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Austria Austria and European Integration
Given its dependence on international trade, Austria has
always been interested in some form of customs union. Although it
was recognized that there might be some competitive disadvantages
in such associations, especially with countries that produced at
more competitive prices, the Austrian government and Austrian
manufacturers have always been even more afraid of being
excluded. They feared that exclusion would prevent them from
reaping any economies of scale and would ultimately consign them
to an economic backwater.
The government, therefore, was anxious to join in some form
of European economic association as several organizations were
being shaped after World War II. It could not join the European
Community (EC) as it was being formed, however, because of fear
that this would violate the 1955 State Treaty prescription for
neutrality. The member states of the EC called their organization
the Common Market when they created it in 1958, but they made it
clear from the beginning that it had a political as well as an
economic purpose. Under those circumstances, Austria had to hold
back as long as Europe was divided by the Cold War.
However, such considerations did not prevent Austria from
joining the European Free Trade Association
(EFTA--see Glossary)
when it was formed in 1960. EFTA was a purely economic
association, and its members included Finland, Sweden, and
Switzerland, all neutral states that were not members of the
North Atlantic Treaty Organization (NATO). Moreover, EFTA had no
intention of becoming anything more than a trade association.
EFTA was far from an ideal trading arena for Austria because most
of its members were located on the periphery of Europe. EFTA
countries came to account for less than 15 percent of Austria's
trade, while 66 percent of its foreign trade was with the EC
countries.
EFTA, however, did have a very important specific advantage
from the Austrian standpoint because it did not require common
tariffs. Thus, Austria could retain some control over the
conditions under which its foreign trade operated, while
expanding its close commercial links with a number of EC states
(even as it remained formally outside the EC).
Austria attempted to obtain associate status in the EC
despite the political barrier to full membership. As it became
clear in the 1960s that some EFTA members, such as Britain, were
beginning to edge toward EC membership, Austria began its own
negotiations to obtain a special arrangement with the community.
In 1972, after ten years of negotiations, Austria and the EC
reached an agreement providing for a gradual lowering of tariffs
to zero. Austria nonetheless remained outside the EC Common
Agricultural Policy (CAP).
The Austrian government applied to join the EC in the summer
of 1989, as the Soviet empire was crumbling and Moscow was no
longer either disposed or able to use the neutrality restrictions
of the State Treaty to bar Austria from membership. Like other
EFTA states, Austrian officials agreed in 1991 to the formation
of the European Economic Area (EEA) between EFTA and the EC as a
preliminary step, but it also wanted to join the organization on
its own.
Although Austria will probably not be able to join the
European Union (EU)--as the EC came to be known in November 1993-
-until 1995, by which time the Single Market should be well
advanced, the government has taken steps to begin adapting the
economy to EC standards. Along with adopting many EC laws and
regulations through the EEA in 1991, the government has adopted a
number of additional EC rules, including those governing the
freedom of capital flows. These measures have been taken to
ensure that the social partners and the economy as a whole would
not be at a disadvantage when Austria becomes an EU member.
Under the terms of the agreement reached at the EC summit at
Maastricht in December 1991, Austria's membership in the EU will
also lead to membership in the new European Monetary Union (EMU)
if Austria can meet the convergence requirements by 1997. These
requirements include a number of features: an inflation rate
within 2.5 percent of the three lowest in the EU; long-term
interest rates within 2 percent of the three lowest rates; a
government deficit below 3 percent of GDP; and a public-sector
debt of less than 60 percent of GDP. As of 1993, Austria was able
to meet these requirements, but there is no guarantee that that
will be the case in 1997.
Austria tied the schilling to the deutsche mark in the 1960s,
largely because the country could not function without a
predictable exchange rate with its largest trading partner, West
Germany. In part to reinforce that linkage, Austria joined the
EMS and its ERM in 1979. This membership has meant that Austrian
interest rates have matched those of the Bundesbank and, as a
result, to all intents and purposes have been set in Frankfurt.
Therefore, Austrian adherence to the EMU would be a logical
extension of long-established policies, and Austrian currency
would become whatever the EMU adopted, whether it is called the
European Currency Unit (ECU) or the Euro-Mark as some have
proposed.
The link to the deutsche mark has had a major advantage for
Austria in that it has given the country a long period of low
inflation and the kind of monetary stability that those who
suffered through the terrible inflation of 1921-23 well
appreciate. It is, however, also a disadvantage for Austria's
international competitive position. Goods denominated in
schillings, like goods denominated in deutsche marks, cannot
count on any sales increases because of devaluation of the
currency. In fact, the schilling has consistently increased in
value since the end of the Bretton Woods fixed exchange-rate era
in 1971. It has generally moved with the deutsche mark vis-à-vis
the United States dollar.
Data as of December 1993
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