Everything you need to know about the extraordinary election underway in the Czech Republic

Czechs are already voting in the election, as the beleaguered PM Andrej Babis attempts to hold on amid allegations of corruption, Covid-19 mismanagement and a potential economic time bomb.

On October 8-9, Czechs will vote in a parliamentary election with many parties duking it out. 

The main fight, however, will be between the ruling centrist ANO (‘Yes’) party, the center-left two-party coalition of the Pirate Party and the Mayors and Independents, and the center-right three-party SPOLU (‘Together’) coalition of the Civic Democratic Party (ODS), Christian Democrats (KDU-CSL) and TOP 09.

Other contending parties are Freedom and Direct Democracy (SPD), who are expected to make the parliamentary threshold, as well as the Czech Social Democratic Party (CSSD), the junior party in the current government, and the Communist Party of Bohemia and Moravia (KSCM), who have held together the current minority government through a tolerance agreement. 

This election is essentially a referendum on the leadership of Prime Minister Andrej Babis, having been in his current post since 2017 and before that finance minister from 2014. Babis was an extraordinarily successful businessman before entering public office and one of the country’s richest men, according to Bloomberg, with an estimated net worth of $3.4 billion.

Babis was born and raised in Slovakia, when it was part of Czechoslovakia, but moved to the Czech Republic after the Velvet Revolution. He made his fortune from his business conglomerate, Agrofert, which operates in many industries including agriculture, food, chemicals, construction, logistics, forestry, energy and two of the largest Czech newspapers, Mlada fronta DNES and Lidove noviny. 

The story of his rise in business, much like his rise in politics, is shrouded in mystery with clear signs of the corruption and clientelism that was endemic to post-Soviet countries in the ‘90s. Numerous allegations have been hurled at Babis over abusing his public office for personal gain. 

Andrej Babis’ controversy-ridden leadership

One allegation, the so-called ‘Stork’s Nest’ case, claims Babis maintained effective control of a company that received a €2 million subsidy from the EU Regional Development Fund earmarked for small businesses to build a farm and convention center. 

He was charged with fraud by the Czech police in 2017 while also being investigated by the EU’s European Anti-Fraud Office (OLAF). His parliamentary immunity was lifted on two separate occasions, which advanced the criminal proceedings, until Babis replaced the-then minister of justice with his ally, Marie Benesova, sparking the largest protests in the country since the Velvet Revolution in mid-2019. 

In addition, Babis’ son, Andrej Babis Junior, was allegedly disappeared to Crimea under the direction of his father in order to keep him quiet about the fraud inquiry for which he apparently has key information. Babis denied the kidnapping allegations, but did say that his son left the country and apparently has a mental illness. 

At Babis' campaign launch in Usti nad Labem last month, Babis Junior resurfaced and confronted his father, telling reporters that he was ready to testify against him and that he would hand in a professional assessment to police proving his mental competence.

Another issue is Babis' alleged conflict of interest. His aforementioned business empire has a hand in nearly every sector of the Czech economy, and is therefore a large recipient of EU funds. This immediately draws into question whether he is personally profiting from his duties in government

The European Parliament had pushed for a resolution that Babis did have a conflict of interest after a fact-finding mission in February 2020 coming to the conclusion that not only was he conflicted over his own business, but that the country lacked serious mechanisms to prevent such actions by government officials. 

An audit by the European Commission (EC) published in April 2021 likewise found the prime minister had a conflict of interest, and separately Supreme State Attorney Pavel Zeman had inadvertently admitted in court documents that Czech authorities acknowledged this to be the case. 

Previously leaked versions of the audit had also been a major impetus for the large-scale protests that were brought to a halt by the ongoing Covid-19 pandemic.

As far as the latest developments of this case, it has since been sent over to the newly established Luxembourg-based European Public Prosecutor’s Office (EPPO) – and it’s expected that they will make a determination in the coming weeks over whether or not to prosecute Babis.

Babis was also among some 300 Czech nationals named in the Pandora Papers. The investigation alleges Babis transferred nearly 400 million Czech crowns ($18.2 million) through a group of offshore companies to buy an estate on the French Riviera. According to the papers, Babis did not declare the purchase. It did not say if he broke the law. 

Czech police, through the National Center against Organized Crime of the SKPV, have said they will launch investigations on every Czech implicated, including Babis.

Of course, Babis has denied every allegation leveled against him. He claims that his actions have always been consistent with Czech law. And, to be fair to his supporters – he has presided over a very prosperous period in Czech history, consistently among the lowest unemployment rates in the EU, rising wages and an overall increase in living standards. Of course, this success was upended when the Covid-19 pandemic hit the Czech Republic.

The Czech Republic’s peculiar fight with Covid-19 

The Czech Republic detected its first confirmed case of Covid-19 on March 1, 2020, and within 11 days implemented the first state of emergency in the country’s history that, five days later, led to a strict yet effective lockdown that virtually brought the virus’ spread to a halt. 

The government ordered mask wearing, introduced strict social distancing measures and limits on crowd sizes that were highly effective before other countries thought to do the same. 

This coupled with extensive help from abroad, particularly China helped the country quickly curtail its outbreak and begin reopening after Easter. Measures were heavily relaxed, masks were no longer required and people went about their lives pretty much as normal. 

Meanwhile, the government quickly decentralized its response to Covid-19, halted the regular meetings of its Central Crisis Staff and failed to stock-up on testing and contact-tracing supplies. 

By autumn, the government had no cohesive plan. It overruled top health advisers on reinstating a mask mandate in the summer, reopened shops ahead of Christmas, even though cases were soaring, and failed to sequence more infectious emerging variants. Society as a whole also lost patience with lockdown, and in October thousands of protesters converged in Prague, many sparring with police, calling for restrictions to end.

By spring 2021, the Czech Republic was facing one of the highest infection and death rates on the planet – and again under a seemingly unending lockdown. From one of the best in the world on the pandemic, to one of the worst thanks to clear mismanagement. 

As perhaps the greatest marker through this catastrophe, the Czech Republic went through four different health ministers. 

The first resigned to make way for his deputy who was more qualified, the second was replaced after he was found breaching the government’s own Covid-19 regulations, the third was replaced for unconfirmed reasons and the fourth resigned because of irregularities found in his tax filings. 

Then the first one returned again – but announced the day before the elections that he will become the Czech Republic’s ambassador to Finland starting on November 1. 

The absurdity of the Babis government’s coronavirus mismanagement, and the fact that so many people died, has been a major source of criticism for him in the elections. Despite it all, ANO is still leading in the latest polls – and there is a lot at stake, and plenty more drama that could take place.

Silent, but deadly, debt

One of the core domestic policy issues, which is hardly ever discussed, is the consolidation of the country’s public finances. Before the pandemic struck in March of last year, the country was on track to stabilize and reduce its national debt.

At the time, the finance ministry said that debt fell to 29.4% of Gross Domestic Product (GDP) in 2019, which was the lowest debt to GDP ratio in a decade. This gave the Czech Republic the highest total credit rating of any country in the Central and Eastern European (CEE) region, as well as an above average score compared to the Euro Area member states. 

But in order to finance the lockdown, the state raised its budget deficit multiple times to the largest in the country’s history, finishing at 367.4 billion Czech crowns ($16.7 billion). 

This was spurred by major revenue losses due to the shutdown of the economy, declining exports and income tax cuts, in addition to an array of government spending measures.

Public finances have not improved this year, as tax cuts went into effect, social spending increased with larger-than-envisioned increases to pensions, bonuses for workers in some sectors and state-sector salary raises.

At the end of September, the government approved a budget deficit of 376.6 billion crowns ($17.1 billion) for 2022, meanwhile a spring 2021 forecast by the International Monetary Fund (IMF) projects the Czech Republic to have the second-highest debt growth as a percentage of GDP in the EU in the period of 2021-2025.

The next government will have to deal with this issue – Czech law has a 55% debt brake that automatically forces budget cuts – but every political party has ruled out major tax increases. 

The Pirates-Mayors coalition wants to cap spending and put state deficits back on track to the EU-mandated 3% of GDP with some limited new taxes, for example on mining. The SPOLU coalition has pledged no new taxes, saying it can reduce deficits to 1.5% by 2025 with the help of EU funds and improved tax collection. For its part, the current ANO-CSSD coalition predicts a 4% deficit in 2024. 

No matter the outcome, some form of fiscal austerity will have to take place to avoid a drop in the country’s credit rating and a potential debt crisis. 

It’s the economy, stupid

In a June 2020 blog post for Policy Network, I explained that one of the main disadvantages facing the Czech economy is its predominantly export-led nature. The economy has already been battered and now the strength of its neighbors, like Germany, is crucial to its economic future.

The Czech Republic depends on industrial manufacturing, specifically the automobile industry, which employs a significant amount of the workforce. The ongoing semiconductor shortage is battering the auto industry, with the country’s flagship manufacturer, Skoda Auto, announcing ahead of the elections that it will reduce or halt production at all of its Czech plants until the end of the year due to the shortage. Despite unions negotiating a deal, workers will face significantly reduced hours and lower wages, which is a potential time bomb for the next government. 

Inflation is also sitting at 4.1% – more than twice the Czech National Bank’s tolerance threshold – which prompted the bank to double the two-week repo rate from 75 basis points to 1.5% in a bid to curb inflation this week, according to a statement by the bank. 

This was the biggest rate hike in 24 years, showing serious signs that the country’s monetary planners are worried about inflation. This will add fuel to the annual fiery discussion over whether or not to adopt the euro – something Babis specifically announced he wouldn’t do.    

What’s going to happen?

The latest polls, if they can be considered reliable in the wake of the Pandora Paper scandal, show that ANO will win a plurality of votes. President Zeman has already said multiple times that he would keep Babis as prime minister should his party win the most seats in parliament even if it means that he wouldn’t be able to form a viable government. 

It’s almost certain that the current government of ANO, CSSD, with support from the communists, will not survive since the latter two barely poll at the threshold to even be in parliament to begin with. Babis would have to find support from the right, which Paul Nuttall recently pointed out for RT could be with SPD. 

In order for this to happen, SPD chief Tomio Okamura said he would demand the cabinet propose legislation that could see a referendum in place on whether or not the Czech Republic should leave the EU; basically, ‘Czexit’. But this is highly unlikely. 

The most likely scenario at this point, based on polling, is that Babis maintains a caretaker government for a time until a deal is reached either with the Pirate-Mayor coalition or SPOLU. But both have explicitly campaigned against Babis’ alleged corruption, meaning a coalition government with either would force Babis to step down.

This could mean a compromise wherein ANO forms a coalition, Babis steps down (though probably maintains influence) and perhaps makes a bid for the presidency. After all, rumors are always circulating that President Zeman is unfit to be president because of his age (77) and health issues (he has recently been canceling public events). There is even speculation that the Czech senate could try to remove him from office on health grounds, which could mean that his successor may not appoint Babis, but this is all rumours at this point. In any case, he’s not even eligible for another term. This election would happen no later than January 2023. 

Or the EU could simply force a deal by taking Babis away in handcuffs and making an example of him. Regardless of how things turn out, it will certainly have ramifications for the Czech Republic and Europe as a whole.

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