* EU Commission declines to comment
* Decision expected by midnight July 1
* Lufthansa agreed to buy Austrian Airlines in December (Adds comment from EU Commission)
FRANKFURT, June 30 (Reuters) - The European Commission
wants Austrian Airlines
EU Competition Commissioner Neelie Kroes wants Austrian Airlines to shrink its passenger traffic by a fifth by 2010 when compared to 2008 levels, the paper said, citing an EU Commission proposal.
A spokesman for the European Commissioner declined to comment on the case, adding that a decision will be made by midnight July 1.
Austrian Airlines should reduce its passenger traffic in its charter business by half, the paper said without citing sources.
Lufthansa agreed in December to buy state-controlled AUA in a deal incorporating 500 million euros ($700 million) in aid from the Austrian government to reduce the money-losing airline's 1 billion euro debt pile.
Both the acquisition itself and the state aid require EU antitrust approval.
Lufthansa has said from the outset that it would walk away from the deal if EU conditions were too onerous. Chief Executive Wolfgang Mayrhuber has said he was not interested in buying what he called a "little AUA."
(Reporting by Edward Taylor; Editing by Richard Chang)