Incoming EU president Austria links east, west
economies
27/12/2005
Austria, the small state assuming the European Union presidency on
January 1, is an economic heavyweight when it comes to linking the
developing eastern and more prosperous western halves of
Europe.
Hannes Androsch, a former Austrian finance minister who is now a
businessman dealing with eastern Europe, told AFP: "What meant a
lot to us was the annus mirabilis when the Cold War came to an end"
and barriers fell to trade with former Soviet bloc states.
This meant that the "logic of geography" was restored for Austria,
once the center of the pre-World War I Austrian-Hungarian empire
and smack in the middle of Europe, bordering Italy, Switzerland and
Germany to the west and Slovenia, Hungary, Slovakia and the Czech
Republic to the east.
"We took great advantage of this fundamental change that occurred
in 1989-90 (when the Iron Curtain fell) and are also doing the same
after enlargement (of the European Union in 2004)," Androsch
said.
Austria is the largest foreign investor in former communist states
Romania and Bulgaria, as well as much of the former
Yugoslavia.
Austrian firms are buying up bank, insurance, oil,
telecommunications and other companies throughout the old Soviet
bloc. Takeovers have included Erste Bank's acquisition of Romanian
bank Banco Comerciala Romana and oil company OMV's purchase of
Hungarian oil firm Mol and Aral service stations in the Czech
Republic.
Friedrich Mostboeck, head of research for Erste Bank, said that
"looking at Austria's equity market, more than 80 percent of the
business is with central and eastern European companies."
And that business is profitable.
Average earnings growth for firms listed on the Austrian stock
exchange was 72.8 percent in 2005, he said.
Mostboeck said Austrian companies "invested a lot in the (former
communist) region in 1989, when the Iron Curtain fell, and are now
gaining a lot out of the region."
He said that while other Western nations, such as Germany, are also
big players in the "New Europe," the Austrians have historic roots
to those countries and have similar mentalities, which makes
dealing with people easier.
Said Androsch: "When Hungarians come to visit Vienna, for instance,
they do not say they are visiting Austria but say 'we are making a
visit to our brother-in-law.'"
OMV, whose market capitalization accounts for almost 20 percent of
the Austrian stock market, is "a major player in the oil business"
in the New Europe of former communist states, Androsch said.
The Austrian connection with the former Soviet bloc states of
eastern Europe will have staying power, Mostboeck said.
These countries have levels per capita of gross domestic product
that are "15 to 20 years behind the levels in the European Union,
perhaps 25 years."
"We are saying it's a story of one or two decades" for these
countries to catch up to the standard of living of the more
prosperous West, Mostboeck said.
And EU enlargement has reduced the risk in investing since "all
these countries have to meet European standards" as they fulfill
Maastricht financial conditions and other EU institutional
requirements.
Austria is benefitting from what has become an "extended home
market," Mostboeck said.
In addition, Austria gets more of a boost from trade with the east
than does an economic giant like Germany.
Moestboeck cited the case of the German firm Deutsche Telecom, a
global player, which is active in Hungary and Croatia in major
acquisitions which only impact "1.5 or 2.0 percent of its overall
sales or earnings."
But Erste Bank, for instance, is "not a global player" and because
it is smaller, it gets boosts from the region to sales or earnings
of "50 to 60 percent (in relation to the bank's size)," Moestboeck
said.