LONDON - As European governments came to the rescue of four banks on Monday, it was domestic politics that spooked the market in Austria. Massive gains by two far-right parties in the general election raised doubts about the governing Social Democratic Party's ability to form a coalition government.

The ATX Index was down 4.4% by midday in Vienna, after the Freedom Party and the Alliance for the Future of Austria won a combined 29.0% of the vote. Ruling Social Democrats and the Austrian People's Party coalition saw their share of the vote tumble to 29% and 26%, respectively, following the general election on Sunday.

The liberal Social Democrats and centre-right People's party have ruled the country in a grand coalition on and off since the 1950s.

But that’s where the troubles have begun, said Robin Shepherd of the foreign policy think tank Chatham House. "The central reason for the success of the far right is that if you want to register a protest vote against domestic policy, immigration or the European Union, you have no choice but the far right."

If the Social Democrats do manage to retain power this time around, the latest results demonstrate that they will need to abandon their past strategy and scrape back some of the political agenda on issues such as European Union integration and immigration. Should one or both of the far-right parties manage to get into government (through a coalition with the People's party), they will prove a "difficult partner" for Brussels, said Shepherd.
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