PRAGUE (Reuters) -- Czech Prime Minister Mirek Topolanek's minority center-right government has lost a vote of confidence, forcing it out of office and undermining policy-making during the global economic downturn.
Topolanek said he was ready to resign, although the opposition Social Democrats said before the vote that his government could stay on to complete the EU Presidency, which the Czech Republic holds until the end of June.
It was the third government collapse in Eastern Europe this year after the leaders of Latvia and Hungary stepped down after their economies were hit by the financial crisis -- though Topolanek's defeat was more to do with domestic wrangling.
The Czech Republic has been less affected than some of its eastern European neighbors by the financial crisis, and despite the political turmoil the crown currency has held broadly steady after recovering from a drop earlier this year.
The crown dipped just 0.4 percent to 27.09 to the euro after the vote.
The three-party ruling coalition, weak since its 2007 appointment due to a lack of a parliamentary majority, lost by one vote after several defectors from its camp supported the left-wing opposition.
But opposition Social Democrat leader Jiri Paroubek told a news conference ahead of the vote that "this government can continue for some time as a government in resignation; it can complete the Czech EU Presidency or its substantial part."
The opposition has blamed the government for economic mismanagement. Paroubek said a government of nonpartisan experts could be formed in the summer to lead the country to early polls in the autumn or next spring.
Regular polls are due in mid-2010.
Little Room For Maneuver
Topolanek said on March 23 early polls should be held in the summer if he was defeated in the confidence vote and if there was no agreement on a new government.
Given the split parliament, it will be very difficult to form a new cabinet without an agreement of the main rivals, Topolanek's right-wing Civic Democrats and the Social Democrats.
The Social Democrats lead opinion polls, but their margin over Topolanek's Civic Democrats has narrowed to 4.5 percentage points in the latest survey released last week.
The Social Democrats have promoted more tax-and-spend policies and rejected plans to reform the health sector.
But analysts say their margin for maneuver would be limited by their desire to join the euro zone, although no date has been set for euro entry.
The stringent economic requirements for euro membership, combined with the fact that interest rates are set by the independent central bank, would curtail any major impact on policy of a change of government.
Reflecting this, financial markets have largely shrugged off the political uncertainty. The crown has gained 10 percent from a low seen in mid-February and outperformed other Eastern European currencies.
Although the Czech economy has suffered from a slump in exports, its banks have needed no bailouts, the public has been calm and Czechs are not heavily exposed to foreign debt.
The Social Democrats are heavily in favor of EU integration. They also oppose U.S. plans to build a missile defense radar in the Czech Republic.