THE AUSTRIAN ECONOMY MIGHT best be characterized by the old German phrase klein aber fein, or--in the loose English equivalent--"small but beautiful." Austria is a small European country in terms of gross domestic product, area, and population. Yet, since the end of World War II, it has achieved a remarkable record of growth, even when international conditions have not been at their most favorable. Austria has done this by concentrating on manufacturing the products of the second industrial revolution--such as high-quality machine tools, chemicals, and other producer goods--and exporting them largely to the countries of Western Europe, especially Germany.
Austria has achieved considerable autonomy in many important economic areas. It is almost self-sufficient in food production, largely through careful development and husbanding of resources and through an extensive program of subsidies. Judiciously planned exploitation of the hydroelectric power-generating capacity of the Alps has lessened the country's dependence on imported fossile fuels. Austria has also been able to train an efficient and dedicated work force, although it has come to rely on foreign workers for some essential tasks.
Austria nonetheless remains fully engaged in the European and global economic environment. It must import fuels--especially oil, coal, and gas--and certain industrial raw materials and as a result has a consistent trade deficit. But, because the country is one of the most attractive states in Europe to foreign tourists, Austria is generally able to keep its current account in balance.
The Austrian government has long recognized that the country and the economy cannot function without trade and without access to other markets and sources. Therefore, Austria has always wanted to join customs unions and free-trade areas. It was a founding member of the European Free Trade Association (EFTA). Because it could not join the European Community (EC) owing to its pledge of political neutrality, it helped form the European Economic Area, out of the EC and the EFTA, in late 1992. In 1989 it had applied to join the EC and is regarded as a prime candidate for admission into the organization, known since late 1993 as the European Union (EU), in 1995.
Austria saw many opportunities opening to the East as the Iron Curtain fell and as the former communist economies turned to the West for trade and guidance. As a result, Austria ranks among the top Western nations in opening joint ventures with East European states and has made a variety of trade agreements with those states as well as with the states that had declared their independence from what was Yugoslavia. Some of the links that Austria established and reestablished antedated World War I and thus offer a potential for the re-creation of historical financial and commercial links.
Since the end of World War II, the Austrian economy has functioned in a comfortable niche among the smaller West European states. It has been sheltered from intense international competition because it is only a small market, although the of many Austrian goods is higher than international prices. The Austrian system of economic and social consensus, characterized by the term social partnership, has functioned effectively to permit a high standard of living for its citizens and especially for its labor force. The chambers of commerce, and agriculture, and labor, together with the trade unions, have joined and supported a considerable framework of institutions and regulations that make Austria a model for relations between public and private institutions.
Despite its carefully designed and effectively functioning system, the economy has not been immune to external realities. It was severely buffeted by the "oil shocks" of the 1970s and by the sharp global recession at the beginning of the 1980s. The accumulation of public-sector deficits imposed a heavy burden of debt service on the economy. Austria's recovery from that recession did not fully begin until the mid-1980s, although the recovery advanced smoothly after that and accelerated during the late 1980s before the economy suffered another recession beginning in 1990.
With the end of the Cold War and the consolidation of Europe, the economy faces the problems of greater exposure to outside influences and potential outside competition. As this opening occurs, the Austrian economy also must cope with the potential buffeting arising from the EU adoption of the Maastricht Treaty as well as with other pressures resulting from developments since the ending of the division of Europe. The Maastricht Treaty's provision for a common European currency could compel West European countries and central banks to pursue more cautions fiscal policies and more restrictive monetary policies than in the past. Although the Austrian government and the central bank have long pursued such restrictive policies in order to keep the country's currency, the schilling, on a par with the German deutsche mark, the pressures on other currencies could intensify while the deutsche mark establishes itself as the dominant currency of Europe. This could jeopardize Austrian markets in the EU.
Austria's membership in the EU could also open Austrian markets more directly to the competition of large West European companies that not only enjoy economies of scale but also are more able than Austrian companies to withstand the rigors of long-term competition. And, the fall of the Iron Curtain has opened Austria to greater competition from Central and Eastern European states having lower production costs. Conversely, Austrian exporters also have a wider playing field on which to show their wares. Thus, Austrian planners have both many opportunities and many problems to contemplate as they try to maintain and extend the prosperity and economic success that their country has enjoyed in the postwar period.
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