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Cablegate: Czech Political Deja Vu: Klaus, Corruption, and Backroom

VZCZCXRO2007
OO RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHPG #1153/01 2901434
ZNR UUUUU ZZH
O 171434Z OCT 07
FM AMEMBASSY PRAGUE
TO RUEHC/SECSTATE WASHDC IMMEDIATE 9719
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE

UNCLAS SECTION 01 OF 03 PRAGUE 001153

SIPDIS

SIPDIS

EUR/NCE FOR TRATENSEK

E.O. 12958: N/A
TAGS: PGOV PREL EZ
SUBJECT: CZECH POLITICAL DEJA VU: KLAUS, CORRUPTION, AND BACKROOM
DEALS

REF: PRAGUE 973

THIS CABLE IS SENSITIVE BUT UNCLASSIFIED. PLEASE PROTECT
ACCORDINGLY.

1. (SBU) Summary: The "cucumber season," as the slow summer season
is known in Czech politics, has come to an abrupt end with new
allegations of high-level corruption, as well as rising tensions
within the Green Party - and to a certain extent the coalition -
after the firing of one of the Greens' ministers. Early jockeying
for the upcoming presidential election also added a few weeks' worth
of drama in September, but the drama seems to have a foregone
conclusion: the reelection of President Vaclav Klaus. While
relations between PM Topolanek and CSSD leader Paroubek remain as
sour as ever, both appear to be inching toward some version of a
political cease-fire. A deal between the two could bring Paroubek
the coveted speaker's chair in the lower house of the Czech
parliament, in exchange for CSSD acquiescence - rather than outright
support - to ODS priorities like further reforms, missile defense,
and smooth EU presidency in 2009. End Summary.

Three Prime Ministers Under Scrutiny
------------------------------------

2. (SBU) In the past few weeks, Czech political circles have been
seized with stories about questionable financial dealings of several
leaders in both major parties, ODS and CSSD. PM Topolanek has been
in the headlines because of the less than transparent arrangements
concerning a Volvo SUV, which he has been seen driving for well over
a year. After initial obfuscations, Topolanek revealed that he had
borrowed the car initially and that his partner, Lucie Talmanova
(ODS, Deputy Speaker of the lower house of the parliament), bought
the car in the summer. Unsatisfied with this explanation, Czech
media continued to pursue "Volvogate" for several weeks, especially
given the apparent involvement of Marek Dalik, Topolanek's
ubiquitous and unofficial adviser, fixer, and the current eminence
grise of ODS politics. While the controversy is unlikely to weaken
Topolanek significantly, it has sapped some of the momentum he
gained from the passage of the reform package in August (reftel).
It has also derailed his efforts to patch up his relations with the
Czech press, which began in early September with regularly scheduled
press conferences and even chocolates being distributed to the press
corps. The chocolates have since disappeared, only to be replaced
by invectives and accusations from Topolanek that the press was
vindictive, corrupt, and Paroubek's attack dogs.

3. (SBU) In the meantime, CSSD has faced its own share of probing
questions regarding the less than transparent finances of its two
former prime ministers and party leaders - Jiri Paroubek and
Stanislav Gross. Paroubek's personal income became an issue
because his basic salary as a deputy in the Czech parliament barely
seems to cover his home loans, car payments, and living expenses.
The story continues to be fueled by Paroubek's creative accounting
and explanations, some of them contradictory. At one point,
Paroubek's CSSD colleagues even offered to open up their party's
coffers to help out their chairman with living expenses. Paroubek,
however, rejected the offer, realizing that such an arrangement
would only add to the media and public criticism.

4. (SBU) Topolanek and Paroubek's problems, however, pale in
comparison to those of Stanislav Gross, who was forced to step down
as prime minister in 2005 over corruption allegations. Gross, who
has worked for a law firm over the past two years, has apparently
failed to learn from his ignoble departure from high-level politics.
A public and political furor erupted over his acquisition and a
quick sale of shares of Moravia Energo, a Czech energy company. The
deal reportedly netted him over 100 million KC (over USD 5 million).
Gross has been unable to explain satisfactorily his new-found
wealth, and his investing activities are now being investigated by
the anti-corruption unit of the Czech police. Gross' CSSD
colleagues have been busy distancing themselves from their former
chairman and prime minister, but the incident will undoubtedly
impede CSSD's efforts to portray itself as the party that represents
and protects the interests of the common people. (Comment: It is
encouraging that the Czech press has pursued the three prime
ministers' stories with such energy. Corruption in Czech politics
is consistently cited by the Czech public as an issue of significant
concern. The increased press scrutiny, although an imperfect
deterrent, should at the very least put Czech politicians on notice.
End Comment.)

The Greens' Short-lived Rebellion
----------------------------------

5. (SBU) The early October departure from the cabinet of Education
Minister Dana Kuchtova precipitated a public war of words between
the different factions within the Green Party (SZ), but proved to be
no real threat to the current coalition. Kuchtova, who is a popular
leader within the SZ, resigned under pressure from PM Topolanek and
others in the coalition principally because she failed to submit an

PRAGUE 00001153 002 OF 003


acceptable program for EU funding of Czech education and research.
However, as Kuchtova's supporters within the SZ would correctly
point out, she could not have been forced out without SZ Chairman
Martin Bursik's acquiescence and her record with regard to securing
EU funding was no worse than that of other ministers. While true,
these contentions did not take into account the fact that the
Ministry of Education was being mismanaged under Kuchtova to the
point of losing a number of managers and experts in various fields,
including those with experience in securing and administering EU
funds.

6. (SBU) While the SZ rebels initially called for the party to
leave the coalition, the party's mini-rebellion ended with little
more than an airing of the Greens' dirty laundry. At the October
6-7 meeting of the party's executive committee, Bursik managed to
reassert control over his restive, leftist base, and secured
continued participation of the SZ in Topolanek's coalition
government. Bursik publicly warned that if the SZ were to leave the
government, the ODS could turn to CSSD and form a grand coalition or
repeat the opposition agreement of the late 1990's, which most
Czechs remember as the heyday of political corruption and backroom
deals. A grand coalition or a similar arrangement between the ODS
and CSSD could also agree to change the country's electoral rules to
the disadvantage of smaller parties like the SZ. Such arguments
helped Bursik quell the rebellion and push back against arguments
from some within his party that he wants to stay in the coalition
because he is enamored with the perquisites of power and not because
he wants to push the SZ agenda.

7. (SBU) Nevertheless, it is not clear that Bursik emerged stronger
from this fight. Some commentators have observed that the constant
infighting within the SZ weakens the position of their party's
leaders in the coalition. They point to KDU-CSL, the other small
party in the coalition, which has stood firmly behind its chairman,
Jiri Cunek, who continues to face corruption allegations and who has
also been a less than stellar Minister for Regional Development.
With his party's backing, Cunek has therefore been safe from serious
pressures within the coalition. Bursik has no such luxury, but some
speculate that he has been successful at channeling the pressure
from within the coalition to beat back the more militant wing of the
SZ. While Bursik has again demonstrated that he continues to have
the majority of the SZ behind him, periodic challenges against his
leadership will persist. Since this is the SZ's first stint in
government and parliament, many of its members are still learning
the art of governing and of compromising within a coalition.

Presidential Election Already Decided?
--------------------------------------

8. (SBU) The upcoming presidential election, due to be held in
February - March 2008, is beginning to look more and more like a
slam dunk for Vaclav Klaus. While the parties opposing Klaus'
reelection have floated various names of potential candidates, most
of those thus honored quickly withdrew from consideration.
Prospective "anti-Klauses," as they were dubbed in the press, simply
understood that without solid support from the other four parties in
the parliament, they would not get far. The possible entry into the
race of the SZ-proposed Jan Svejnar, a prominent economist and
professor at the University of Michigan, may make the election at
least slightly competitive. CSSD's Paroubek embraced Svejnar last
week, after initially rejecting him. The fact that Paroubek failed
to find a solid candidate of his own probably prompted this about
face. However, gaining support from KSCM and KDU-CSL will be
difficult for Svejnar, as Klaus has been carefully cultivating
support within those parties for quite some time.

9. (SBU) With so little competition, Klaus is almost a shoe-in, and
as a result, ODS may not need to expend too much political - and
other - capital to secure Klaus' reelection. Given the long-running
tensions between Topolanek and Klaus, having Klaus back in the
castle may not necessarily represent Topolanek's dream come true,
but in this case he has very little choice. According to prominent
ODS members, if Klaus were to lose his bid for the presidency,
Topolanek in turn would lose the confidence of many Klaus loyalists
who remain in the ODS. As a result, Topolanek would probably not
survive as ODS chairman and prime minister. However, even with
Klaus' reelection, Topolanek's future as prime minister is by no
means assured. Many speculate that in a time of crisis, Klaus would
turn to the current Prague mayor, Pavel Bem, to take over the reins
of government.

CSSD and ODS Rapprochement
--------------------------

10. (SBU) What appeared to be a shaky coalition in the early months
of its existence, has now stabilized and has even yielded the
passage of a tax and public finance reform bill that, although
controversial, has fulfilled a key plank in the ODS political
program. While Topolanek has thus managed to shore up his position
within the coalition and the ODS, Paroubek does not even control the

PRAGUE 00001153 003 OF 003


levers of power usually reserved for the head of the opposition and
chair of the second strongest party in the parliament. The
speaker's chair in the Lower Chamber has been occupied by CSSD's
Miloslav Vlcek largely because Paroubek overplayed his hand during
the negotiations following the inconclusive elections of June 2006.
Vlcek, whom Paroubek envisioned merely as a placeholder, has shown
no intention of vacating the job in favor of Paroubek. Even if
Vlcek would agree to go, Paroubek would need the support not only of
his CSSD and KSCM, but also of a few MPs from the other side of
aisle.

11. (SBU) Paroubek has signaled that he is willing to bargain for
this support, offering the Topolanek government a cease-fire before
and during the Czech presidency of the EU in the first half of 2009.
Such a deal could ultimately include more than just CSSD
cooperation on a smooth EU presidency, but also missile defense
(MD), for example. The MD agreements' passage through the
parliament will most likely depend on some level of support from
Paroubek's CSSD, since the ODS cannot count on full support from its
coalition partners. As unlikely partners as Paroubek and Topolanek
may appear, Czech politics has made for stranger bedfellows in the
past, so a deal between the two rivals is not unlikely. A
well-placed Czech senator recently told us that "Paroubek is a
businessman and he will listen" to an appropriate offer from
Topolanek.

Comment
-------

12. (SBU) As the CSSD-led coalition government showed during the
period 2002-2006, even a coalition with a razor-thin margin in the
parliament can survive and govern. Topolanek's three-party
coalition seems to be gelling into a more coherent group, although
many of the internal tensions remain and will erupt periodically, as
they have with Kuchtova's firing. The Greens will continue to be
the weakest link in the coalition because of their internal
divisions, but also because of their rather serious programmatic
differences with the general ODS direction, whether it be on defense
policy issues such as MD or energy.

13. (SBU) Therefore, Topolanek will probably need help not just from
the two CSSD renegades who have kept his government in power, but
also from others in Paroubek's party. Paroubek is ready to deal, as
the trial balloon he floated early in October demonstrates. That
Topolanek did not reject the offer out right may signal that he is
open to explore the possibility. Topolanek would also now be
negotiating from a better position. He managed to keep the
coalition together through the uncertain early months and then
during the controversial tax and public finance reforms. Despite
the occasional Green wobble, we therefore expect the coalition to
survive at least through the Czech EU presidency in 2009. Paroubek
clearly shares this expectation since the proposed deal was billed
as something that would give the government the necessary political
space to undertake a successful EU presidency.

14. (SBU) In addition to the EU presidency and the parliamentary
vote on missile defense, which we now anticipate sometime in the
spring 2008, the Topolanek government will face several other
challenges in the near term, including votes on the budget and
foreign deployments. We expect that Topolanek will be able to push
these through the parliament even without a prior deal with
Paroubek. However, some arrangement will be required before the
missile defense vote. What will be key for Czech politics is to
what extent the possible deal will aim at constructive cooperation
on important foreign policy issues facing the Czech Republic rather
than becoming another step backward with regard to government
transparency and accountability.

GRABER

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