Major Takeaways From Czech General Elections

• The outlook over Czech government remains uncertain in the short term following the general elections' results this weekend.
• We saw that Czech statistics showed that PM Babis' party ANO was defeated by the SPOLU alliance (Civic Democratic Party (ODS), KDU-ČSL, and TOP 09), which gathered 27.79% of the vote (vs. 27.12% for ANO).
• The electoral system means that ANO secured 72 seats at the parliament (out of 200), ahead of SPOLU's 71 (see chart). The centre-left bloc made up of the Czech Pirate Party and SPAN (Mayors and independents) won 37 seats.
• Both the Communist Party of Bohemia and Moravia (KSCM) and the Social Democrats (CSSD), who ruled as part of Babis coalition government, failed to win 5% of the vote, the threshold to enter parliament.
• Hence, the two 'democratic coallitions' – SPOLU and Pir-STAN – have a chance to form a majority government, capturing 108 seats at the parliament. The two coalitions announced on Saturday that they have signed a memorandum of their will to govern together. In that case, it is likely that Czech foreign policy will be more aligned with the EU/US and diverge from the China/Russia agenda.
• Czech President Milos Zeman, who was expected to lead post-election talks about forming a new government, was taken on hospital on Sunday, which complicates efforts to form a government.
• President Zeman needs now to appoint a prime minister who must then go to parliament for a vote of confidence. Even though PM Babis will most likely lose a vote of confidence in parliament, it is possible that Zeman keeps Babis as PM without parliament's approval.
• Even though the uncertainty over the Czech government's outlook will remain elevated in the coming weeks, there was no reaction in markets with Czech equities continuing to test new highs and USDCZK flat at around 22 this morning.

Source: Flourish