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A red flag for investors?

Czech Republic

Milos Zeman

What is it about Central Europe's conservatives that leaves markets so unmoved? Barely a month after investors cheered the demise of Hungary's nationalist coalition, a rout of the right in the Czech Republic saw the koruna make big gains against the euro.

While the junior half of the country's now defunct "opposition agreement" was always freer with free-market talk than deeds, the triumphant Social Democrats have made little secret of their desire to build an EU-style (ruinously expensive and rigid) welfare state. Even worse, the new Social Democratic-led coalition will likely go into government with a majority of precisely one, facing cut-throat opposition composed of anti-EU nationalists and barely reconstructed Communists.

"The most important aspect of the election results is that the new government will be quite fragile," says Jan Schiesser, an analyst at brokerage Atlantik Financni Trhy.

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