PRAGUE: Central European currencies lost ground on Monday, with the crown at a two-month low ahead of a deadline for Czech Prime Minister Petr Necas to pin down support for his government and avoid early elections after a split of the ruling coalition.
The vulnerable Hungarian forint also fell, leading losses in the region due to a poor start for stocks and other riskier assets globally, with investors uneasy over the lack of progress in getting talks going on a crucial international aid deal.
In Poland, official estimates showing the government deficit would fall this year and debt levels would stay under legal limits did little to break the zloty's losing streak since March.
After a rally in the EU's emerging markets to begin 2012, currencies have retreated as worries over the euro zone's commitment to fight its debt crisis build and the effect of cheap European Central Bank funds fades.
After splitting from the scandal-ridden junior ruling party Public Affairs last week, Czech Deputy Prime Minister Karolina Peake was racing to secure enough votes for her faction to keep the austerity-minded ruling coalition alive.
Prime Minister Necas has said he would call early elections - which would likely hand power to the opposition Social Democrats - if he could not secure a "safe majority".
"The political situation remains very unclear, and nobody knows whether Peake will get more people to join her. I'm a little pessimistic," CSOB dealer David Sykora said.
"The political turmoil is one side of the coin. The other are the French elections."
By 0948 GMT, the Czech crown fell 0.4 percent to bid at 25.052 to the euro, on the weak side of the psychological level of 25.00 for the first time since Feb. 28.
POLITICS RATTLE MARKETS
Debate in Europe is growing over how much austerity can help debt-choked economies and some economists have pointed at the Czechs as an example of where neo-liberal cuts in the public sector may have gone too far.
Some 90,000 Czechs turned out in Prague's largest anti-government protest since 1989 on Saturday to support that view - rallying against spending cuts and tax hikes in a country where public debt is already around half the EU average.
But most investors remain wedded to a positive view of austerity that aims, credibly, to cut the deficit to 0.9 percent by 2015.
"This (coalition break) has turned early elections in June more likely so that the recently agreed savings measures could be at stake again," Commerzbank said.
The euro, central Europe's reference currency, fell on Monday as markets digested the first round of French elections and unexpected political turmoil in the Netherlands which may spark early polls there.
Stock markets lost up to 1 percent in central Europe, tracking western peers lower and led by Warsaw.
Hungary's forint dropped 0.75 percent to 297.9 to the euro. Poland's zloty lost 0.3 percent and Romania's leu was 0.1 percent down.
There is also little hope that a visit by Hungary's Prime Minister Viktor Orban to Brussels will break the deadlock in efforts to launch talks on aid in conjunction with the IMF.
"The market is slowly pricing in the fact that it looks like there are no talks with the IMF whatsoever," a dealer said.
Hungary's foreign minister said on Sunday that it expects the EU to give the green light to talks by the end of April but markets are increasingly suspicious that Orban is just playing for time and is not prepared to make the concessions needed.
Hungarian markets are the most vulnerable to risk aversion among the European Union's emerging east due to Budapest's higher debt load than peers, which is at around 80 percent of annual economic output.
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