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DE RUEHVI #1670/01 3191536
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R 141536Z NOV 08
FM AMEMBASSY VIENNA
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UNCLAS SECTION 01 OF 02 VIENNA 001670 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR EUR/CE 
 
E.O. 12958: N/A 
TAGS: PREL PGOV AU
SUBJECT: AUSTRIA: COALITION TALKS PROGRESS, NEW GRAND 
COALITION POSSIBLE BY DECEMBER 
 
REFS: (A) VIENNA 1455;(B) VIENNA 1606; (C) VIENNA 
1287; (D) VIENNA 1418 
 
THIS MESSAGE IS SENSITIVE BUT UNCLASSIFIED Q PLEASE 
PROTECT ACCORDINGLY.  NOT FOR INTERNET DISTRIBUTION. 
 
¶1. (U) Summary: Negotiators for the Social Democratic 
Party (SPO) and PeopleQs Party (OVP) have made 
substantial progress in talks aimed at forming a new 
QGrand CoalitionQ government.  The two parties, which 
also share power in the outgoing government, have 
reached agreement on issues including tax cuts, an 
economic stimulus package, and the elimination of 
student fees.  The parties have postponed action on 
more complicated matters, such as administrative and 
education reform, while some issues, such as referenda 
on EU treaties, remain pending.  A contact on the SPO 
negotiating team told us a new government could be 
installed as early as the beginning of December.  End 
Summary. 
 
Progress Toward New QGrand Coalition 
------------------------------------- 
 
¶2. (U) In intensive negotiations over the past week, 
the SPO and OVP have reportedly reached agreement on a 
range of issues, among them law enforcement, economics 
and defense policy.  In areas such as health reform 
and education, the parties appear to have agreed to 
postpone major reforms that some observers consider 
overdue.  The SPO won OVP acquiescence for its 
proposal to abolish university student fees.  This 
will be compensated by measures relieving the 
financial burden for universities. On pension reform, 
which has been a major bone of contention under the 
outgoing Grand Coalition, the parties reportedly have 
also found a compromise solution on how to ensure 
longterm financing. 
 
Pending Issues 
-------------- 
 
¶3. (U) Major unresolved issues include EU policy and 
administrative reform.  SPO Chairman Werner Faymann 
has pressed the OVP to allow differences of opinion on 
the issue of referenda on future EU treaties, 
particularly considering that, according to Faymann, 
this question is not likely to arise during the 
current legislative term ending in 2013.  The parties 
have agreed on some elements of administrative reform, 
such as the establishment of provincial administrative 
courts to deal with complaints against administrative 
decisions.  Critics argue, however, that the parties 
are avoiding a comprehensive streamlining of the 
bureaucracy, particularly in the provinces, that could 
produce significant savings. 
 
Current Problems 
---------------- 
 
¶4. (U) The negotiations are burdened by controversies 
surrounding various partly privatized, partly state- 
owned companies that are currently in financial 
troubles, among them the Austrian postal system and 
Austrian Airlines.  In reaction to reports that the 
postal companyQs management plans to eliminate 9,000 
jobs, Faymann announced he would oppose the closure of 
any postal offices.  Designated OVP Chairman Josef 
Proell, in turn, criticized Faymann for Qobviously 
allowing himself to be pushed around by the unions 
and defended managementQs attempt at Qretaining or 
achieving competitiveness.Q  On the issue of the 
problematic sale of the highly indebted Austrian 
airlines (reftel B), the SPO has called for a 
parliamentary investigation of potential mismanagement 
on the part of OVP Finance Minister Wilhelm Molterer. 
 
Economic Aspects 
---------------- 
 
¶5. (U) On November 6, the SPO and OVP reached a 
broad consensus on economic issues.  They agreed 
to implement tax cuts in 2009, a year earlier 
than previously planned.  The plan involves an 
income tax cut of 2.2 billion euros and an 
additional 500 million euros in (unspecified) 
relief measures for families, but the parties 
have left open the question of which groups will 
 
VIENNA 00001670  002 OF 002 
 
 
benefit from the cuts.  Agreement was also 
reached on a 1.9 billion euro economic stimulus 
package for 2009/10, which concentrates on 
construction projects (850 million euros) and 
investment promotion measures (570 million 
euros), but also foresees funds for improving the 
energy efficiency of buildings, regional 
employment programs, research and development, 
and a mandatory free kindergarten year for 5- 
year-olds. 
 
¶6. (U) Coalition negotiators project these 
measures will raise AustriaQs total public sector 
deficit from 0.6 percent of GDP to 2.2 percent in 
2009, 2.9 percent in 2010, and 2.8 percent in 
2011, before declining to 2.5 percent in 2012 and 
1.7 percent in 2013.  Under this scenario, 
government debt would increase by 50 billion 
euros until 2013. 
 
¶7. (U) Economists generally approve of the idea 
of expanding the budget deficit in reaction to 
the economic slump, but had expected a much 
higher tax cut (3-6 billion euros).  There are 
doubts about whether the government will be able 
to meet the projected deficit levels.  The 
government approved about 2.7 billion euros in 
spending before the elections (reftel C), and 
will need to commit another 450 million euros to 
save the ailing social health insurance program. 
Cost-saving measures, such as healthcare and 
administrative reforms, have meanwhile been 
postponed.  The deficit projections are based in 
part on the assumption that SPO and OVP leaders 
will make good on their agreement to achieve 8 
billion euros in budget savings through 2013. 
However, Faymann and others have been vague about 
how they intend to trim spending. 
 
Personnel Issues 
---------------- 
 
¶8. (U) It is generally expected that the once and 
future coalition partners will continue to evenly 
split the 14 cabinet portfolios in the new government. 
Several ministers are expected to stay in their 
current positions; these may include the SPOQs Defense 
Minister Darabos and Education Minister Schmied, as 
well as Science Minister Hahn from the OVP.  There is 
some speculation that Proell, in addition to Vice 
Chancellor, will serve as either Finance Minister or 
Foreign Minister. 
 
Comment Q New GOA Could Form Quickly 
------------------------------------ 
 
¶9. (SBU) It remains unclear whether Proell will submit 
a draft coalition agreement for approval at the 
November 28 OVP convention, where he is set to be 
officially elected party chairman.  There would be 
some risk to this, given the shrinking but persistent 
opposition of some of the OVP rank and file to the 
idea of entering into another Grand Coalition.  To 
avoid a messy convention, Proell could push to wrap up 
the talks quickly, win approval of a coalition pact by 
the OVP Executive Board, and have the new government 
sworn in before November 28.  There are no concerns on 
the SPO side of the equation, where Faymann is 
expected to win easy approval for an agreement. 
 
¶10. (SBU) A leading advisor on the SPO coalition 
negotiating team told us he expects Proell to take 
both the coalition agreement and the proposed list of 
ministers to the OVP convention, in the hopes that the 
prospect of retaining high-level portfolios will 
assuage concerns about another Grand Coalition. 
Schieder predicted a new government could be installed 
by December 1 or 2, a prospect we consider realistic. 
GIRARD-DICARLO