Centre-left government to pay for reforms by increasing deficit

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The new centre-left government finally won a vote of confidence in parliament on Wednesday night for its plans to boost the welfare state and secure the Czech Republic's membership of the European Union in two years. The government has a one-vote majority in the 200-seat lower house, and will have a delicate balancing act staying in power for its full four-year term.

The new centre-left government finally won a vote of confidence in parliament on Wednesday night for its plans to boost the welfare state and secure the Czech Republic's membership of the European Union in two years. The government has a one-vote majority in the 200-seat lower house, and will have a delicate balancing act staying in power for its full four-year term. The Social Democrats won the election on pledges to create a strong welfare state, which it says it will fund by increasing the country's already burgeoning public deficit. That will certainly lead to tension with its junior coalition partners - the Christian Democrats and the right-wing Freedom Union - who want to trim public spending. The two sides have agreed to slowly reduce the size of the deficit, which has increasingly become a worry for investors. It's forecast to reach nearly six percent of gross domestic product by the end of this year.

By 2006, when the government's term is to end, the shortfall should be in the range of 4.9-5.5 percent of GDP, dashing investors' hopes that the country could adopt Europe's single currency, the euro, shortly after joining the EU. But nevertheless the new cabinet remains optimistic. Jiri Rusnok is the new Trade and Industry Minister, and was Finance Minister in the previous cabinet. He told me at the moment there was simply no alternative to a high deficit. But members of the two opposition parties in parliament were less optimistic. Martin Kocourek is an MP for the right-of-centre Civic Democrats. And Jaromir Kohlicek, an MP for the Communist Party, was even more sceptical when I asked him about the government's ambitious plans to jump on the euro train.