Billionaire's Government Facing Czech Party Referendum Test

(Bloomberg) -- Czech caretaker Prime Minister Andrej Babis’s plan to form a regular government seven months after elections is being put to its biggest challenge yet as his potential coalition partner started a party-wide referendum on the tie-up.

The Social Democrats’ almost 18,000 members can vote between Monday and June 14 on whether to create a minority cabinet with billionaire Babis’s ANO party, which won October general elections but fell short of a majority. If the referendum succeeds, the two former coalition partners, which are largely vying for the same voters, expect to initially rely on support from the Communists. ANO’s first bid for a single-party minority government was defeated in a January confidence vote.

Babis, who is pledging to boost spending on pensions, teachers’ salaries, and road construction while fighting tax evasion, reached a deal with Social Democrat leader Jan Hamacek earlier in May. The tycoon is running out of options after his own party rejected a plan to govern with the tacit support from the far-right SPD party, which wants to take the country out of the European Union. Other parties are refusing to team up with Babis because he is under investigation for fraud. President Milos Zeman has ruled out early elections.

"The Social Democrats didn’t succeed in elections, and I’m convinced that the only way that voters can return to us is to convince them that we can do something for them," party leader Jan Hamacek said in the city of Plzen on Sunday, according to the Pravo newspaper. "And we can do that better in government."

Bumpy Ride

Hamacek’s opponents inside the party argue that teaming up with Babis while he’s under investigation could hurt them even more. That’s after the prime minister lured away a chunk of voters from the Social Democrats, who were the largest party in the previous government.

“The risks for the Social Democrats of this proposed coalition are huge, and the party may not get the 5 percent needed for parliamentary representation in the next elections,” said Lubomir Kopecek, a political science professor at Masaryk University in Brno, the second-largest Czech city. “If Babis wins the confidence vote, he won’t need the Social Democrats any more.”

Even if the referendum succeeds, the two-party administration will face a bumpy ride. ANO and the Social Democrats have a combined 93 lawmakers in the 200-member lower house of parliament, which means they’ll need to negotiate support of the Communists or another party for every law they’ll want to adopt, including the budget.

At the same time, surviving a confidence vote would give Babis room to make deals with any of the other eight parties in parliament to stay in power and prevent his rivals from mustering the absolute majority needed to oust him in a no-confidence motion.

The Communists, who say they are ready to help the minority government, have been piling on demands, asking the nascent administration to scrap its pledge to boost participation in military missions abroad.

“Given his close ties with the president, Babis can easily complete his full term even if the Social Democrats were to leave the government at some point,” said Kopecek. “ANO is united behind Babis and flexible, which means he can compromise and make ad-hoc agreements with different parties who will help him pass individual laws and get something in return.”

To contact the reporter on this story: Krystof Chamonikolas in Prague at kchamonikola@bloomberg.net

To contact the editors responsible for this story: Blaise Robinson at brobinson58@bloomberg.net, Michael Winfrey, Paul Abelsky

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