Austria's political parties have agreed to hold early parliamentary elections September 28, after the collapse of the coalition between the ruling Social Democrats and the conservative People's Party.  Stefan Bos reports for VOA that the Social Democrats have ruled out cooperation with an increasingly popular far-right party.

The hosts of Austria's main television news program announced the sudden collapse of the coalition-government, which has been in power since January last year.

Austria's conservative People's Party declared it could no longer work with the Social Democrats of Chancellor Alfred Gusenbauer.

People's Party leader Wilhelm Molterer said early elections in September would bring more stability and are important for the alpine nation's future.

"Ladies and gentleman, enough is enough," says party chief Molterer. "Good work in this government is no longer possible.  The Social Democrats walked away from the basis of our government agreement..."  And he adds: "We need new elections, because that is what Austria needs."

Austria's two major parties have been in a "grand coalition" since January 2007.   But they never really liked each other and quarreled over everything from health care, taxes, pensions and schools, to the role of Austria within the European Union.

After the Social Democrats called for a referendum on future changes to E.U. treaties, the conservatives decided to leave the coalition.  Their decision shortened the political career of Austrian Chancellor Gusenbauer, who has been struggling to overcome the People's Party's increasing popularity.

Accused of poor leadership and apparently unpopular within his party, Mr. Gusenbauer said he would not seek re-election.

He says the party leadership has agreed with his proposal that acting party chairman Werner Faymann lead the party.  In his words: "This is the best way to show in which direction we are going."

But acting party chairman Faymann has made clear his party will not walk towards the far-right Freedom Party, due to its calls for expelling large numbers of immigrants and its hostility to Islam and to E.U. integration.

He says: "I have always said that I can not imagine to be even one day in a coalition with the Freedom Party, the FPO." Faymann adds he does not want to make compromise in this area, even if that could cost votes.

But analysts say that the Freedom Party support has surged to around 20 percent in latest polls and that it could become a major political force.  Austria's Parliamentary parties agreed Tuesday to hold the early ballot September 28, and the date is set to be formally approved by parliament on Wednesday

The current political troubles in Austria are being closely monitored by the business community.  Should the conservatives win the next election, as polls now suggest, analysts say Austria is likely to resume privatization's of state-owned firms, including Telekom Austria and Austrian Airlines.

The tensions come at a difficult time for banks: This week a court in Vienna gave jail sentences to nine people over Austria's biggest ever banking scandal.  The group, including the former chief executive of the BAWAG bank, was found guilty of causing losses of nearly $2.7 billion through speculative investments schemes in the 1990s.