When Jorg Haider marks his 50th birthday with a massive bash in his home province of Carinthia tonight, the far-right politician will have much to celebrate. Demonised for two decades as a dangerous populist with a soft spot for the Third Reich, Haider took a giant step this week towards the goal he has pursued all his political life - becoming chancellor of Austria.

If coalition talks between Haider's Freedom Party and the conservative People's Party are successful, the far right could be part of Austria's government by the end of next week. And if the talks fail, all opinion polls predict that Haider would emerge from new elections with the largest share of the vote.

The international reaction to the prospect of the right-winger entering government has been one of shock and outrage, with Israel threatening to withdraw its ambassador from Vienna if Haider joins the cabinet. Belgium has called for a special EU meeting to try to prevent the coalition from being formed and the President of the European Parliament has described the idea of Haider in power as intolerable.

Britain, France, Germany and Spain have expressed their concern, although the Irish Government has so far remained silent. As international leaders gathered in Stockholm this week to remember the victims of the Holocaust, many were puzzled by the success of the far right in a peaceful, prosperous country such as Austria. Unemployment is low and incomes are high but, according to Erhard Stackl of the liberal daily Der Standard, many working-class Austrians still fear that they will be left behind in the rush towards economic globalisation.

"The Haider party is now the workers' party in Austria. They have the biggest percentage of industrial workers' votes." Many working-class voters who formerly supported the Chancellor, Mr Viktor Klima's Social Democrats, share Haider's xenophobic attitudes to immigrants and refugees. But their support has not been enough to catapult the right-winger to his present position. He also enjoys the support of more voters under the age of 29 than any other party and many of these voters are firmly among the winners in Austrian society.

Karl-Markus Gauss, a political theorist who edits the journal Literatur und Kritik in Salzburg, believes that Haider's appeal to successful Austrians is the real secret of his success.

"If you look at central Europe, you'll see a conglomerate of regions, including Bavaria, Switzerland, northern Italy and parts of Austria which are all modern, successful economies. But they respond to the message of right-wing populists like Haider and Umberto Bossi. You see the same phenomenon in southern France, where prosperous people back Le Pen," he said.

In Bavaria, they refer to this political philosophy as "laptop and lederhosen", as the pursuit of success in high-tech industries is accompanied by reactionary social policies and crude xenophobia. Gaus believes that Haider's supporters do not dislike foreign immigrants primarily because they are of a different race but because they are poor.

Much of Haider's appeal undoubtedly lies in the fact that he represents the only alternative to the grand coalition of Social Democrats and conservatives that has governed Austria almost continuously since the end of the second World War. Many Austrians are especially weary of the system known as proporz, whereby important jobs in all state and semi-state bodies - from banks and building societies to television networks and the national airline - are divided between the supporters of the two ruling parties.

Big business was wary of Haider at first, partly because he presented himself as the champion of the little man by promising to increase public spending in some areas, while cutting taxes. But most industrialists now reckon that the accession of a rightwing government offers a unique opportunity to break the power of the unions, accelerate the privatisation of nationalised industries and reform the labour market in a manner to their liking.

Tensions over economic policy were already evident before the collapse of talks between the Social Democrats and the conservatives. And there is mounting evidence that the conservative leader, Wolfgang Schusssel, was seeking a way out of reviving the old coalition.

If the talks between the conservatives and Haider's party succeed, Schussel will almost certainly become chancellor - despite his unpopularity among voters and his party's record low in opinion polls. For his part, Haider is likely to stay out of the cabinet and remain in his present post as governor of Carinthia. Haider's absence from the government may soothe the nerves of Austria's worried partners abroad but Stackl is convinced that the right-winger will interfere with the running of the government and that he could withdraw his party from the coalition at any time.

"He's always said that his idea for his career is to come out on top in the end. So if you form a coalition with him, you have to be prepared that, at any moment he sees a possibility to call new elections, he'll do it," he said.

Haider's chameleon quality makes it difficult to predict how his party's presence in government will change Austrian society and the conservatives are likely to insist on a cautious approach at the beginning. They have already signalled that Austria's foreign policy will remain the same and that Vienna's commitment to EU enlargement will not weaken.

Even where immigrants are concerned, Stackl believes that the main change will be one of mood - not least because the other parties have long since adopted Haider's tough policy on foreigners.

"The anti-foreigner stance, one has to say, has had its effect already. He was always in favour of stopping immigration and as a matter of fact, it has stopped," he said.

Haider is planning to visit Israel next month in an attempt to persuade his critics that, despite his history of wild remarks praising Hitler's employment policies, describing SS veterans as honourable men and referring to Nazi death camps as punishment camps, he is not a fascist.

He is not, in fact, a neo-Nazi but his populist rhetoric appeals to the same unattractive parts of human nature that all demagogues target with a mixture of flattery, fear-mongering and chauvinism. Right now, his rise appears unstoppable but Stackl is confident that, despite his success to date, Haider will never fulfil his dream of leading his country.

"That's his plan, that's what he wants to be. But if you look at this kind of populism, there's an in-built tendency to fail because they promise so many things to different types of people. There could be a sobering-up among his supporters when they realise he is not the prince who has come to save them," he said.