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Pension reform hit as Czech PM resigns

CZECH REPUBLIC – The resignation today of Czech Prime Minister Stanislav Gross appears to have delivered a deathblow to attempts to accomplish pension reform before next year’s general election.

Gross resigned after allegations of impropriety relating to the financing of his purchase of a luxury apartment. The issue caused weeks of political instability during which coalition partners defected from the government.

“Any attempt at pension reform would now appear to be out of the question,” said Markéta Vylitová, a consultant at Mercer’s Prague office.

Social Democrat (CSSD) deputy leader Jiri Paroubek, 52, who was regional development minister in Gross’ government, has been named prime minister by president Vaclav Klaus.

Paroubek was seen as likely to head a reformed coalition consisting of the CSSD, the centrist Christian Democrats (KDU-CSL) and the Freedom Union-Democratic Union (US-DU) which will have a one-seat majority in the 200-seat lower house.

“This will probably only be a government that will lead the country to next year’s general election,” said Vylitová.

“But having said that, the new government lists a draft of the principles of the pension reform as well as the ratification of the European constitution, reduction of tax burden for low- and middle-income groups and the passage of the 2006 state budget among its priorities.

“And Zdenek Skromach, the minister of labour and social affairs – the department responsible for pensions – is staying and has quite a strong position.

“So if the new government starts work soon and regains support, there might even be a chance for progress on pension reform.”

Jiri Rusnok, a former finance minister who is president of the Czech Association of Pension Funds, agrees. “A revised coalition will be pretty weak in parliament and it will have a very short mandate before the next election, and it’s always difficult to assume that something as important as pension reform could be enacted just before an election.

“But because the situation is quite desperate for the Social Democrats they could be more flexible when seeking a consensus in parliament, although it is probably unlikely and I don’t suppose there’ll be any significant steps in this period.”

A cross-party agreement in the spring of 2004 saw the establishment of an expert commission to draw up proposals for pension reform.

The commission began work under then-premier Vladimir Spidla, who later resigned following a disastrous CSSD showing in the June 2004 European election and was named EU commissioner for employment and social affairs. Gross, only 34 when he took office, was expected to bring a youthful energy to the job.

He signalled that he was prepared to abandon the search for a consensus and use the government’s slim majority to push through a pension reform by the 2006 general election.

“The topic is quite advanced in terms of the depth of understanding and is increasingly perceived by the public as a hot topic,” says Rusnok of the pension association.

“I would say that the political environment is quite positive for movement on real steps, even before the election, because people are becoming increasingly aware that the retirement age will have to increase, that there will have to be cuts in the replacement rate.”

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