In Czech rustbelt, new government can expect little sympathy

By Jason Hovet

OSTRAVA, Czech Republic (Reuters) - The rustbelt town of Ostrava may help drive the Czech center-left to power this month; but the mood could turn very quickly against a government that fails to tackle the unemployment and decline facing its miners and steel workers.

Emotions run high. Last month about 3,000 people marched through the city to protest at the threatened closure of a mine, some hurling glass bottles at the mine company's offices.

Fed up with central Europe's longest recession, job losses, austerity, and sleaze under a center-right government, voters here will back the center-left Social Democrats, the front-runners in a parliamentary election on October 25-26.

But once the Social Democrats are in office, as the opinion polls suggest they will be, they will struggle to meet the high expectations of core supporters, people like the Ostrava miners.

"If they throw us overboard, they will go too," miner Vlastimil Libotovsky, 46, said of the next government at the protest, where marchers carried a coffin draped in their trade's black and green flag.

The mood in Ostrava illustrates the pressures that will be applied to the next Czech prime minister.

The Social Democrats have pledged to keep the budget deficit below the 3 percent of gross domestic product threshold mandated by the European Union, to keep markets happy and put the country on the path to join the euro around 2020.

They have said they will raise taxes on utilities, banks and the top earners to generate roughly $2 billion per year extra they say they need to keep their promises: ending some health-care fees, big infra-structure investments and the scrapping of unpopular pension reforms.

The question is, will they be able to maintain this fiscal discipline when their supporters in places like Ostrava are clamoring for urgent intervention, and the economic recovery is too weak to put substantially more money in the budget?

DEFUNCT MINES

The Czech Republic's post-Communist re-structuring has, for the most part, been successful. The country has become an export powerhouse thanks to foreign investments. The capital, Prague, is buzzing with new office developments and throngs of tourists.

The transformation has been less successful in Ostrava, a city of 300,000 on the country's northeastern border with Poland, home to an iron industry largely built by the Rothschild family almost two centuries ago.

In some places, defunct mines and smelters have been turned into museums, but towering communist-era apartment blocs still dot the city and there are run-down neighborhoods inhabited by the mostly poor Roma minority.

The underlying problem is the long-term decline of heavy industry, which struggles to compete with low-cost competitors on other continents.

A steel firm owned by Evraz is for sale after repeated work stoppages, big iron works have been shut, and the biggest steel operation, owned by Arcelor Mittal, has shut down one of its three furnaces, possibly for good.

A drop in global coal prices, caused by competition from cheap shale gas in the United States, has also hit coal mining.

Ostrava miner New World Resources (NWR) announced only hours after the miners' protest it would shutter its Paskov mine, one of four it operates in the region, by the end of 2014.

Unemployment in Ostrava is more than 11 percent, low by eastern Europe's standards but high for the Czechs. The national average is at 7.6 percent, and the capital Prague has 5.1 percent jobless.

PRESSURE FROM LEFT

The Social Democrats, who last ruled in 1998-2006, are rallying their base there with pledges to protect those who have lost out from the changes in the economy.

"It can be a hard life here," said Jan Turcany, a voter for the left who retired from the steel industry two years ago.

"I want those who win to lead us somewhere, and not to the place where we are now. So we are better off, young and old, (and) have better healthcare and schools."

Ondrej Radomil, a 53-year-old worker at a machinery producer in Ostrava, said he would vote for the Social Democrats.

"Their program means more job security," he said.

Others are looking for more radical solutions.

Polls show the Communists in second or third place. They are heirs to the party which ran the country for decades until dissident Vaclav Havel led a revolution to end one-party rule.

After years in the political wilderness, they are tapping into the feeling among some Czechs that they have been left behind in the transition to free markets - a grievance made worse by several years of austerity measures.

"The system is worse for the majority of people than the one before, because apart from the positive things people gained they have also lost a lot," Communist Party leader Vojtech Filip told Reuters in an interview.

The communist era, for all its shortages and repression, provided cheap housing, food and health care.

The appeal of the Communists is an additional pressure on the next government, potentially pulling it away from the center-ground and forcing it to loosen fiscal discipline.

The Social Democrats are likely to be a minority government after the election, and have said they could ask the Communists to support them, though not as full coalition partners.

Whatever the next government does, it may ultimately have to disappoint people in Ostrava who hope it will reverse the closures of their steel plants and coal mines.

"We think the problem is local, but it is global," said Jan Rafaj, an ArcelorMittal board member who is also part of a government crisis committee for the region. "Unless we understand it is a global problem and understand remedies for that, we cannot find a way out." ($1 = 18.8221 Czech crowns)

(Additional reporting by Robert Mueller)

Source: http://news.yahoo.com/czech-rustbelt-government-expect-little-sympathy-120705157--business.html
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