Inside Millions of euros in the secret bank accounts of a dead politician and Doing Business in purported donations from Muammer Gaddafi are the subject of an article by Chris Bryant AUSTRIA Page 3 FINANCIAL TIMES SPECIAL REPORT | Friday October 22 2010 www.ft.com/austria­2010 | twitter.com/ftreports Bid to build on short­term resilience The swiftness of the recovery is partly due to stimulus measures but growth is expected to slacken next year, says Chris Bryant or about 90 minutes this sum- mer Austria was the centre of the western world’s attention. Russian and US aircraft Fparked side by side on the tarmac at a sun-drenched Vienna airport in July to carry out the biggest spy swap since the Cold War. Officials in Vienna maintained a cool, knowing silence long after the jets had departed with their reclusive cargo – a posture that is second nature to a city well versed in the ways of espionage. While that event put the country in the spotlight, its economy is staging a quiet recovery. Bankers and officials squirmed last year when Austria’s exposure to central and eastern Europe of approximately €200bn became fodder for economic doomsay- ers. But these fears have since sub- sided and after a comparatively mild recession, the economy is set to expand 2 per cent this year, according to Austrian Institute of Economic Research (Wifo). Exports are driving the rebound as newly-confident German companies place orders for Austrian parts and Going places over the Danube: exports are driving the economic rebound as newly confident German companies place orders for Austrian parts and other supplies Dreamstime other supplies. Meanwhile, the return of growth in parts of emerging Europe recession. Accordingly, the govern- about whether some tax increases are able to run up unfundable obligations. overcrowding and underfunding and base their headquarters in Vienna, has provided a boost to Austrian com- ment – an at times uninspiring coali- necessary. Meanwhile, voters have Although no other state has liabilities the country has fared comparatively incentivised by a favourable tax panies that invested heavily in the tion of the Social Democratic party shown themselves disinclined to to rival Carinthia, the affair only poorly in the international Pisa educa- regime. Indeed, the capital has con- east before the crisis. “There is an (SPÖ) and conservative Austrian Peo- reward the government for its diligent added to pressure to reform federal tion rankings. Many analysts saw sistently ranked among the world’s investment boom above all in Asia, ple’s party (ÖVP) – is unlikely to test crisis management. fiscal relations. exposure to central and eastern most desirable cities to live. Excellent from which the German export econ- the market with signs of fiscal profli- The far right Freedom Party (FPÖ) Weaknesses in the education system Europe as a weakness during the cri- public transport, low crime, and a omy is profiting very strongly. We’re gacy. picked up more than a quarter of the should also be a worry for an econ- sis. But domestic policymakers and near unrivalled cultural offering have the suppliers of German exporters. So, Under a fiscal framework agreed by vote in elections in Vienna earlier this omy whose long-term success depends businesspeople insist that the con- provided a strong incentive for reloca- in a way, Germany for us is the door parliament in June, Austria plans to month, sparking a bout of soul-search- on producing high-value products trary is the case, given the medium- tion, tempered only by a punishing to the global market,” says Markus cut its deficit to below the Maastricht ing among the coalition partners. using highly skilled labour to differen- term potential for higher growth rates top rate of personal income tax. Marterbauer, senior economist at threshold of 3 per cent of GDP by With the economy performing rela- tiate it from low-cost locations. Stu- in the region. Economic recovery has underscored Wifo. 2013. tively well, the FPÖ’s electoral suc- dents occupied university buildings in Accordingly, companies with an eye Austria’s short-term resilience. Politi- The swiftness of the recovery is also Government officials are in the cess arose from its focus on issues of Vienna last year to protest against on eastward expansion have rushed to cians must now focus on growth. partly thanks to stimulus measures process of negotiating the details of immigration and integration. The gov- that supported consumption and the 2011 budget that will set the politi- erning parties must now find a way to investment during the downturn, as cal tone until the next general elec- keep the FPÖ at bay without suc- well as formal and informal flexible tion in 2013. “We have two challenges cumbing to populist or fiscally-impru- labour arrangements that prevented ahead of us – one is making a wise dent politics. Similarly, there is a dan- mass layoffs. fiscal consolidation. The other is to ger that Austrian politicians are so As a result, the unemployment rate try to use the way out of the crisis to busy patting themselves on the back of 4.3 per cent is among the lowest in strengthen strong points and make for the measures they took to over- the European Union and less than Austria more economically attractive come the crisis that some of the big half the average, according to than it was before,” says Andreas structural weaknesses revealed by it Eurostat. “The Austrian economy is Schieder, state secretary in the are overlooked. doing much better than everyone finance ministry. The country’s dependence on parts expected,” says Herbert Stepic, chief The budget talks have recently been for the German automotive industry executive of Raiffeisen International, complicated by two factors. Higher exacerbated the downturn. As manu- one of Austria’s biggest banks. “Meas- than anticipated tax revenues have facturers look to trim overheads by ures taken by industry not to sack triggered a debate within the coalition switching production to low-cost loca- people but to give them part-time tions, Austria may not be able to rely employment instead…ultimately on the car industry to sustain growth helped them to stay in business and forever. Furthermore, its dependence generate more income.” on exports to Europe could hinder The cost of these crisis measures growth as emerging markets econo- has of course taken its toll on the mies race ahead. The quota of non- budget, but a projected deficit this European exports has improved in year of 4.1 per cent seems manageable recent years, but is still less than 20 compared with the fiscal imbalances per cent of the total. on Europe’s periphery. Still, efforts to Furthermore, society is ageing cut state spending, particularly in because of one of the lowest birth neighbouring countries, could cause Inside this issue rates in the EU. The pension system the recovery to slacken next year, Banking The pre­crisis fad of cannot forever withstand the tempta- with Wifo forecasting growth of 1.9 issuing loans in foreign currency tion of many Austrians to retire early, per cent. has turned into a liability, says often on spurious health or disability As a member of the eurozone, Aus- Chris Bryant Page 2 grounds, while the flexibility of its tria also cannot shield itself from mar- labour market could also be improved. ket worries about the health of the Industry The murky outlook The government wants to encourage currency bloc: its credit default swap can be gauged by the low level of more skilled migrants into the coun- spreads – a measure of sovereign risk investment spending at most try which may temper some of these – widened in June in tandem with companies, writes Eric Frey Page 2 problems – but with the far-right in other big European economies. the ascendancy, the government is Winter sports Austrian groups Although the public debt is set to unlikely to throw open the doors in proudly emphasise their domestic climb from 67.6 per cent of gross origins and affiliations. Haig Simonian the near future. domestic product in 2009 to 70 per reports Page 4 Another difficulty is Austria’s cent this year and about 72 per cent in recent unfortunate reputation for cor- 2011, it remains not far above the Wine Kester Eddy on the anti­freeze ruption. The near collapse of Hypo Maastricht target of 60 per cent. Mar- scandal that initiated a revolution in Group Alpe Adria, a Carinthian bank, ket sentiment has improved of late the vineyards Page 4 in December is under intensive inves- although lingering worries remain tigation. The scandal threw a spot- about the possibility of a double-dip light on how federal states have been Rightwing shadow on image abroad The Freedom Party’s same challenge. But no Politics showing fell just short of other far-right group can the 28 per cent it received boast such wide support as No other far­right in Vienna in 1996 under the Austria’s Freedom Party. group can boast leadership of Jörg Haider, Even though the strength its late leader, once of the far right is unlikely such broad support, Europe’s most prominent to have a direct effect on writes Eric Frey rightwing rabble-rouser government policies, it who died in a car accident casts a shadow on political two years ago. However, his life and may hurt Austria’s For veteran observers of party had moved even fur- image abroad. Mr Hofer Austrian politics, it is a ther to the right since Mr mostly blames feeble cam- familiar picture: a grand Haider split off to form his paigns by the other two coalition of Social Demo- own group in 2005, making opposition parties in crats and conservatives that the latest result all the Vienna, the conservative is nearly paralysed as the more shocking.