A Political and Economic Dictionary of Western Europe, First Edition
Austria is a Federal Republic in the east of Western Europe. The current Second Republic was established in 1945 at the end of the Second World War and seven years’ Anschluss (annexation) to Nazi Germany.
Area: 84,000sq km; capital: Vienna (Wien); population: 8m. (2001).
The Constitution of 1945 established the Second Republic as a federal state in which sovereignty is shared between nine provinces, or Länder, and the federal government. Legislative power is vested in the bicameral parliament composed of the lower Nationalrat which is directly elected by a system of proportional representation; and the upper Bundesrat, which represents the interests of the provinces. Executive power lies with the Chancellor—since 2000 Wolfgang Schüssel. The non-executive head of state is the President of the Republic, who is directly elected in a two-round ballot for a six-year term. The current President is Heinz Fischer, elected in April 2004.
Austria was part of the Austro-Hungarian Empire in 1869–1918 and had a multinational composition: in 1910 just 48% of the inhabitants of Vienna had been born in the city; around 25% were of Czech or Moravian descent and 8.6% were Jewish. In the post-Second World War period a strong, more homogeneous national Austrian identity developed. However, on account of its geographical position, Austria still regarded itself as a bridge between eastern and western Europe. Post-war Austria adopted a firm position of neutrality during the Cold War when allied troops left in 1955, and did not become a member of the North Atlantic Treaty Organization. It also remained outside of the European Community (EC) until after the fall of the Berlin Wall.
Austria applied for membership of the EC in 1989 and a referendum was held on the issue of membership on 12 June 1994 following parliamentary endorsement. The referendum produced a vote which overwhelmingly favoured membership (yes 66.6%; turn-out 82%). Austria joined the European Union (EU) on 1 January 1995. By joining the EU, Austria had to give up its traditional role as intermediary between eastern and western Europe, and close its borders to immigrants, refugees and asylum seekers from eastern and south-eastern Europe. Immigration has in recent years become an important political issue in Austria.
The Austrian Second Republic has traditionally been characterized by its moderate style of politics and social consensus. It was governed in 1947–66 and in 1987–2000 by a Grand Coalition of the Social Democratic Party of Austria (SPÖ) and the conservative Austrian People’s Party (ÖVP). The SPÖ provided the Chancellor for coalition governments continuously in 1970–99. With this system of consensus, a system of Proporz developed whereby state sector jobs were allocated among members of these two main parties, leading to patronage, inefficiency and corruption. Attempts have been made since the 1980s to challenge the tradition of consensus and dismantle the system of Proporz, but with little success. By the late 1990s the consensus of national politics had been disturbed. A key factor is the shift to the right of the liberal Austrian Freedom Party (FPÖ) in 1986 when Jörg Haider became leader. Under his leadership, the party moved to the extreme right of the political spectrum and sought to influence government policy on immigration, proposing a constitutional amendment stating that Austria was not a country of immigration, requiring non-Austrians to carry identity cards, strengthening military border controls, and adding further restrictions to opportunities for non-Austrians to gain full citizenship status. Since the early 1990s immigration policy has become more restrictive.
In the October 1999 Nationalrat elections the social consensus was upset again when the FPÖ made significant electoral gains and eventually entered into coalition government with the ÖVP. In the polls the SPÖ lost votes and seats but nevertheless retained the status of largest party. The FPÖ made substantial gains through a campaign that opposed immigration and criticized corruption and sleaze among the political class of the two dominant parties. It even overtook the ÖVP—by 415 votes—to gain the status of second largest party in the Nationalrat. The ÖVP had stated that it would go into opposition if it slipped into third place. However, it eventually reneged on this pledge as forming a coalition with the SPÖ, FPÖ and ÖVP in first, second and third place respectively proved difficult. The SPÖ refused to enter into coalition with the FPÖ but entered into coalition negotiations with the ÖVP; these came close to successful completion, but failed after three months’ talks. The SPÖ then tried to form a minority government, which also failed. Eventually, after just five days’ negotiations, the conservative ÖVP leader, Wolfgang Schüssel, announced that his party would form a coalition with the FPÖ. The ÖVP-FPÖ coalition marked the end of consensual, centrist politics in Austria and the inclusion of a far-right party in national government caused outrage in Austria and the international community. The 14 other member states of the EU imposed diplomatic sanctions on Austria. These sanctions had few practical consequences and were lifted when an EU report found that the coalition did not undermine European values. However, FPÖ leader Jörg Haider did resign as party chairman.
The ÖVP-FPÖ government proved to be a volatile coalition. Internal disputes within the FPÖ on government taxation policy led to the resignation of four key FPÖ ministers (including the Vice-Chancellor, Susanne Riess-Passer, and finance minister Karl-Heinz Grasser). Nevertheless, the coalition was controversially reformed following the November 2002 Nationalrat elections. Then the ÖVP gained the status as largest party for the first time since 1966. The SPÖ came second and the FPÖ, its worst ever electoral performance notwithstanding, third. The Green Party achieved its best ever result. The ÖVP entered coalition negotiations first with the Greens, and then with the SPÖ. It then decided to form a second coalition government with the FPÖ after negotiations which lasted just four days.
The two controversial ÖVP-FPÖ coalitions headed by Chancellor Wolfgang Schüssel have implemented a number of ambitious reforms. They have begun to weaken the system of Proporz and to reform the old-fashioned public administration system. They have implemented economic reforms to reduce the budget deficit and reform the welfare state; and they have raised the retirement age, reformed dismissal legislation and introduced university tuition fees.
Post-war Austria has struggled with the issue of whether Austria was a willing ally or victim of the Nazi regime. These issues were widely discussed in 1988 on the occasion of the 50th anniversary of the Anschluss of Austria by Nazi Germany (which had been endorsed by referendum among the Austrian population). It was revealed in 1988 that the then Austrian President, Kurt Waldheim, had lied about his role, during the Second World War, as an officer in a military unit which is known to have committed atrocities in the Balkans. The ÖVP strove to resolve the long-standing issue of compensation for Holocaust victims and slave labourers and, in October 2000, Austria signed an agreement with the USA and six Central and Eastern European Countries.
Economy: The Austrian economy has enjoyed fast growth, low inflation and low unemployment for much of the post-war period. It is based on its main exports—machinery, metals, paper, textiles, food, livestock—and a strong tourist industry. Austria nationalized much of state industry and banks in the post-war period in order to defend national sovereignty and resist Soviet claims for reparations. Key nationalized sectors played an important role in the post-war reconstruction: they provided basic materials, infrastructure and services to private manufacturing industry. State-owned firms were also used as tools of social and economic policy.
GNP: US $194,700m. (2001); GNP per caput: $23,940 (2001); GNP at PPP: $215,000m. (2001); GNP per caput at PPP: $26,380 (2001); GDP: $188,546m. (2001); exports: $99,795m. (2001); imports: $99,762m. (2001); currency: euro; unemployment: 4.0% (2002).
The characteristics of the post-war Austrian economy have been those of a strong corporatist political economy. Economic decision-making has been conducted by four key peak associations representing labour and capital which have close links with the two parallel parties, the Social Democratic Party of Austria (SPÖ) and the conservative Austrian People’s Party (ÖVP), in parliament. Typically, economic and social policy-making in Austria has been conducted through negotiations between the relevant ministries and the social partners; only once a deal has been reached is this presented to parliament. The strong emphasis on consensus among social partners has ensured continuity and stability in economic policy.
Despite the dominance of the SPÖ in the post-war period, this corporatist tradition has meant that the Austrian welfare state is more conservative than social democratic in orientation. A large proportion of welfare spending is on transfer payments, which remain closely linked to occupation status, the welfare state is funded by individual social insurance contributions rather than general taxation, and there is a comparatively low rate of female participation in the labour market. Social consensus led to full employment and agreement between social partners ensured that wage demands during recessions were modest and that little time was lost annually to strikes.
The corporatist, consensual tradition provided for stable and predictable economic management in the 1950s, 1960s and 1970s, but it has struggled to adapt to provide rapid economic solutions in the globalized era. The oil crises of the 1970s revealed weaknesses in nationalized firms and Austria fell into recession. However, it managed to secure economic growth through bigger budget and trade deficits—an approach which has been referred to as Austro-Keynesianism. It also pursued a hard currency policy, locking the Schilling to the German Deutsche Mark and following the monetary policy of the German Bundesbank.
There has been wide speculation that globalization will lead to a ‘deaustrification’ of the corporatist political economy. Privatization policies since the mid-1980s have weakened the role of labour in key areas of the economy, but on the whole economic adjustment has been conducted within the framework of corporatism and social partnership. A growth in electoral support in the 1980s and 1990s for anti-corporatist political parties—the Green Party and the Austrian Freedom Party (FPÖ)—and the inclusion of the FPÖ in government were perceived as developments likely to weaken the corporatist framework. However, social partners have redefined themselves as the ‘brokers’ of modernization and as the symbol of stability in the period of upheaval and rapid change. They were also at the forefront of the campaign to support Austria’s accession to the European Union (EU).
A founder member of the European Free Trade Association in 1960, Austria joined the EU in 1995. It later qualified for participation in the final stages of Economic and Monetary Union (EMU). Prior to the 1995 election, Austria had a budget deficit equivalent to almost 5% of its gross domestic product and this threatened to jeopardize its chances of meeting the convergence criteria for EMU, which stipulated a maximum deficit of 3%. The SPÖ-ÖPV grand coalition in 1995–99 implemented a package of austerity measures to reduce the budget deficit. This entailed cuts to the public sector and social spending. Macroeconomic performance improved considerably, with average economic growth of 2.5%, an inflation rate of 0.6%, the highest ever numbers in employment and falling unemployment rates. Fiscal reforms also left the Austrian tax-payer with more disposable income.
The right-wing coalition ÖVP-FPÖ implemented a further programme of budget consolidation, with the finance minister Karl-Heinz Grasser aiming to reduce the budget deficit to zero. This consolidation was attempted not by cutting public spending but by increasing revenue. State assets were privatized, existing charges (e.g. road tolls) were raised and new charges were introduced for some health and education services. The tax burden increased to its highest ever level and planned tax cuts were postponed following severe flooding in the summer of 2002. During the government’s second term it began to reform the welfare state, introducing a universal child allowance (Kinderscheck) for all parents, regardless of employment status, tackling the sensitive issue of pension reform and raising the age of retirement. Austria had used early retirement schemes to remove people from the labour market and in the mid-1990s only 8.8% of 60–64 year-olds were in active employment. Overall, in the second term, economic growth was slow and unemployment increased rapidly.
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