Austrian Conservatives Keep Euro-Skeptic Pact in Play

Austrian conservatives kept the option to form a government with euro-skeptic parties and abandon an alliance with the socialists after voters dealt that coalition an historical blow in yesterday’s national elections.

The conservative People’s Party, led by Vice Chancellor Michael Spindelegger, failed to overtake Chancellor Werner Faymann’s Social Democrats as both groups achieved the worst result since 1945. Spindelegger, who would need support by two groups that demand an end to euro-area rescue measures to reach an alternative majority, wouldn’t pledge his support for a new Socialist-led government, saying it’s up to Faymann to make the first move.

“This has got to be a wake-up call,” Spindelegger said on Austrian state radio Oe1 today. “We can’t just go on with the coalition the way it was before as if nothing happened.”

The Alpine nation of 8.4 million people has been ruled by a so-called grand coalition of socialists and conservatives in 42 of the last 68 years. Its political stability and strong economic fundamentals have made Austria a haven for bond investors, to whom it pays a yield close to Germany’s.

Austrian 10-year bonds rose along with German debt as Italian securities declined today. The spread over German 10-year bonds narrowed by 1 basis point to 41 basis points, or 0.41 percentage point, at 1:47 p.m. London time.

Worst Results

Faymann’s center-left Social Democrats won 27.1 percent of the vote, according to the result excluding absentee ballots published by the Interior Ministry. Spindelegger’s People’s Party finished second with 23.8 percent. Remaining ballots will be counted by Oct. 3.

“This will probably be the last election in which the Socialists and People’s Party can form a coalition,” said Austrian political scientist Anton Pelinka today in an interview. “It is the beginning of the end of an era.”

The Freedom Party, which wants fewer immigrants and a euro-area exit, won 21.4 percent, the most votes since 1999 when they were led by the late Joerg Haider. That resulted in their inclusion in a government with the People’s Party in 2000. A euro-skeptic protest party formed by Austrian-Canadian billionaire Frank Stronach took 5.8 percent in its first national run.

The pro-euro environmentalist Greens got a record 11.5 percent after the party ran on its anti-corruption credentials following a spate of scandals. Another new entrant is Neos, a pro-euro liberal group supported by former Strabag SE boss Hans-Peter Haselsteiner, which took 4.8 percent.

Rightist Temptation

Some conservative supporters are tempted by the option to end the uneasy coalition with the Social Democrats by forming an alliance with the Freedom Party and Stronach’s group. The Social Democrats’ options are limited because they ruled out a pact with the Freedom Party. Spindelegger got standing ovations at his group’s post-election party when he said he wouldn’t immediately commit to a renewal of the grand coalition.

“Michael Spindelegger should become chancellor and should seek a coalition that makes that possible,” said Maximilian Schwager, a student at last night’s party. “If that means a coalition with the Freedom Party, so be it.”

Faymann and Spindelegger mostly campaigned against each other in the months before the elections. The Social Democrats sought a wealth tax in return for a cut for low and middle incomes and proposed more daycare options for children and school reform. The conservatives campaigned to create jobs by unshackling businesses and ran against the “Faymann levies” and “compulsory kindergarten.”

Euro Support

Meanwhile, both parties have backed German Chancellor Angela Merkel’s management of the euro-area debt crisis, drawing on support by the Greens when they needed a two-thirds majority in parliament to ratify legislation. That line could be in doubt in a government backed by Freedom or Stronach, and would run counter to the People’s Party’s own pro-European credentials.

“If you look at the really important issues concerning the euro area and the European Union, the Freedom Party has totally different positions,” said Stefan Bruckbauer, chief economist at UniCredit Bank Austria AG in Vienna. “I simply can’t imagine a government including the People’s Party that is opposed to the current euro-area policies.”

Spindelegger’s reluctance may simply be a tactical move in the mating dance that typically follows Austrian elections, Bruckbauer said. Politicians needed 80 days to form a government coalition on average in the past 30 years, he said.

“It’s a bargaining chip because the Social Democrats don’t have an alternative,” he said. “The People’s Party will try to take as long as possible and get as much as possible out of the talks.”

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