voters' anger wasthe anti-corruption group ANO, founded two years ago by billionaire businessman Andrej Babis, likened in the media toItaly's Silvio Berlusconi.

ANO, which describes itself as a centrist party but has aleader who emphasises a pro-business focus, emerged as thesecond strongest party, putting it in a king-maker role in thecentral European country.

Sobotka, a former finance minister, said he would talk toall parties, but added that ANO and a traditional small centristparty, the Christian Democrats, seemed to be logical partners.

"Mathematically, there could be a centre-left governmentwith some form of cooperation with ANO and the ChristianDemocrats," Sobotka said on a television talk show.

"I think the Social Democrats should focus on these talks."

Sobotka's Social Democrats won 50 seats in the 200-memberlower house versus 47 seats for Babis's party. The ChristianDemocrats won 14 seats.

MOOD CHANGES

The Social Democrats said they could agree with ANO onanti-corruption measures, such as laws requiring the publishingof public contracts or forcing politicians to declare theirproperty.

But they will struggle to follow through on plans to raisetaxes for high earners and utilities, telecoms companies andbanks because of ANO's opposition to tax hikes. Babis is alsocooler on euro adoption than the pro-European Social Democrats.

As election results trickled in on Saturday, Babis said hewas against joining a government. On Sunday the mood seemed tohave changed, although ANO has not yet committed to joining aSocial Democrat-led government or supporting it in a minoritycabinet.

"We are ready to talk if someone asks us to," said MartinStropnicky, deputy ANO leader. "When you win 19 percent, you arein a different situation than if you have 12 or 6."

The fragmentation of the lower house has dashed Sobotka'shopes of forming a minority cabinet supported by the Communists,and any coalition would thus be closer to the political centre.

President Milos Zeman, who has the right to appoint primeministers and will play an important role in the talks, said onSunday he expected it could take two to three months to put anew government in place. The parliament will convene on Nov. 25.

Financial markets have largely ignored the election but longcoalition talks could unsettle investors. Local markets areclosed on Monday for a state holiday.

Zeman, a former Social Democrat who has had a long rivalrywith Sobotka, angered parties in July when he pushed through acaretaker cabinet made up of his allies which will continue torule the country until a new government is formed.

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