UPDATE 1-Mainstream parties clinch Austrian coalition deal

Thu Dec 12, 2013 9:53am EST

(Releads with agreement, adds quotes from party leaders)

By Michael Shields and Georgina Prodhan

VIENNA Dec 12 (Reuters) - Austria's mainstream pro-Europe parties agreed on Thursday to govern in coalition for the next five years, promising to ensure continued prosperity in the Alpine euro zone nation.

The Social Democrats (SPO) and conservative People's Party (OVP) had promised a new, progressive approach to politics after September elections in which voters tired of party paralysis punished them and bolstered the far right.

But the two parties that have dominated post-war politics produced no surprises as they announced a compromise deal they said would allow them to consolidate state finances while still fuelling growth and employment.

"There is no need to reinvent Austria, a successful country," Chancellor Werner Faymann told a news conference in which he addressed his OVP counterpart Michael Spindelegger as "my dear Michael".

"We play an important role in the European Union as an exemplary country that shows that this conciliatory approach is possible," Faymann said.

An agreement had never been in serious doubt during the eight-week-long coalition negotiations but the parties had disagreed over privatisation policy, how to plug fiscal gaps and pension and education reform.

Spindelegger said the two had now agreed on savings including a cap on public administration costs to eliminate the structural budget deficit by 2016, as well as measures to stimulate economic growth and employment.

They did not raise the official retirement age of 65 for men and 60 for women, as some had demanded, but said they would undertake measures to ensure that the actual average retirement age rises by 1.6 years by 2018 from 58.4 now.

"It's a good foundation for us to really reach this goal, to lead Austria out of the crisis by 2018," Spindelegger said of the deal, promising more details on Friday.

Critics, including the opposition Freedom Party and the Greens, had said Austria needed to reform public finances and pensions and cut a swollen bureaucracy to ensure living standards in a country with the EU's lowest jobless rate.

Werner Kogler, the Greens' finance spokesman, tweeted on Thursday: "I had imagined 'new start' a bit differently."

The two parties fudged a compromise on the thorny issue of privatisation. The OVP had wanted the state to reduce its stakes in energy group OMV, Telekom Austria or Austrian Post to free up funds for investment.

"When the time is right and we both together consider it to be right we will talk about privatisations," Spindelegger said.

Spindelegger, now foreign minister, is widely expected to claim the finance ministry for his next post, replacing Maria Fekter.

That could pave the way for rising OVP star Sebastian Kurz, just 27, to take over as foreign minister. (Editing by Sonya Hepinstall)

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