Austria is one step closer to forming a new government.

The country's conservative Austrian People's Party (OVP), led by the charismatic 33-year-old Sebastian Kurz, is currently in formal negotiations with the liberal Greens following two months of exploratory talks.

This would be an unlikely pairing, particularly after scandals, corruption and anti-immigration rhetoric brought down the People's Party's last governing coalition with the far-right Freedom Party.

The pro-business People's Party and pro-environment, pro-immigration Greens have very different political agendas.

"Kurz made electoral promises he must keep," says Barbara Kolm, the vice president of the Austrian Central Bank and the director of the Austrian Economics Center.

"The past chancellor and chancellor-to-be Kurz wants to attract not only foreign direct investment, but companies and to make sure businesses build and grow. And if you look at the Green party's promises, they say 'no, no, no, we need to calm down growth in the economy just for the environment,' so these are two things that are pretty much apart."

Snap elections in September brought back Kurz's renewed People's Party, but not with enough votes to form a majority – forcing him again to assess his options.

In 2017, Kurz campaigned to end the decades-old governing coalition with the left-of-center social democrats, but his recent governing coalition with the Freedom Party was seen by many as too far to the right.

Both of the latter parties have been declining in popularity, losing double-digit seats in September's polls. Whereas Austria's Greens were considered the success story of the elections, increasing their share in parliament by more than 10 percent.

While governing in five of Austria's nine regions, the Greens have never been in government at the federal level.

Ulrike Lunacek, former vice president of the European Parliament and a member of the Austrian Greens, says it is a very important moment for the party.

"You can see where you have consensus, but in a coalition negotiation, you always have to do compromises. For us, the main reason we got elected was the environment, was the fight against climate change. But we are a party that covers all topics, such as finding a dignified way of dealing with migration and asylum seekers according to international laws and human rights, so those are the issues we need to get something from, so we could live well in a coalition."

Green parties have been a part of coalition governments across Europe before, but rarely as part of a two-party alliance and never in Austria.

However, according to Kolm, who was appointed to the central bank by the Freedom Party, if talks fail with the Greens, the previous coalition, which governed for only 17 months, could still be revived.

"The last government, the OVP and FPO government put things on the path that past governments had never even touched upon. They put tax reform on the road and made sure the revenue stream is still ok, a balanced budget, social security reform. I mean, this was a true pull factor for Austria and our growth rates were really excellent, so the bar is very high."

Negotiations are expected to carry on well into the new year, but if no consensus is found, Kurz may ask parliament to vote on a minority government or even propose fresh elections.