As the privatization of Jan Becher boils over, the Czech government is torn between gaining political capital or reducing the budget deficit.

The Czech government may be playing hardball with Pernod Ricard or as it has been often cited in the local press - settling political scores with those involved in the distillery's 1997 privatization. But as Czech finance minister Jiri Rusnok decides on his next steps, he may be under pressure from the budget deficit.

"I think that any money will be welcome," said Libor Mokras, macro-economic analyst at Ceské Sporitelna, "I hope they come to a reasonable agreement." At the moment, the state budget deficit is at CZK 20bn and he expects the figure to balloon to CZK 52bn by year-end.

Pernod Ricard went ahead and transferred the €1.3bn (US$1.91bn) originally agreed upon in the privatization agreement to the Czech Republic last week, but it is not clear if the government will accept the cash for the 59% stake in the country's second largest distillery. Alan Walden-Jones, director of Jan Becher and lead man for Pernod Ricard in the Czech Republic confirmed that the funds were available. "We are waiting, the government has an invitation."

Last Monday the government cancelled the privatization agreement, with finance minister Rusnok saying that SALB had not fulfilled its end of the agreement. The Ministries of Agriculture and Finance have been charged to produce a new plan for selling the state's stake, said Hugo Roldan, press secretary at the Ministry of Agriculture. The new plan to privatize Jan Becher is to be completed by end October.

Pernod Ricard unleashed a storm of lobbying between Paris and Prague following the government's decision to cancel the privatization agreement. In addition, Pernod Ricard has withdrawn its demand for a state guarantee in the event that local entrepreneur Zdenek Hoffmann - and his alleged inheritance to the Becherovka herb liqueur - managed to win the court battle to the trademark.

Sources within Jan Becher denied press reports that they had already paid for part of the state's stake, but said that the deal may be finally completed within the next week.