How Austria’s Video Scandal May Topple EU’s Youngest Leader

(Bloomberg) -- Fallout from the lurid video showing Austria’s vice-chancellor promising state contracts for cash continues spreading. First, it toppled Heinz-Christian Strache, the Freedom Party boss caught boasting in a booze-soaked evening on Ibiza with a woman claiming relation to a Russian oligarch. Then, it felled Austria’s government, with Chancellor Sebastian Kurz calling for snap elections to staunch the damage caused by the junior partners in his administration. Now, the metastasizing scandal risks dragging down the 32-year-old Kurz himself as Austria’s jilted opposition may marshal a no-confidence vote.

1. Who is Kurz and how did he get here?

The European Union’s youngest leader led his People’s Party to a resounding victory over Austria’s Social Democrats in the 2017 election. Kurz proceeded to form a government with the Freedom Party, the right-wing nationalists led by Strache. Both men ran campaigns predicated on restricting immigration, curtailing welfare and lowering taxes. The men appeared to work well together through 17 months in office. Then the video appeared.

2. Why is the video impacting Kurz?

Even though he’s in no way implicated by the incident in Ibiza, its shocking content forced Kurz to completely overhaul his government. Critically, the chancellor concluded that the Freedom Party could no longer be trusted to run the Interior Ministry. The dismissal of Herbert Kickl -- a luminary among nationalists who’s no stranger to controversy -- was a bridge too far for the rest of the Freedom Party. It triggered additional ministers to resign, including the heads of the ministries of defense, infrastructure and labor. It also turned Kurz’s erstwhile government partners into rivals with the potential power to take him down.

3. How could a no-confidence vote play out?

Austria’s smallest opposition party has drafted a parliamentary motion of no-confidence in Kurz’s government. But in order for it to pass, the Freedom Party lawmakers would have to switch allies, and the Social Democrats would have to back the motion. Both have kept the option open but haven’t committed yet. Should the no-confidence gambit succeed, Austria’s President Alexander Van der Bellen would then need to appoint a caretaker government. That would create an unprecedented political void heading into snap parliamentary elections in September.

4. Who are the potential winners and losers?

The chancellor has the most to gain -- and lose. Kurz is still wildly popular among many Austrians and People’s Party gained four percentage points in the first poll after the scandal broke. He told rattled voters this was their chance to help his government consolidate power and drive through more reforms. But with only 38% support, Kurz looks likely to fall short of the majority he’d need to govern alone. Opposition parties including the Social Democrats and NEOS could gain in the polls and a resurgent Green Party could take back parliamentary seats. The only sure losers are members of the Freedom Party -- they lost five percentage points support in the days after the crisis and are almost certain to suffer on election day.

5. Should investors be worried?

There’s little chance of economic disruption in the short-to-medium term. Austria had a budget surplus for the first time since 1974 last year as brisk tax revenue growth outpaced expenses. Many analysts ascribe more risk to potential international trade disruptions than internal political strife. Austria’s export-dependent economy relies heavily on automobile manufacturing -- a point Kurz made clear to U.S. President Donald Trump during a visit in February.

The Reference Shelf

• Austria’s Kurz Seeks to Rule Solo After Dumping Nationalists
• Austria’s Kurz Faces Confidence Vote After Nationalists Ousted
• A Rambling Russia-Themed Video Fells Austria’s Top Nationalist
• Why Austria Voted for the World’s Youngest Leader: QuickTake Q&A
• Why European Parliament Elections Suddenly Matter: QuickTake

To contact the reporter on this story: Jonathan Tirone in Vienna at jtirone@bloomberg.net

To contact the editors responsible for this story: Reed Landberg at landberg@bloomberg.net, Boris Groendahl, Zoe Schneeweiss

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