Election Results

The 2017 parliamentary elections continued the fragmentation of Czech politics. The good news is that more votes cast by Czech voters counted; 94% of the vote went to parties that will be represented in parliament (vs. 90% in 2013). The bad news, from the perspective of practical governance, is the number of parties represented in parliament has increased from seven to nine. The increase will make it hard to find a coalition of 101 votes to form a government, and even harder for that government to achieve major legislative reform. This might force the next government to focus more on improving how government operates than changing what it does.

That would suit the overall winner of the election, ANO, whose main theme has been to “run the government like a business”. ANO increased its vote total from 19% to 30%. The other big winner- the Pirate Party, which jumped from 3% (2013) to 11%- also ran on a theme of improved governance, particularly in the area of public procurement. The biggest loser was CSSD. The party dropped from winning the 2013 election (20%) to 7%. This contributed to the enormous decrease in support of established parties (parties represented in three or more parliaments since 1992) from 62% of the vote in 2013 to 37% in 2017¹.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Parties in gold are new to parliament (STAN had deputies in last parliament as part of a coalition with TOP09; some SPD deputies represented Usvit in last parliament).

Coalition Possibilities

ANO could form a majority government with ODS, or with numerous combinations of two to three other parties.

Some of the established parties- including ODS- declared before the election that they would not join a government with ANO. A path to a majority or minority government without ANO is very narrow. The results make it impossible to form a government without ANO unless the coalition includes the Communist Party and/or SPD², an anti-immigrant, anti-EU party. Bringing either party into a government or relying on their support for a government would reduce the credibility of the other parties claiming to act in the name of democracy.

The other options are an ANO-led minority government or early elections.

None of these options is viewed as significantly more probable than any of the others. The most probable is a ANO-led majority government. An ANO minority government is slightly less probable. Early elections are the third most probable outcome, but significantly less likely than the first two. The lowest probability is an anti-Babis coalition government.³⁴

The most likely outcome, therefore, is an ANO-led majority or minority government.

 

What is the impact on business

An ANO-led majority government or an ANO minority government are the only two probabilities considered here, as an anti-Babis coalition government seems improbable, and, if formed, entirely unpredictable and likely ineffective due to the number of parties involved. The differences in the approach of a majority and minority government led by ANO would not be large, and will be treated as the same unless otherwise indicated.

 

Overall

An ANO-led government would have a strong economic and business focus. There would be an attempt to simplify processes, reduce unnecessary regulation, invest in infrastructure related to the economy, and, in particular, improve the outcomes from government spending. If the government included ODS, there might be attempts to reduce the size of government. If the Pirates joined the cabinet, egovernment and better public procurement would likely be priorities.

 

EU

An ANO government would continue the long-term policy of skeptical membership in the EU. The government would not embrace any greater lasting commitment to the EU, including joining the euro, unless compelled by the EU. The government would not support further political or regulatory integration, but would not attempt to confront the EU or pass legislation contrary to acquis communautaire.⁵ It is highly doubtful that a Brexit-type referendum would be part of the government platform. An ANO-led government would likely aim to increase engagement with Brussels- particularly on matters of transport infrastructure- and improve the professional capabilities of the Czech delegation. Finally, an ANO-led government would likely modulate the country’s EU stance toward economic policy back toward the market liberalization favored by previous center and right-wing governments.

 

Immigration

An ANO-led government would draw a sharp distinction between economic immigration and political refugees. It would likely increase the number and accelerate the process for skilled and unskilled labor from Slavic countries and other Central Asian Republics. The current policy of gentle, but stiff resistance to political refugees from Syria and other Middle-Eastern countries would likely continue.

 

Research

ANO would like to revamp the way the country spends public money for research in order to deliver results that have tangible benefits for the country. They plan to set policy goals for spending, evaluation of research teams using public funds, and integration of research capacity to avoid unnecessary duplication. They would like to stimulate greater private investment into research through these changes. Achieving these aims will depend on the coalition partner. Their current coalition partnersCSSD and KDU- resisted such change. Mr. Fiala, the ODS chair, would feel great pressure from his former colleagues in academia- and the Academy of Sciences to maintain the status quo. The Pirates, Top 09, STAN, and SPD might be more open to embracing the entirety of ANO’s proposals.

 

Taxation

Improving collection through strict enforcement tools will remain a priority for ANO and Mr. Babis. The government would likely focus on debt reduction first and tax reduction second. Some consideration of lowering the top VAT rate could be expected. The government might try to simplify the personal income tax by eliminating the super-gross salary assessment and introducing a progressive system with two or three bands.

 

Transport Infrastructure

An ANO-led government could be expected to continue its reform of the Highway Department and the modernization (not privatization) of the state-owned railways. Priority would be placed on international connections, especially on the European high-speed rail network and integrating the Prague Airport into the public transit network. Attempts at being a leader in autonomous driving regulation and infrastructure is also a real possibility.

 

Health Care

The primary aim of an ANO-led government in health care will be greater control of how money is spent in the system. Performance measures for hospitals and other providers will be proposed (and resisted).Centralized purchasing will also be a priority (and also resisted). Since many of ANO’s priorities would require legislative reform, their progress can be expected to be incremental, not exponential.

 

Education

An ANO-led government can be expected to attempt some reform of education aimed at increasing the number of STEM graduates and improving science and math scores. The principles of that reform will depend on the individual selected as minister⁶, but one area that will be studied is reform of teaching standards, with steep increases in pay serving as an incentive to bring teachers to the table. 

 

Investment Incentives

If ANO controls the Ministry of Industry and Trade, investment incentives can be expected to be radically changed and CzechInvest re-organized. The scope of incentives could be reduced and concentrated on research-related activities. The activities of CzechInvest could also be reduced, and its work may be integrated with other agencies. Other subsidy programs will also be reviewed and could be revamped.

 

Environment

There is no reason to expect any change in the policies or leadership of the environmental ministry.

 

Justice

The governance of the police and judiciary will likely be the most contentious area for the next government, because of the controversy surrounding police reform in the previous government and Mr. Babis’ alleged misuse of EU subsidies. An ANO-led government will feel pressure from critics to change the outcome of police reform, but can expect a major outcry from political opponents and a suspicious public if it tries to make significant changes. Improvements in administrative performance of the courts seems possible; major reform may need to wait until later in the term- if success has created enough political capital- or for the next government.

 

Is Mr. Babis a threat to democracy?

Political rivals have stated that Mr. Babis is not democratic⁷, and have formed an undefined an informal coalition of political parties which have stated they will not join a government headed by him. Their views have been echoed by several political pundits, academics and other influencers of public thought. This criticism has found its way to Brussels and Washington, as well as into the international press. It is, therefore, necessary to examine how credible the concern is or could be. 

The complaints seem to stem from three matters. One, Mr. Babis owns mass media with a significant share of the market⁸ Two, he serves a chair of the ANO political movement, and its rules appear to give him at least veto power on decisions concerning personnel and policy. Three, he was stripped of his immunity to face criminal charges concerning misuse of EU funding⁹. Other criticisms seem to be derived from stories about his business practices or assessments of his character and supposed motivations.

Mr. Babis has more instruments of private and public power than any other individual in the country, and this election potentially will give him the prime ministership. That gives him the potential to be a threat (as it would anyone with the same power).

As of today, whether he has acted democratically or not can only be judged on his behavior as deputy prime minister and finance minister. As Deputy Prime Minister, Mr. Babis acted within the confines of the coalition agreement. As Finance Minister, he fulfilled the priorities of the coalition agreement. When the government overrided his very strong concerns about police re-organization, he accepted the decision and abided by it.10 When the prime minister asked for his resignation from the cabinet, he initially challenged the decision on legal grounds, but accepted it and resigned once expert interpretations sided with the prime minister. He kept his movement in the government after his resignation. There is no record of any ANO minister flouting a parliamentary decision, an edict of the court, the rulings of other agencies of government, or of Mr. Babis pushing for such an action.

ANO deputies did not vote as a bloc on many issues, and several deputies have reported that Mr. Babis pressured them only on matters seen as key to the party. No cases of Mr. Babis disciplining dissenting deputies is known.

Ministers who represented ANO in the government also report that Mr. Babis delegated full responsibilities for their activities, and became involved only when an issue became controversial in the media, or important to ANO’s priorities in government.

Mr. Babis has a reputation in business as a shrewd and ruthless negotiator, and as a very demanding micro-manager of his businesses. Rumors and accusations of his unfair practices are numerous, but none have been judged illegal by a court.

 

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¹Turnout (61%) was average for the last five elections. The voting totals for the top two parties (41%) was higher than for the 2013 elections, but significantly lower than for the 2002 (55%) and 2006 (68%) elections. The 2017 election differed from the past four elections in that only one party received more than 15% of the vote. In fact, only the 2013 and 2017 election did not have two parties with 20% of the vote or more.

²ANO and SPD total 100 deputies combined out of 200 deputies. If all deputies are present, a government must be
supported by 101 deputies. This means a coalition without ANO would require either the participation of SPD or all
the other parties to form a coalition and at least one SPD deputy to leave the Chamber.

³This assessment is based on two motivations for each party to form a government. The first motivation is similarity of  political party platforms. The second motivation is the need to protect networks of party members within the government and serving on the governing bodies of state-owned companies. ODS, TOP 09, STAN and KDU all share some, but not all, of ANO’s economic and governing principles. The Pirates share Mr. Babis’ stated aim to eliminate clientelism and corruption, especially in state contracts. CSSD, ODS, KDU and TOP 09 have networks of officials who are either party members or appointed by their party throughout key ministries, agencies, and state-owned companies. Mr. Babis has declared his intent to rid the state of such networks. The similarity in platforms provides a justification for negotiations; the desire to protect networks provides an incentive. The most certain means of protecting those networks is a majority, coalition government.

⁴This assessment does not factor the personalities and conflicts between personalities involved in coalition negotiations because it is too complex, and some of the personalities too unpredictable. A brief overview: Mr. Babis’ style alienated many fellow politicians (including the leadership of the current coalition partners); the leadership of CSSD may change quickly due to the election loss, however. Mr. Babis and Mr. Fiala (ODS) have such a conflict of personality (and, according to Mr. Fiala, principles) that they cannot negotiate. Mr. Babis and Mr. Kalousek (TOP 09) have a publicly contentious relationship: both men, however, are pragmatic dealmakers. Mr. Babis and STAN appear to have major conflicts. Given this palette of personal relationships, Mr. Babis likely will favor negotiating with the Pirates, coaxing a change in the leadership of CSSD and ODS in order to bring them to the negotiating table, and, only if their votes are needed, hoping Mr. Kalousek (who has resigned as party chairman and will be replaced in November) or Mr. Belobradek (KDU) sees government as the pragmatic destination of their party. The more of these options he can make plausible, the less he will have to give up to form a government.

⁵Mr. Babis has been criticized in the international press as opposed to the EU in the vein of the leaders of Hungary and Europe. This has not been reflected in his choices for EU Commissioner, Vera Jourova, or her activities as commissioner. It is also not reflected in the activities of ANO’s MEPs. Mr. Babis’ business interests lie in the European Union: while most of Agrofert’s holdings are in the Czech Republic and Slovakia, he also has companies in Germany, Hungary, the Netherlands, and Poland. It should be noted he has no business interests east of Slovakia. As Finance Minister, Mr. Babis participated actively in the Council, and his expressed disappointment concerned how new countries are treated. His actions to date demonstrate more the usual national griping about the EU than the more extreme sentiments of British, Hungarian or Polish leaders, or even his political rival, Vaclav Klaus. 

⁶No clear favorites exist, but the choice is likely to be an expert not affiliated with the party.

⁷These opinions have been echoed in the international press. Mr. Babis faces three analogous assumptions that may bias individuals without direct knowledge of his practices. First, he became rich in an industry heavily regulated and subsidized by the state with a company he privatized from the state; this had led many to accuse him of corrupt practices. Second, he is a rich businessman in the former Soviet bloc with media holdings who is involved in politics: this has led to him being a labeled on oligarch (a term he strongly rejects). Third, he is a politician from Central Europe who has criticized EU decisions and decision-making processes (not the EU); this had led to him being put in the same category as politicians such as Viktor Orban or Vaclav Klaus. All three of these labels might prove accurate, but, so far, evidence is thin.

⁸His media holdings have published pieces critical of his actions in government, and did not ignore scandals involving Mr. Babis or the party. No credible survey of media bias exists in the country; all media have low public trust due to perceptions of political bias.

⁹He has regained his parliamentary immunity after the 2017 election, and has appealed the police charge to the prosecutor’s office.

¹⁰Mr. Babis argued that his coalition partner, CSSD, had not informed his party or the public of their plans for reorganization in a timely way, and that their changes could be seen as an attempt to prevent further investigation of corruption, including of CSSD.