AUSTRIA:Austria's Social Democrats (SPÖ) and the conservative People's Party (ÖVP) have agreed to form a grand coalition under SPÖ leadership after three months and 11 rounds of horse-trading.
SPÖ leader Alfred Gusenbauer will become chancellor, replacing ÖVP leader Wolfgang Schüssel, whose future in the cabinet was unclear last night.
The two parties will have an equal number of cabinet positions: the conservatives retain the ministries for foreign affairs, interior and finance, while the Social Democrats will have social welfare, education and defence.
Control of defence could be critical in the coming months as the parties try to find a compromise over a €2 billion order of 18 Eurofighter jets approved by Mr Schüssel's government before the election and criticised as unnecessary by the SPÖ.
The government is expected to be sworn in on Thursday, but only if Mr Gusenbauer succeeds in selling the deal in a vote today of the party rank and file.
They were expecting more after the SPÖ surprised its rivals and the pollsters by coming from behind to capture 35 per cent in October's general election, overtaking the ÖVP as Austria's strongest political party.
Since then talks with the ÖVP have broken down several times, forcing President Heinz Fischer to demand a deal from the parties by this week. Mr Gusenbauer was forced to make several painful concessions to secure the ÖVP's signature.
The new government has abandoned an SPÖ election pledge to implement a guaranteed minimum income of €800 a month in favour of a small rise in social welfare and pensions. At ÖVP insistence, plans to abolish university fees have also been abandoned, as has a promised €3 billion tax cut on middle incomes. Schüssel-era pension reforms and business tax cuts, meanwhile, have remained untouched.
"The People's Party has got a disproportionately large piece of the cake," said analyst Wolfgang Bachmayr on radio. "With this cabinet you can assume that the political direction of Schüssel's government will by and large continue."
Despite their economic policy differences, the parties follow similar lines on fiscal and foreign policy, in particular in their joint opposition to Turkey's EU accession.
It is a return to tradition for Austria: grand coalitions have ruled the country for 32 of the 61 years of the second republic.
The last grand coalition governed for 14 years until Mr Schüssel entered a coalition with the far-right Freedom Party, plunging the country into a diplomatic crisis with the EU.