Austrian Leader Quits as Coalition Reels From Populist Surge

  • Chancellor Faymann steps down citing loss of party support
  • Resignation follows Freedom Party surge in presidential vote

Austrian Chancellor Werner Faymann stepped down with immediate effect citing a lack of support in his Social Democratic party after a run of electoral defeats, throwing the nation’s leadership and future government into question.

Faymann, the European Union’s longest-serving national leader after German Chancellor Angela Merkel, said that dwindling backing in his own party left him unable to turn around the fortunes of the coalition he led since 2008. Vice Chancellor Reinhold Mitterlehner will lead the government on an interim basis, Austrian news agency APA reported.

“This country needs a federal chancellor whose party stands fully behind him,” Faymann said in a statement broadcast on the chancellery’s website. “This government needs a fresh start,” he said. “If you don’t have that kind of support, you can’t do the job.”

Powerful allies abandoned the chancellor after his party’s collapse in the first round of presidential elections last month in which the anti-immigration Freedom Party’s candidate won the most votes on the back of the refugee crisis. Faymann’s coalition partner, the conservative People’s Party led by Mitterlehner, also suffered a historic defeat in the vote.

Vienna Mayor Michael Haeupl will take on interim leadership of the Socialists, whose 70-member national executive is due to meet this afternoon in Vienna. Mitterlehner wasn’t immediately available for comment on the coalition’s future make-up.

Werner Faymann
Werner Faymann
Photographer: Kostas Tsironis/Bloomberg

Declining real wages, rising unemployment and Europe’s refugee crisis are eroding support for both socialists and conservatives, the parties that have dominated the nation’s politics since World War II. 

While parliamentary elections are due only in late 2018, Faymann’s exit could accelerate the demise of the coalition and lead to an early vote. The Freedom Party would win more than 30 percent of the vote in if parliamentary elections were held now, according to opinion polls. That’s about 10 percentage points more than either of the two ruling parties.

Both groups have been hit by a sense of economic malaise in Austria, which lost its luster as a fast-growing euro-area economy with low unemployment in the wake of the financial crisis. The government’s policy flip-flops on the refugee crisis since last summer also proved a boon for the Freedom Party, whose presidential candidate Norbert Hofer, a 45-year-old aeronautical engineer, took more than 35 percent of the vote. He faces Green Party-backed Alexander van der Bellen in the runoff on May 22.

“The big challenge for foreign investors will be to understand the electorate’s clear turn away from ‘establishment’ politics, whether in countries like Poland or Turkey or those like the U.S. or Austria,” said Simon Quijano-Evans, chief emerging market strategist at Commerzbank AG in London.

Austrian 10-year government bond yields dipped 1 basis point to 0.37 percent following Faymann’s announcement after earlier rising 3 basis points.

Possible contenders named in Austrian media to replace Faymann include Gerhard Zeiler, a Time Warner Inc. executive who used to head Austrian public broadcaster ORF, and Christian Kern, head of the state-owned railroad. Neither has declared and both declined to comment through spokesmen.

The socialists have struggled to formulate a new, winning strategy, marking a parallel to mainstream center-left parties in other European countries that are losing voters to upstart political forces. Support for Germany’s Social Democrats, whose Gerhard Schroeder led the country as chancellor until 2005, fell below 20 percent in a national poll for the first time in April.

A key question dividing the Austrian party is whether to uphold a ban against allying with the Freedom Party. While the two agree on some economic and social policies, large parts of the Social Democrats, including Faymann, have ruled out a pact. The People’s Party is keeping that option open for the next election, giving it additional leverage in government negotiations. Regional socialist leaders including Burgenland governor Hans Niessl have started to team up with the Freedom Party, which is led by dental technician Heinz-Christian Strache.

“If we’re ruling out the Freedom Party as a matter of course, this only helps the People’s Party,” Niessl said in a radio interview on Monday. “This has to be discussed again.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE