VIENNA (Reuters) - Austria's conservative leader has threatened to break off coalition talks with the Social Democrats in an increasingly heated debate over how to plug a looming hole in state finances.
The sparring between the mainstream parties - both weakened by poor showings in September's election that bolstered the eurosceptic far right - will test their pledges to end such squabbling and ensure the Alpine republic's prosperity.
Michael Spindelegger's People Party (OVP) has been pressing Chancellor Werner Faymann's Social Democrats (SPO) to embrace austerity as a way to help close an estimated 24 billion euro ($32 billion) financing gap over the next five years.
On top of a rising pension bill and deep subsidies for the state-owned railways, Austria's nationalized banks may stretch public finances with a need for fresh capital - Hypo Alpe Adria alone will need up to 5.4 billion euros by 2017.
Senior SPO officials have played down the need for tough measures such as pension reform, arguing that steps the previous government adopted, including a public sector hiring and wage freeze, just need to be implemented properly to achieve the goal of balancing the budget by 2016.
Faymann annoyed many conservatives by saying at the weekend he saw no need for any new savings package that would have a tangible impact on Austrians.
Spindelegger, in an interview with the Kurier newspaper published on Tuesday, demanded "a solid plan for the next five years or else I won't enter a coalition". He cited the need to reform Austria's bloated bureaucracy and cut railway subsidies.
"We need a restructured budget. The is the basic precondition for the OVP to join a government. I somewhat fail to see the readiness of the SPO to face these facts," he added, putting chances for another coalition at 50:50.
The SPO wants to strike another deal with the OVP to extend the centrist coalition that has governed since 2006. The conservatives have left their options open and flirted with the idea of leading a center-right government.
Most analysts expect the two pro-Europe parties that have dominated postwar politics to close ranks and govern together again after rattling sabres to impress their rank and file.
Faymann, under pressure from SPO ranks to preserve the country's generous social safety net, played down the tumult.
"I am convinced that with good will we will reach an agreement before Christmas," he told Austria's ORF radio, although he said he expected some tough discussions.
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(Reporting by Michael Shields; Editing by Alison Williams)