Austrian parties agree Social Democrat-led coalition

VIENNA, Jan 8 (Reuters) Austria's main centre-left and conservative parties sealed agreement on a ruling coalition today under which Social Democrat Alfred Gusenbauer will become chancellor, three months after narrowly winning an election.

Gusenbauer said his pact with conservative leader and incumbent Chancellor Wolfgang Schuessel would bring more social justice to Austria and underpin its economy with additional spending on education, science, streets and railways.

''If you look at the government programme you will see that Austria is one of the few countries in Europe where not only competitiveness but social justice too is at the top of the agenda,'' Gusenbauer told reporters.

He defied opinion polls last year by coming in just ahead of Schuessel in national elections. The deal brings back his Social Democrats to power after seven years in which Schuessel's People's Party governed with the far right.

But Schuessel, who lost more than a quarter of his voters in the poll, proved his negotiating skills by securing the finance, foreign and economy ministries, and by blocking some of Gusenbauer's campaign pledges.

''The People's Party has got a disproportionately large piece of the cake,'' said analyst Wolfgang Bachmayr of pollster OGM. ''With this cabinet you can assume that the political direction of Schuessel's government will by and large continue.'' Schuessel and Gusenbauer did not say who would head any of the ministries. A senior Social Democratic source said incumbent Finance Minister Karl-Heinz Grasser would leave government, but it was unclear whether Schuessel himself or conservative parliamentary leader Wilhelm Molterer would take over his post.

Social Democrats will run the ministries of defence, justice, education, social affairs and infrastructure. The conservatives will also get the interior and agriculture portfolios.

Cabinet appointments will be decided on Tuesday and the government sworn in on Thursday. ''Grand coalitions'' of conservatives and Social Democrats ruled Austria in the first 21 years after World War Two and in the late 1980s and the 1990s.

WELFARE, EDUCATION, EUROFIGHTER The coalition was finalised after a weekend deal on some one billion euros in added government spending -- 400 million for social benefits including a rise in minimum pension, 400 million for infrastructure and the rest for education.

Gusenbauer bowed to conservative demands on budget issues, watering down a plan to guarantee a minimum income of 800 euros per month. The idea survived as a small rise in minimum welfare and state pension levels.

He also agreed to delay a three-billion-euro tax cut for middle incomes, one of his election pledges. Another prominent pledge, to abolish university tuition fees, did not make it into the government programme either.

Schuessel granted him only the right to renegotiate a 2-billion-euro deal to buy 18 jet fighters from the Eurofighter consortium, which Gusenbauer said the next defence minister would do immediately.

Gusenbauer said in newspaper interviews earlier that his party could not expect to achieve 100 percent of its programme with the 35 percent of the vote in won in the October 1 election.

Schuessel said the business-friendly tax cuts and sweeping pension reform of his government had been largely preserved.

The coalition talks often stumbled on mutual accusations of bad faith and sabotage. But growing public discontent over delays prompted Gusenbauer and Schuessel last month to set themselves the goal of a new government sworn in on January 11.

REUTERS BDP KN2234