Czech coalition set to dissolve, elections possible

PRAGUE (Reuters) - The three-party Czech ruling coalition agreed on Sunday to split up, setting the stage for Prime Minister Petr Necas to find out on Monday whether he still has sufficient support to avoid early elections.

The coalition has been buffeted by scandals that have hit its junior member, the Public Affairs party, and by the defection of that party's Vice Prime Minister, Karolina Peake.

Necas has ruled out governing with Public Affairs since its influential party leader Vit Barta was handed an 18-month suspended sentence this month for bribing party colleagues to keep their loyalty.

"The chairmen of the three parties will propose to their parties the termination of the coalition agreement... by Friday," Necas said, reading out a brief statement on behalf of the coalition leaders.

The parties pledged at the same time to support budget measures agreed by the government earlier this month for hikes in sales and income tax as well as spending cuts worth 57 billion crowns (1.87 billion pounds) next year, Necas said.

The public is growing angry with the cuts and tax rises, and also with a series of corruption scandals.

Peake has pledged her faction will support Necas and his cabinet. Analysts have said she would likely secure sufficient backing to make good on her promise, though on Sunday she still looked short of the 10 votes needed to form a new parliamentary club that would give the government the "safe majority" that Necas has demanded.

Unless Peake can secure the votes, Necas said he would seek early elections in June. Given the time needed for preparations, he set Monday as the latest day when the fate of the government must be decided.

Necas and his government's popularity are at new lows halfway through a four-year term, underscored over the weekend by one of the largest demonstrations since the 1989 fall of communism.

About 90,000 people marched through Prague on Saturday to protest austerity and corruption and calling for new elections.

An early election, two years after the last vote, would be likely to hand power to the opposition Social Democrats, who have a nearly 20 point poll lead over Necas's Civic Democrats.

The Social Democrats have pledged to undo some of the government's reforms, including hikes in the sales tax and slower pensions growth, and to tax companies and the rich to keep the budget under control.

Necas's austerity-minded government has won favour with investors and credit agencies and debt costs have fallen thanks to a credit-rating upgrade at a time when other European countries are seeing slippage in their credit standing.

$1 = 18.8814 Czech crowns)

(Editing by Michael Roddy)

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