3rd May 2017

Czech Government resigns: Grayling's guide to the new political situation

Yesterday, the prime minister Bohuslav Sobotka (Czech Social Democracy) announced that his coalition government will resign after a dispute with the finance minister Andrej Babiš, who leads the second largest coalition party ANO. While the latest development comes as a real surprise, the finance minister’s position has already been on shaky ground several times in the past.

Whether we recall the controversial “Čapí hnízdo” (Stork’s Nest) project, allegedly misusing money from European funds, or any of many operations carried out by his Agrofert Holding companies, Andrej Babiš has always seemed to be untouchable. He has never admitted that his actions could trigger his removal from the government. That was, until the latest controversy became the number-one issue for Prime Minister Bohuslav Sobotka.

What is it that has brought down the government? In 2012, Agrofert – one of Babiš’s companies – issued bonds worth CZK 3 billion in the form of “one-crown-bonds”. This sort of bond was income-taxfree in the Czech Republic until 2013. Agrofert wasn’t the only company to exploit this opportunity, but the issue here is whether Agrofert really needed that three billion. If it did not, this would constitute tax evasion. Company representatives, however, claim that Agrofert was preparing for expansion and investment.

Leaving aside the fact that the company used a tax trick just two years before its owner became a tax-evasion mouthpiece and a finance minister intent on making tax collection more effective, the main problem came to light just a few days later: Andrej Babiš’s income simply wasn’t enough to buy those bonds. Ever since then, the finance minister has been unable to provide a credible explanation as to where he got the money he used to buy the bonds.

A combination of this latest headache and all previous controversies made the prime minister realise that a government with Andrej Babiš in it was no longer feasible. Unfortunately, the prime minister also knew that the high popularity enjoyed by the ANO movement in regular polls would increase even more if Babiš were allowed to play the martyr. The only logical step for the prime minister was to resign, which in the Czech Republic means that the whole government ends. Some say it’s a bold move, some call it cowardice. Whatever it is, the president has now been called into action. 

Source: Grayling


Read also a commentary published in Ekonom/ on ihned.cz.

Members of the American Chamber of Commerce in the Czech Republic