The Vatican Website carries this announcement:
Il Santo Padre ha dispensato il Rev.do Mons. Gerhard Wagner dall’accettare l’ufficio di Vescovo Ausiliare di Linz (Austria).
The Holy Father has dispensed the Reverend Monsignor Gerhard Wagner from accepting the office of Auxiliary Bishop of Linz (Austria).
The whole Wagner incident poses interesting problems for the Pope. The rejection of his nomination followed uproar in the Austrian media and the uber-liberal diocese of Linz. The Austria hierarchy with Cardinal von Shoenberg felt obliged to join the fray demanding the Holy See take better advice and listen to the local Church.
The trouble is Linz is out of control, it seems to offer its own unique brand of Catholicism, and desperately needs someone like Wagner, who will bring into it some mainstream Catholicism. It can be disputed whether the Pope actually bothers about the appointment of auxiliary bishops, but mutterings around Rome have suggested if this appointment can be overthrown what other decisions will the local Germany/Austria Churches reject.
Germany/Austria is in the unique situation where being a Catholic depends not on practice, or even belief but the paying of the Church Tax. The Church is supported therefore through the state, hence the German Chancellor feels she has a right, even a duty to lecture the Pope, and local officials expect to be able to decide on Church policy and appointments. In certain parts of Germany/Austria, it is no wonder "We are Church" is a serious force within or in opposition to the mainstream Catholicism, no wonder too why in the Nazi period the Church, with a few glorious exceptions, became supine to the State rather than offering it a moral compass.