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Austria treads a tightrope in Europe

The Local · 6 Nov 2014, 11:57

Published: 06 Nov 2014 11:57 GMT+01:00

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When Vladimir Putin visited Vienna in June 2014, the long-serving head of the Austrian Federal Economic Chamber said it was already the third time he had received the Russian president. Putin, jokingly criticizing his host’s longevity, cried out in German: “Dictatorship! But good dictatorship.” Austrian and Russian entrepreneurs in the audience burst out laughing. So did Austria’s president, Heinz Fischer, who amicably patted Putin on the back.

In summer 2014, while EU-Russian relations were sinking toward Cold War levels, refocusing NATO’s attention on its Eastern flank, Austria was giving the Russian president the red-carpet treatment.

Officially, Vienna supports EU sanctions against Russia, but most Austrians are unhappy with the measures, even after much fighting in eastern Ukraine.

Austria is also moving ahead with the South Stream pipeline, a venture that will bring more Russian gas to Europe but that Brussels has criticized for its noncompliance with EU rules.

It is not just Vienna’s stances on the Ukraine crisis and Russian energy that set it apart from many other European capitals. Austria’s entire European discourse is different. Few Austrians care about the euro crisis or the new European commissioners who entered office in November 2014.

The country has its back to Brussels and looks toward Eastern and Southeastern Europe, where it earns most of its money.

When Austrians are asked about their place in the EU, they often answer that theirs is a tiny country between East and West that is conflict averse and obsessed with neutrality after many wars in the 20th century.

Austrians see themselves as ultra-pragmatists who never take a stand except when it comes to promoting their business interests. Muddling through is second nature to them.

To understand this assessment, one has to take three factors into consideration. The first is Austria’s geography. The Ukrainian border is closer to Vienna than the Swiss border is. Bratislava is a 50 minute drive away, and Budapest can be reached in a few hours.

Second, look at Austria’s cultural and economic ties to the East. The Habsburg Empire once stretched from Italy’s Lombardy to Ukraine’s Lviv. Despite having been cut off from this hinterland during the Cold War, Austrians feel close to Central and Eastern Europe. There are family ties; the mentality is similar.

Austria is also the second-biggest investor in Central and Eastern, in terms of GDP, after Germany. Austrians’ stability and prosperity depend on the region’s well-being.

And third, Austria has a distinctive history with Russia. Austria is one of the few places in Europe from which Russian soldiers withdrew before the Berlin Wall came down. This happened in 1955, after Russia had co-administered the country with the United States, the UK, and France.

Austria paid a price for its independence, however - a price set by Moscow: be neutral. Russia wanted little Austria to make sure there would never be a line of NATO members running from north to south in Europe. When Germany and Italy joined the alliance, Moscow asked Austria to interrupt this line.

Enduring pragmatists

Austria has a different relationship with Russia from that of Poland or the Baltic states: those countries were “freed” after the Cold War ended, while Austria’s understanding with Moscow continues.

Vienna applied for EU membership only after an explicit go-ahead by then Soviet leader Mikhail Gorbachev in 1989. Austria joined the EU in 1995, along with Sweden and Finland. It doesn’t dare join NATO.

Austria has survived well on this strategy, which has become part of the country’s national identity. It is the second-richest EU member state after Luxembourg. Government debt and the budget deficit are modest by eurozone standards, at 80.3 percent and 2.8 percent of GDP respectively in 2014, according to the European Commission’s forecast in May of that year.

After one sharp contraction of 3.8 percent of GDP in 2009, the Austrian economy has continued to grow. However, the national bank recently downscaled growth prospects for 2014 from 1.6 percent to 0.9 percent because of the impact of the Ukraine crisis and sanctions against Russia.

Today’s successes were achieved only after half a century of turmoil. When France and Germany pooled their war industries in the European Coal and Steel Community in 1952, Austria was a war-torn place with a smashed identity. It had lost World War One, shedding an empire in the process.

In the 1930s, Austrians fought Austrians in a civil war. Then came Nazi Germany’s annexation of Austria in 1938, with big Austrian crowds cheering Hitler. After the Second World War, Germany went through a painful soul-searching process. Austria did not. It still portrays itself as a victim of the Germans.

With such a dramatic, bloody history, Austrians began to do everything to avoid conflict. During the war, Austria’s political elite was shipped off to the Dachau concentration camp. The Austrians loathed each other, but in Dachau, they agreed never to let Austria be torn apart again.

They worked out a way to manage their postwar country without provoking further conflict: by doing everything by consensus. From that point on, coalition governments of conservatives (“blacks”) and Socialists (“reds”) dominated Austria’s political system. 

This system survives to this day and is key to Austria’s pragmatism. Left and Right detest each other but still divide many jobs among themselves. For example, conservative politician Johannes Hahn was nominated to be a European commissioner in 2009 because a Socialist, Michael Häupl, was mayor of Vienna.

This eternal coalition makes Austria a rather corrupt country in many senses. Austrian syndicates never go on strike - but they have one of the most generous social welfare systems in Europe.

Corruption scandals involving (former) politicians erupt regularly, leading to court cases and convictions. The clean up of banks in Austria is slower than in other countries because banks are full of political appointees who enjoy protection.

In Austria, corruption doesn’t involve paying bribes for drivers’ licenses or birth certificates. But for certain jobs, it helps to be a member of a particular political party. The Western-led Organization for Economic Cooperation and Development regularly urges Austria to improve transparency.

Cold War spy nest

Austrians like the good life and are risk averse. “We are pragmatists to the core,” admits Alfred Gusenbauer, a Socialist who was chancellor from 2007 to 2008.

He advises the Serbian government on its EU accession process and the Austrian government on EU enlargement. “Compared to us, the rest of Europe are a bunch of idealists,” he says. “Some Western Europeans seem nostalgic for the Cold War. They like having Russia back as the enemy. Well, we don’t.”

Austria has never really engaged with the European Union. It has been too busy with itself, making its consensual model of democracy work while not stepping on Moscow’s toes. The Iron Curtain hung close to Vienna. Older Austrians still remember putting mattresses on the floor for Hungarians fleeing from Soviet tanks during the 1956 Hungarian Revolution.

Thanks to Austrian neutrality, Vienna became the UN’s third headquarters after New York and Geneva. The Organization of the Petroleum Exporting Countries also meets in Vienna. But the city has been particularly famous for being a Cold War spy nest.

It is no coincidence that the US agents who were caught spying on German trade policy in July 2014 received their instructions and payment from the US embassy in the Austrian capital.

The road to EU membership

The first Austrian political party to propose EU membership was the FPÖ, in the late 1980s. The party’s leader, Jörg Haider, embraced accession because the main parties were against it.

But soon, the mood in the country began to shift. Support for membership started to grow - first among the conservatives, then more broadly among other politicians, who slowly warmed to the idea.

In the end, both coalition parties supported Austria’s EU membership. Even the populist newspaper Kronen Zeitung, which is now very Euroskeptic, was in favour. The last hurdle to accession was overcome when a report by lawyers argued that the country’s neutrality would remain intact because Austria would have a veto in Brussels.

In July 1989, Austria submitted a request for EU membership. The FPÖ was now against it. With many Austrians supporting accession, the far-right party saw electoral gain in opposition.

Later that year, the Berlin Wall came down. That this event coincided with Austria’s move toward EU membership was an unbelievable piece of luck for Vienna. The fall of Communism meant that Eastern European countries would eventually join the union, shifting Europe’s heart eastward. Austria would sit right in the middle of this “new Europe”.

This transition gave the Austrian economy a tremendous boost. The country’s entrepreneurs travelled all over Eastern Europe, buying up banks and companies and starting businesses.

Austria’s Billa supermarket chain has opened branches in the Balkans and closed ones in Italy. Multinationals now hire Austrian consultants to explore Central and Eastern Europe.

The end of Communism also rekindled old cultural ties between Austria and its Eastern neighbours. Thanks to immigration, Vienna grew again and has some 1.8 million inhabitants today. The city has the second-biggest Serbian population after Belgrade.

In 1994, Austria held a referendum on EU accession. Gusenbauer says, “We convinced citizens that nothing much would change, except that borders would open and trade barriers would be lifted. It was an easy job: Austrians are big exporters.” In the referendum, 66.6 percent of the population voted yes.

Gateway to the East

Austria has reaped the rewards of its close ties with its Eastern neighbours.

True, some banks have overeaten in Eastern Europe and have had to be bailed out. Hypo Alpe-Adria-Bank has absorbed €5.5 billion ($7.0 billion) in state aid since 2009 after going on a spending spree in Southeastern Europe in the 1990s.

Austrian companies that did business with Russia throughout the Cold War have been hit by the Ukraine crisis. In 2014, Raiffeisen Bank saw its business in eastern Ukraine disrupted by the conflict there and had to close all its branches in Crimea after Russia annexed the peninsula in March.

In September, the bank predicted its first annual loss because of regional uncertainties. Analysts warn that Austria’s growth prospects will be downscaled if tensions persist.

And yet, thanks to booming economies at its Eastern doorstep, Austria has mostly escaped the eurozone recession.

Most Central and Eastern European countries are growing faster than the EU average, providing Austria with an economic perspective that many other eurozone countries utterly lack. An Austrian entrepreneur says, “Our work ethos comes from the West, our profits from the East.”

In Vienna, there is irritation about past and present EU policies toward Moscow and Kiev. Most Austrians agree the EU has made a mistake by getting closer to Ukraine, Georgia, and Moldova, and not to Russia.

“We should have offered Russia these prospects [of closer association] too, including EU membership,” says a prominent Austrian politician off the record. “[The Russians] would have declined, of course, but at least they would have received the same treatment as others. Now they say we are plotting behind their backs. They feel offended.”

Austria was the first European country to receive Russian gas, in the late 1960s. A big storage facility, co-owned by Russia, lies close to Vienna. Austrians, who insist that this gas has always arrived on time, see no need to reduce their dependency on Russian energy.

Signs of a vibrant commercial relationship with Russia are everywhere. Rich Russians buy upmarket penthouses in Vienna and pay in cash in luxury stores. A Russian businessman, asked why he doesn’t move to Switzerland, where foreigners often pay less tax, says, “I feel more at home here.”

In the future, Austria will keep walking a tightrope in Europe. Itself a product of tension between East and West, the country will abide by EU rules and will be careful not to burn bridges.

The energy Austrians invest in Brussels will be dedicated to a few issues they find important, such as EU enlargement to Serbia and Albania. In the new European Commission, Hahn has been reappointed as Austria’s commissioner, with the portfolio of the European Neighbourhood Policy. Vienna couldn’t have asked for anything better.

Austrians believe they are at the centre of the new Europe. Whatever this means, they must somehow make it work. And that is precisely what Austrians have always been doing: trying to reconcile irreconcilable viewpoints, and doing well out of it.

This article is taken from a longer piece by Caroline de Gruyter which was first published by Carnegie Europe. 

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