As some of you may recall (see details in this diary and this comment on ET), the elections were won by the Social Democrats with a tiny margin over the governing Conservatives who lost more than 5%. The outcome created a difficult situation: SPÖ and the Green party did not win enough votes to form a left-wing coalition, nor could ÖVP and BZÖ (the second hard-right party) continue their government. The main hard-right party FPÖ is too extreme to work with either ÖVP and BZÖ or SPÖ and Greens, and the atmosphere between SPÖ and ÖVP was chilly at best - making the grand coalition which has now emerged a difficult enterprise. In fact, new elections seemed very likely at a number of points during the negotiations.

The outcome that was announced today puts Gusenbauer in a very difficult situation. The SPÖ is back in government and holding the Chancellorship for the first time in 6 years, however, the ÖVP is widely perceived to have gotten the better of Gusenbauer who effectively broke important campaign promises and gave away a large number of key ministries.  Of course, the ÖVP won almost as much of the vote as the SPÖ which in fact lost a little bit as well compared to the preceding elections. Hence, the SPÖ was never in a very good position to dictate terms to a defiant, confident ÖVP. Nevertheless, the overwhelming impression at the moment is that the SPÖ sacrificed a disproportional amount of integrity and power.

Partly, this image problem seems to have arisen from the fact that the SPÖ effectively gambled on either not winning the election anyway, or winning enough votes to form a left-wing government with the Green Party; thus they made extensive campaign promises to their base - a base extremely frustrated after 6 years of conservative, right-wing government. Perhaps the most high-profile promises were to stop the acquisition of the expensive new Eurofighter jets and the abolishment of university fees. On both issues, Gusenbauer now seems to have yielded to a very stubborn ÖVP. Study fees remain, although an extension of scholarships has been promised. One rather unfortunate aspect of the study-fees agreement is a plan that study fees can be paid back with social work paid at approximately 6 Euros an hour. Leading figures in the SPÖ, such as the major of Vienna Michael Häupl, promote this as "study fees abolished - if in return for social service", which has earned the scorn of the left-wing youth because any bar-job pays better, i.e. the fees have not been abolished at all and the social-service idea brings little relief.

On the Eurofighter Jets, nothing seems to have been fixed in the coalition agreement. This gives the SPÖ some scope to renegotiate the contract as they are taking over the Ministry of Defence, however, it is widely viewed as caving in to the ÖVP given the SPÖ's very determined pre-election rhetoric to stop the acquisition all together.

Perhaps even worse in the eyes of the SPÖ base - and much of the fairly sceptical media - the conservatives will get the key ministries of Finance, of Economics, the Interior and that of Foreign Affairs, while the SPÖ gets Defence and Justice and a number of "soft" ministries such as Education, Women and Social Affairs (see here for a full list in German).

Some sources even claim that Karl-Heinz Grasser, the neo-liberal minister of finance will stay on. Although he is generally popular for his looks and celebrity life-style, the left despises him and the SPÖ had long insisted not to keep him on in the new government. Should this rumour turn out to be true (which is doubtful, the source being Austria's version of "The Sun"), it would be a further setback for the SPÖ. In any case, however, the former SPÖ minister of finance Hannes Androsch has already called the coalition a "ÖVP government under a SPÖ chancellor".

Time will tell - but if the government is really formed as has been agreed and announced today, there is a real risk of a right-wing renaissance in Austria. Firstly, there is the danger that the still rather hostile atmosphere between the two almost equally strong partners will paralyse the government and recreate the atmosphere of the early 1990s, when the right wing FPÖ portrayed itself very successfully as an alternative to an inflexible, ineffective and dishonest grand coalition. With the ÖVP in charge of the Ministries of Finance, of Economics and the Interior, the Social Democrats will find it very difficult to please either their left-wing base or those independent voters who favour social security but are willing to vote for right-wing populists to get it.

With the BZÖ removed from government, their incompetence is not on display anymore and both right-wing parties are now free to attack the coalition and reinforce their very similar messages. Although the FPÖ's and BZÖ's program of xenophobic social nationalism are almost alike, the impression that the BZÖ is a somehow less radical may revive its fortunes as a protest party for disgruntled ÖVP and SPÖ voters who crave some alternative but dislike FPÖ for historic reasons. The latter, already 10% strong again, may find plenty of new voters without such concerns.

If both BZÖ and FPÖ strengthen, and save a merger which at least at present seems unlikely, a single powerful extreme-right party such as the old FPÖ (the current FPÖ broke away from the old FPÖ under the strains of government, leaving the re-christened BZÖ in coalition with the ÖVP up to now) will not emerge, however, a strong right-wing block may. In turn, if the SPÖ weakens, which seems very likely unless Gusenbauer pulls off some surprises, then a true left-wing government is very unlikely even in the long term, because the Greens may find it difficult to go very far beyond the 10% they currently have.

Then again, political winds change direction quickly. I don't like this result, but let's see what transpires.

Alfred Gusenbauer

Update:

- A pleasant surprise, Karl-Heinz Grasser has announced that he will not be part of the government. It's really difficult to convey how dislikable this guy is: He became minister of finance without any real qualifications except a Master in Management at the age of 31, mainly because he was close to Jörg Haider and profited from the rise of the old FPÖ and their lack of any other even half-way qualified persons for the job upon forming a government with Schüssel in 1999/2000. He has since remained in the spotlight mainly due to his allegedly good looks, his marriage to the millionaire heiress Fiona Swarowski and his constant, shameless self-promotion. To briefly linger on this last point with an example, because it conveys his personality so well: Grasser was recently interviewed by Austrian television channel ORF about his controversial role in the Eurofighter acquisition. During the interview Grasser defended his performance by claiming he had been voted one of Europe's best finance ministers by the Financial Times, suitably impressing host and audience. As it turned out, Grasser lied; his name appeared on top of the list only due to its alphabetical ordering.

His time in office was plagued by distasteful scandals such as the his failure to pay tax on a 150,000 Euro gift by the Federation of Austrian Industry, allegedly used on his lacklustre personal homepage. His policies could be described as a mixture of neo-liberalism and opportunistic public relations work. At the beginning of his term as Minister of Finance, he caused a big fuss and caught media attention by declaring a "zero budget deficit" as his main goal. This was achieved once in 2002, but only by increasing taxes to record levels (in spite of rhetoric to the contrary), cutting social spending, selling off profitable state-owned enterprises and other reserves.

Politically, Grasser jumped ship and left the FPÖ when it self-destructed, choosing to join neither his former mentor Haider in the new BZÖ nor the radical new FPÖ and instead positioning himself as "independent" with the graces and protection of Wolfgang Schüssel.

Oh well, I hope this doesn't happen. It would almost certainly place him in a good position to become Chancellor for the ÖVP in the future.

Karl-Heinz Grasser

- Related readings in German posted in comment section below