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Czech left says may form next government with Communist support

By Robert Muller

PRAGUE (Reuters) - The Czech Republic's next government could be dependent on the support of the Communist party for the first time since the collapse of the Soviet bloc, the likely next prime minister said on Tuesday.

The central European country has been mired in a political stalemate since its center-right cabinet collapsed in June in a graft scandal. Parliament is to vote on Tuesday on dissolving itself, which would trigger an early election.

In an interview with Reuters, Bohuslav Sobotka said his Social Democrats party (CSSD) hoped to win the support of a third of all voters and then form a single-party government most likely supported by the Communist Party (KSCM).

"It is definitely possible to expect negotiations with KSCM. It can be only KSCM or it can be more parties (that will support a minority government)," Sobotka said.

Opinion polls show his party will have the biggest share of the vote in the election.

The Social Democrats would not invite the Communists, who oppose NATO membership, to enter a coalition government with them, Sobotka said.

"We are proponents of European integration and we are proponents of our membership in the NATO. The Social Democrats do not intend to accommodate the program of the Communist party in any way."

ECONOMY

The Czech Republic has emerged from a seven-quarter long recession in the April-June period, the longest since records started in 1996.

Sobotka signaled his party would ease the austerity measures imposed by previous governments.

"The government will not scare people with across-the-board cuts," Sobotka said.

If in power, the Social Democrats would help kick-start the economy by boosting spending on infrastructure and housing with the help of EU development funds.

Sobotka said the party would aim to introduce a second corporate income tax rate at 25 percent or 30 percent to be levied on companies with a dominant or monopoly position on the market, in particular in the telecoms and power utilities sectors.

He said a Social Democrat government would seek to keep the public sector deficit below the EU-prescribed threshold of 3 percent of gross domestic product (GDP) and make sure the country meets all the criteria to adopt the single currency.

Czechs can meet the fiscal criteria for euro adoption, Sobotka said, but he expressed concern with the rising debt level.

"I see a risk in the overall public debt because the next government will take over when the public debt will be around 48 percent of GDP, only 12 percentage points short of the maximum set by the Maastricht Treaty."

"The Czech Republic will have to be very cautious not to complicate its euro adoption in the mid term."

He said the next government would prepare Czechs for euro adoption, and that accession to the single currency could, if conditions were right, take place at some point after 2017.

(Writing by Jana Mlcochova; Editing by Chistian Lowe)

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