The Czech government was left shorn of authority on Wednesday after a no-confidence vote, its currency weakened and doubts rising over its ability to cope with economic storms and the demands of the EU Presidency.
Mirek Topolanek's center-right government was defeated in a no-confidence vote on Tuesday, but the opposition Social Democrats appear ill placed to form an alternative coalition.
It seems the Czechs are entering a longer period of uncertainty, said Stuart Bennett, a currency strategist for Calyon bank. You can understand why oppositions do this, but it is almost like cutting off your nose to spite your face.
The vote could leave Topolanek in the prime minister's office for several months yet, but with less power to tackle problems of growth and financing that have also hit regional heavyweight Poland and driven three other once-booming economies to seek rescue from the International Monetary Fund.
Topolanek, his defeat secured by the defection of rebel government deputies, said only he could lead a new cabinet. A senior official of the leftist opposition said it would not support any bid to form a new government under Topolanek.
The uncertainty is made more acute by personal rivalries.
President Vaclav Klaus, founder of Topolanek's Civic Democrats but now his political opponent, has the sole right to pick the new prime minister.
Topolanek's defeat followed a weekend decision by Hungary's prime minister to quit. Hungarian premier Ferenc Gyurcsany's decision to step down was tied more specifically to economic problems, without the political squabbles afflicting Prague.
Topolanek is expected to formally resign on Thursday but the coalition cabinet led by his right-wing Civic Democrats will remain in office until a new government is appointed or until an election, probably throughout the EU presidency ending in June.
Events in Prague have ramifications for the entire 27-nation European Union that the Czech Republic and other former Soviet bloc states used as a springboard for a rapid economic development so dramatically cut short by global crisis.
The no-confidence vote has threatened the ratification of the European Union's Lisbon treaty, meant to streamline decision-making in the bloc after it had expanded to the east.
Senators for Topolanek's party have been uneasy about the treaty and analysts said they may grow more hostile after the government defeat.
The opposition have said they would allow the government to carry through obligations to the EU presidency ending in June. But clearly upheaval in Prague could do little to help.
Social Democrat Vice-Chairman Bohuslav Sobotka reiterated his party's call for an early election in the autumn, ahead of regular polls due in 2010, and preferably a cabinet of non-party experts until then.
It is not possible for Topolanek to be the prime minister until the autumn, he told Reuters. It is up to the president to find someone (else).
The political crisis pushed the crown currency 1.7 percent lower on Wednesday but analysts said the country's solid fundamentals including low foreign debt and small budget and current account deficits would provide support to markets.
Given the split of power in parliament, forming any new cabinet will be tough without an agreement between the two biggest parties, which was nowhere in sight.
The option is to appoint Mirek Topolanek because the Civic Democrats will not allow for any other appointment, Topolanek told the daily Hospodarske Noviny.
Topolanek's government has cut taxes, raised the retirement age and introduced unpopular health fees. It has not been rushing to adopt the euro currency. The Social Democrats promote more tax-and-spend policies, want quick euro zone entry and promise to take better care of the poor.
The Civic Democrats have also said they would support an early election, but this summer. The party has been gaining ground in opinion polls since the country took over the EU presidency, but still lags 4.5-7.5 percentage points behind the Social Democrats.
Calling early elections is difficult under the Czech constitution without the agreement of the major parties.
It will be a war of nerves between Topolanek, Klaus and (Social Democrat chief Jiri) Paroubek about who will get the right to create the next government, said Jan Kubacek, political science lecturer at Charles University.
Both parties will likely be able to agree on early elections in autumn, he said.
The government fall also further undermined efforts to ratify a plan to host a U.S. missile defense shield base, already on the ice due to insufficient support in parliament. The United States is also reviewing the plan.