How long can a country's economy stay healthy without effective political leadership? Last year in the Czech Republic stood in as a remarkable study for this question, as, despite a stalemate in government that has lasted more than six months, the country has remained in good financial health, with strong growth and investment and low interest rates.

But, despite jokes from businesspeople about whether the country needs a government at all, the impasse between the Civic Democratic Party (ODS) and Social Democrats (ČSSD) will have a long-lasting negative impact on business in the Czech Republic if it is not resolved, analysts say.

Necessary reforms of the healthcare and pension systems have been delayed. If these are not soon accomplished, the country's deficit may balloon to disastrous effect.

"We're growing at a rate of 5 percent of the gross domestic product and still producing a deficit" because of growing fixed costs from welfare services, said Martin Kupka, chief economist at ČSOB. "What happens if the growth rate slows down?"

The government narrowly avoided a record deficit in September, when it announced last-minute plans to privatize a portion of ČEZ, the giant energy utility. Even with the estimated one-time windfall of 31 billion Kč ($1.5 billion) this would bring, the deficit will end up slightly higher than 100 billion Kč, well over the 88 billion Kč that was required for the country to stay on target for adopting the euro in 2010. (Also privatized this year was aircraft-maker Aero Vodochody, with the government announcing plans to privatize Letiště Praha, the state-owned company that runs Ruzyně Airport.)

When the country will adopt the euro is now uncertain — until the budget is reformed, the deficit is marked to increase rather than decrease, as the European Union requires. Many expect adoption to be delayed two years, but this could change, said Vladimír Pikora, chief economist of Next Finance.

"This is a political question," he said. "It could be 2012, but it could also be 2016, the date no one wants to say."

A high deficit will eventually mean higher interest rates, slower growth and possible unemployment, analysts say. But not yet: The crown has been bolstered recently by the slumping dollar, and consistently hits record highs against the U.S. currency, as well as the euro. As a result, the Czech National Bank has not raised interest rates since September. Czech rates remain below those of the EU's bank, but are expected to rise in coming months.

Analysts disagree on when the country may first feel the impact of a delay in reform.

"If the new government is not willing to reform, maybe in two years it will have an influence on the Czech economy," said Petr Dufek, an analyst at ČSOB.

Pikora is more negative, and, if the government shows no movement on reform in 2007, he could see international credit agencies cutting the country's rating by the middle of the year.

"Right now, I can't imagine these two rivals finding any solution," he said.

A point of contention between the parties made news throughout the year, as the former ČSSD government pushed through a Labor Code over the veto of President Václav Klaus in May, just prior to elections. The ODS sought to delay the code's adoption, which took effect Jan. 1, saying that the code tilts the balance of power between employers and employees unfairly toward the latter. The ČSSD opposed all attempts to delay the code, and businesses found themselves scrambling to learn its new provisions.

Further disputes

The government also saw two major disputes settled. On Nov. 30, it signed a truce with the Japanese investment bank Nomura, which was suing the Czech Republic over accusations that the government failed to adequately support the Czech bank IPB after Nomura invested in it, bringing IPB close to bankruptcy in 2000, when the bank was seized by the government and handed over to ČSOB. The country had been entangled in a series of suits and countersuits against Nomura, but with the truce will likely only have to pay the company several billion crowns.

A dispute between the Transportation Ministry and Austrian company Kapsch, which won a controversial tender to construct an electronic toll system for the nation's highways, was settled in December. Kapsch's control of the tender survived both Czech and EU anti-trust investigations, which were prompted by its competitors, but, late in 2006, came into question again when the state contested an amendment in the contract that the government said favored Kapsch. The two sides agreed on a new amendment Dec. 14, and the toll system, which will collect from trucks heavier than 12 metric tons (13 short tons), launched Jan. 1, taking in 700,000 Kč.