Czech President Zeman speaks with newly appointed PM Sobotka, as members of the new government pose for a group photo after the cabinet's inauguration in Prague
David W Cerny  /  REUTERS
Czech President Milos Zeman (front L) speaks with newly appointed Prime Minister Bohuslav Sobotka (R), as members of the new government pose for a group photo after the cabinet's inauguration at Prague Castle in Prague January 29, 2014. REUTERS/David W Cerny
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updated 1/29/2014 12:45:54 PM ET 2014-01-29T17:45:54

PRAGUE (Reuters) - Czech President Milos Zeman appointed a new center-left cabinet on Wednesday, ending seven months of a power vacuum that has hampered policymaking the country needs to boost a recovery from a record-long recession.

Zeman appointed ministers from three coalition parties who formed a parliamentary majority after an early election in October.

The cabinet, led by Prime Minister Bohuslav Sobotka, will take power immediately from a caretaker administration that has ruled since a center-right cabinet collapsed in a sleaze scandal last June.

Social Democrat leader Sobotka, 42, wants to return the central European country into the mainstream of EU politics after a euro skeptic course taken by previous cabinets. He aims to bring the country closer to euro zone entry, although the coalition has been vague on any timing.

"There is a rising hope after a long time that the Czech Republic will stop playing the role of troublemaker in the European Union," Jakub Janda from the European Values think tank wrote in a commentary.

The Social Democrats aim to raise taxes, below the EU average but higher than in most new EU member states at around 35 percent of gross domestic product, to fund social policies.

They plan to run budget deficits under the EU's 3 percent limit, abandoning previous aims to eliminate deficit funding and halt growth of debt, low by European standards at around 46 percent of GDP.

The budget will benefit thanks to a gradual recovery in the economy from a recession that started in 2011 and ended last year, in part caused by austerity policies of the previous center-right cabinet.

Any tax hikes, however, will be opposed by the ANO party led by Finance Minister Andrej Babis, a billionaire businessman who owns hundreds of firms in the food, chemical and media industries. Debate over taxes is the most likely flashpoint for the center-left coalition in the months ahead.

The center-right opposition criticizes Babis - likened by the media to Italy's Silvio Berlusconi - for conflicts of interest he may face as the head of tax and regulatory authorities.

Sobotka, a soft-spoken trained lawyer and career politician, may also be hampered by conflicts with President Zeman, a long-time adversary. Zeman does not have many day-to-day powers but has a say in foreign policy and appointments of central bankers, ambassadors and judges.

Major Market Indices

The government plans to join the EU's budget stability pact, which the previous center-right cabinet refused to sign, as the only EU member country apart from Britain.

The cabinet will also need to tackle widespread corruption, a major concern for voters and the main campaign call of Babis's centrist ANO party.

Outgoing Prime Minister Jiri Rusnok is due to join the central bank governing board in March.

(Reporting by Jan Lopatka; Editing by Janet Lawrence and Stephen Powell)

(c) Copyright Thomson Reuters 2014. Check for restrictions at: http://about.reuters.com/fulllegal.asp

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