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Czech President Milos Zeman attends a parliamentary session during a confidence vote for the newly appointed government led by Czech Prime Minister Andrej Babis, in Prague, Czech Republic January 10, 2018. REUTERS/David W Cerny

(reuters_tickers)

By Jason Hovet

PRAGUE (Reuters) - Czech Prime Minister Andrej Babis, battling allegations he illegally tapped European Union subsidies a decade ago, looked certain to lose a parliamentary confidence vote on Wednesday.

The billionaire's ANO party won an October election by a wide margin but lacks a majority and has struggled to gain partners, leading it to form a minority government.

If the cabinet, appointed in December, loses the confidence vote it is expected to stay in power until a new one is formed. President Milos Zeman has promised to allow Babis another try.

The other eight parties in the lower house of parliament say there are conflicts of interest around Babis, as the founder of a business empire, and have withheld support while fraud charges are hanging over him. He denies any wrongdoing.

Losing the vote would lead to further weeks or months of political talks. Drawn-out coalition negotiations are becoming more common in European countries, including Germany, as parliaments are increasingly fragmented by the rise of populist, anti-establishment parties.

Babis said he had little hope of success in the confidence vote, expected in the late evening after the close of debate.

"Our movement is for everyone, we have a programme for everyone and therefore I think in the end you should support us," Babis told lawmakers at the opening of debate.

He listed his priorities as increasing infrastructure spending, reforming pensions and digitalising the state to make it more efficient for people and businesses.

The centre-left Social Democrats signalled on Wednesday they would be ready for talks on some form of support, as long as the cabinet does not include people under criminal investigation.

Babis has been charged in the subsidy case but has immunity from prosecution as a member of parliament, unless lawmakers lift this in a vote due in the coming weeks. He says the allegations against him have been fabricated by political and business opponents.

Zeman, a Babis ally, told lawmakers they should not act as prosecutors and said he would provide plenty of time for more talks, referencing the "German model". Coalition negotiations in Germany are continuing after a September election.

"I am confirming my commitment to create sufficient time for calm, business-like and calm negotiations," Zeman said.

He later told reporters Babis should have guaranteed support of a majority of lawmakers before he named him as prime minister a second time, according to CTK news agency.

MARKETS CALM

ANO's convincing election victory - won with promises to shake up Czech politics and fight EU overreach - means any viable government will involve the party, with or without Babis.

The tussle has not so far troubled investors, long used to shaky coalitions in the formerly communist, central European country, a member of both the EU and NATO.

The economy is growing quickly and unemployment is the lowest in the EU. The state has been running a public sector budget surplus and bond yields remain the lowest in central Europe. The crown, which was the second biggest gainer in the region last year, was steady on Wednesday at 25.57 to the euro.

The Czech Republic is being sued by the EU executive over its refusal to accept refugees under a quota system, but has so far avoided the kind of heated conflict with the EU embroiling Poland and Hungary.

Babis is the country's second richest person through the Agrofert conglomerate, the country's biggest private employer, with interests in food, farming, chemicals and media. He has transferred its control to a trust fund to meet conflict-of-interest laws.

He is alleged to have concealed the ownership of a farm and conference centre to get a 2 million-euro subsidy earmarked for small businesses when he ran Agrofert.

An investigation by the EU anti-fraud office OLAF has found "irregularities" in the subsidy, the finance ministry said in a statement last week.

(Reporting by Jason Hovet with additional reporting by Robert Muller; Editing by Mark Heinrich)

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Reuters