Three months of talks to form a new Austrian government edged towards final agreement yesterday with the renewal of a 13-year pact between the Social Democrats and conservative People's Party.
After nearly 13 hours of negotiations, the parties broke off talks on a new cabinet line-up early today but agreed to meet again later in the day.
Acting Chancellor Mr Viktor Klima briefed President Thomas Klestil shortly before entering a ninth round of talks between the two mainstream parties, which lost support in last October's inconclusive election to the farright Freedom Party.
Both sides said agreement had been reached on raising the minimum retirement age, a new wave of privatisation and extending maternity benefits, but more work was needed to agree cuts in state spending and a security policy compromise.
The pressure on Mr Klima's Social Democrats and the conservatives, led by acting Foreign Minister Mr Wolfgang Schussel, to strike a deal rose significantly last week after Mr Klestil warned that failure could force early new elections.
Opinion polls suggest Mr Jorg Haider's Freedom Party could edge the Social Democrats aside if a new ballot were held now.
Mr Haider, who outlined an alternative government programme on Saturday, claimed he could reach agreement with Mr Schussel within a week.
Key elements of the draft government programme include agreement to bring the budget deficit down to 1 per cent of gross domestic product by 2005 and a new privatisation drive.
Austria's fiscal position aroused concern among its euro zone partners late last year amid warnings that the deficit could balloon to 2.6 per cent of GDP in 2000 because of tax cuts and higher welfare spending.
The agreement is a classic compromise between the People's Party's desire for wholesale privatisation and the Social Democrats' fear that Austrian companies will be swallowed up by hostile foreign takeovers, destroying jobs and skills.
Even if Mr Klima and Mr Schussel can patch up their remaining differences and present President Klestil with a new programme and cabinet, they must still win the approval of their respective parties.
Some leading conservatives would prefer a coalition with the Freedom Party, while left-wingers in the Social Democrats are unhappy at some of the concessions Mr Klima appears ready to make in areas such as pension reform.