The outgoing Cabinet of Prime Minister Jiří Paroubek, whose Social Democratic Party (ČSSD) is still ruling despite losing the elections, announced July 3 a preliminary draft of the budget that includes a deficit of 88 billion Kč ($ 4 billion).

Although this is more than 13 billion Kč higher than this year's 74.4 billion Kč budget gap, representatives of the Civic Democratic Party (ODS), which is trying to create a coalition government after narrowly winning the election, say the real deficit will be much higher.

The ODS is using the issue to discredit the ČSSD's fiscal policy at a time when it is desperately trying to secure power and the ČSSD is doing everything it can to hold onto it.

"Given the excessive expenditures the ČSSD and the Communists pushed through Parliament before the elections, the real deficit would be about 160 billion to 170 billion Kč," said Vlastimil Tlustý, the man likely to be the country's new finance minister if the ODS forms a government.

In an effort to win votes before the election, the ČSSD promised to raise state expenditures by more than 65 billion Kč to fund various new social welfare programs. Bohuslav Sobotka, the current finance minister, said the payments would be made over at least two years to keep the budget gap below 3 percent of gross domestic product (GDP), one of the conditions the country must meet for adopting the euro by 2010.

For that to happen, next year's public finance deficit will have to be under 100 billion Kč. Though the preliminary draft isn't binding, it looks unlikely this target will be met, according to many analysts.

This is a point even Sobotka has all but conceded. Sobotka recently said the new government will have to make significant spending cuts to meet the projected 2007 budget gap.

Many economists, including former ČSSD Finance Minister Jiří Rusnok, who now works for Raiffeisenbank, have criticized Paroubek's Cabinet for excessive spending that has generated large public finance deficits even at a time when the country is posting record economic growth. This will make it difficult to cut the deficit in the future, according to many analysts.

And in terms of the euro, there's a lot at stake. According to the European Union convergence program that should lead the country to adoption in four years, the ratio of the state budget deficit to GDP has to fall every year. In 2008, it cannot be more than 2.8 percent of GDP. The figure is 2.1 percent for 2009.

So far, the government has met the targets. Last year, the deficit dropped to 2.59 percent of GDP from 2.86 percent in 2004. The Finance Ministry estimated in April, however, that this year's gap could widen to 3.6 percent of GDP.