UPDATE 4-Mitterlehner to lead Austria's OVP after finance minister Spindelegger quits

Tue Aug 26, 2014 5:11pm EDT

* Economy Minister Mitterlehner gets party leader post

* Ex-leader Spindelegger quits, cites lack of party solidarity

* Resigns all offices with immediate effect (Adds Mitterlehner appointment, comments at news conference)

By Michael Shields and Angelika Gruber

VIENNA, Aug 26 (Reuters) - Austria's conservative People's Party (OVP), a partner in the ruling coalition, chose Economy Minister Reinhold Mitterlehner as its leader on Tuesday after OVP chief and Finance Minister Michael Spindelegger abruptly quit in a row over tax reform.

Mitterlehner told a news conference after party leaders selected him unanimously that government ministerial posts were still being decided.

He did not say who would get the post of finance minister, which Spindelegger held in addition to the party leadership, but said the new government lineup should be settled by Sept 2.

The People's Party is junior partner in a coalition with the Social Democrats. New health and transport ministers will take office next week in a minor shuffle triggered by the need to replace the speaker of parliament, Barbara Prammer, who died of cancer.

Spindelegger's unexpected departure comes amid a political battle in Europe over whether belt-tightening has gone too far at the expense of economic growth, a clash that also forced a government reshuffle in France this week.

Senior OVP party members, and Social Democrat Chancellor Werner Faymann, said their coalition, which squeaked out a thin majority in elections last year, should continue until the next national elections due in 2018.

Analysts said Spindelegger's exit could actually strengthen the coalition and increase prospects for stimulus measures by ushering in an OVP leader less keen on fiscal rigour.

Mitterlehner, 58 and deputy party leader since 2011, kept his cards close to his chest, pledging continuity but also saying the OVP had to seek common ground with the Social Democrats.

He was coy about whether he would take the finance portfolio himself. "I would not like to rule anything out. There are serious pros and cons. I would like to take a look at this in peace and quiet," he told reporters.

Austrian media said Gottfried Haber, a 41-year-old business professor at Danube University, had been floated as a possible finance minister, but there was no confirmation of this.

The OVP has been at loggerheads with its senior partner over how to finance income tax cuts to boost an economy that grew just 0.2 percent in the second quarter.

Spindelegger, who last year switched to finance from the foreign ministry, also faced an internal revolt over his refusal to cut taxes unless that can be financed without new levies.

"There has to be cohesion in a party. If the cohesion is no longer there, then the moment has come to hand over the tiller," he told a snap news conference to announce his resignation, showing no emotion and taking no questions from reporters.

WHO'S NEXT?

"What is surprising is the timing," political analyst Peter Filzmaier said. "No one could imagine that he would be the top candidate in the next parliamentary elections with chances to become chancellor. But ... you don't do this at the start of provincial elections in Vorarlberg in four weeks."

The OVP may lose its absolute majority in that western province, and four more state elections are due next year. The OVP's popularity has fallen below 20 percent in opinion polls as the far-right Freedom Party gains.

That posed problems for Spindelegger, a 54-year-old lawyer from Lower Austria who filled an OVP leadership vacuum in 2011 when his predecessor quit due to ill health.

Faymann, responding to questions at a news conference about the durability of the government coalition after Spindelegger's resignation, said: "I expect it will hold until 2018."

Faymann underscored the need to cut taxes - tax rates start at 36.5 percent for income over 11,000 euros - by mid-2015. "I will do my utmost to meet this timetable," he said, adding savings and additional revenue were needed to finance this.

He wants a tax on millionaires to help raise revenue, an idea that was anathema to Spindelegger.

Regional OVP leaders have been grumbling aloud about Spindelegger's leadership for weeks, and the rebellion broke into the open on Tuesday when OVP member and Tyrol Chamber of Labour head Erwin Zangerl called for Spindelegger to go.

"The OVP needs someone who represents the people, not the lobbyists," Zangerl told the Oesterreich tabloid. "He has given enough proof that he no longer understands the people. He is deaf in both ears." (Additional reporting by Georgina Prodhan, Alexandra Schwarz-Goerlich and Shadia Nasralla; Editing by Susan Fenton)

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