Czech president asks right-wing leader to form government

The Civic Democrats have been negotiating with two new centre-right parties on forming a coalition, but have run into problems on issues such as taxation and fighting corruption.

The trio -- the right-wing Civic Democrats, the conservative TOP09 party and the centrist Public Affairs -- won a combined 118 seats in the 200-member lower house, which could give it the largest majority of any government since the nation came into existence in 1993.

The leftist Social Democrats won the vote with 22 percent but conceded they have little chance of forming a government.

Klaus asked Necas to report back in two weeks whether he is able to form a cabinet. The mandate given to Necas is a traditional political act rather than an official appointment.

"I decided to ask you to lead political negotiations with the target to establish a government with majority support," Klaus said, standing alongside Necas after they met on Friday.

The three centre-right parties signed on Wednesday a declaration on their intention to form what they called a "government of budget responsibility, rule of law and (the) fight against corruption.

A chief job of a new government is to produce a 2011 budget. The Civic Democrats want to cut the deficit to 4.0-4.5 percent of annual economic output, a bigger reduction than the outgoing cabinet planned, from 5.3 percent forecast for this year.

The party's promise not to raise taxes clashes with the Public Affairs plan to raise corporate tax by 1 percentage point and increase the tax paid by high earners.

Czech government debt is among the lowest in the European Union at around 35 percent of GDP, less than half the EU average.

But it is set to grow in the next few years and centre-right parties campaigned against leftist spending promises that they said would lead the country into a Greek-style debt trap.

The Czech crown traded flat on the day at 25.8 to the euro, little moved after the announcement.

(Reporting by Robert Mueller, writing by Jason Hovet; editing by David Stamp)