AUSTRIA

Republic of Austria

Republik Österreich

COUNTRY OVERVIEW

LOCATION AND SIZE.

Austria is a landlocked country situated in southern Central Europe. Slightly smaller than Maine, it occupies a territory of approximately 84,000 square kilometers (32,000 square miles), which includes much of the mountainous territory of the eastern Alps and the Danube region. From east to west, Austria stretches to 580 kilometers (360 miles) and 294 kilometers (183 miles) from south to north. In total, the country has 2,708 kilometers (1,682 miles) of borders. It shares borders with 8 European countries: Germany (820 kilometers), the Czech Republic (469 kilometers), Italy (430 kilometers), Slovenia (330 kilometers), Hungary (354 kilometers), Switzerland (167 kilometers), Slovakia (103 kilometers), and Liechtenstein (35 kilometers).

Austria is a federal state comprised of 9 provinces: Burgenland, Carinthia, Lower Austria, Salzburg, Styria, Tyrol, Upper Austria, Vorarlberg, and Vienna. The major cities of Austria and their populations are Vienna (1.64 million), Graz (237,810), Linz (203,044), Salzburg (143,978) and Innsbruck (118,112).

Austria has always been a junction for communication, trade, and cultural exchange in Europe. The capital, Vienna, located on both banks of the Danube River, in the northeast of the country near Slovakia and Hungary, was once the political and economic center of the Austro-Hungarian Empire (1867-1918). It is now the headquarters to some of world's most important organizations, such as the International Atomic Energy Agency (IAEA) and the United Nations Industrial Development Organization (UNIDO). Other international organizations based in Vienna include the Organization for Petroleum Exporting Countries (OPEC) and its Fund for International Development and the International Institute for Applied Systems Analysis (IIASA).

POPULATION.

Austria has a population of 8,139,299 (July 2000 est.). The country is highly urbanized and densely populated, with 651 people per square kilometer (251 per square mile). Nearly two-thirds of the people live in urban areas. About 4.0 million are male and 4.2 million (51.5 percent) are female. Due to improved health conditions and a low birthrate, Austria has experienced the rapid growth of its elderly population. Average life expectancy for those born in 2000 was 73.9 year for males and 80.2 years for females. About 21 percent of the population was under 18 years old. If current trends continue, by 2030, the number of children under 18 will drop to only 17 percent. The fertility rate is an estimated 9.9 per 1,000 people, and infant mortality is 6.7 per 1,000 live births. An estimated 99 percent of Austrians age 15 and older can read and write, and there is 1 teacher for every 11 pupils.

ETHNICITY.

Approximately 98 percent of the population is German. The remainder of the population is divided among a number of ethnic groups, including the Neo-Latins, Slavs, Magyars, Croats, Hungarians, Romany, Sinti, Czechs, and Slovaks. Burgenland province is home to a number of Croats and Hungarians. The majority of Austrian Slovenes live in the Gail, Rosen, and Jaun valleys of southern Carinthia and in some villages in the southern part of Styria. Romany and Sinti live mostly in Burgenland and to some extent in Vienna. Many Czechs and Slovaks also reside in Vienna and in Lower Austria, particularly in the Marchfeld and Tullnerfeld regions. The country receives refugees from a variety of nationalities, many of whom are from the former Yugoslavia.

RELIGION.

Roman Catholics constitute 78 percent of the Austrian population; a further 5 percent are Protestant, and most of them belong to the Augsburg confession. About 4.5 percent of the population belongs to various other religious groups, while another 9 percent are nondenominational, and the remaining 3.5 percent of the people do not belong to any religion. Every young person over the age of 14 can freely choose his or her religion according to Austrian law. Religious education in Austrian schools is not restricted to the Roman Catholic confession, but most schools are Roman Catholic.

OVERVIEW OF ECONOMY

Austria has a small, yet open, economy with exports of goods and services accounting for 47 percent of the gross domestic product (GDP). In the past 2 decades Austria has enjoyed higher economic growth and lower unemployment than many European countries. The recession in the early 1990s led to a downward trend in annual GDP growth, from 4.2 percent in 1990 to 0.4 percent in 1994. Since 1995, however, due to positive merchandise export and investment activities brought about by membership in the European Union, the economy has experienced fairly constant growth, with annual GDP growth rates for 1998, 1999, and 2000 of 3.3 percent, 2.8 percent, and 2.7 percent respectively.

The country has a strong economic infrastructure with well developed industry, banking, transportation, services, and commercial facilities. Most of Austria's industrial and commercial enterprises are small. However, there are a number of large industrial enterprises employing thousands of people, mainly in iron and steel works and chemical plants. Overall, industry accounted for an estimated 32 percent of gross domestic product in 1998, with an average growth rate of nearly 3 percent. Though forming a relatively small component of the GDP—1.3 percent in 1998—agriculture also plays a vital role in Austria. Austrian farmers provide about 80 percent of the domestic food requirements of the country and contribute to export earnings with processed food items. Farms in Austria, like those of other mountainous European countries, are small and fragmented, with production being relatively expensive. Since Austria became a member of the EU in 1995, its agricultural sector has been undergoing reforms to comply with the EU's common agricultural policy.

Export growth was very strong during 2000. Trade with other EU countries accounts for nearly two-thirds of Austria's total imports and exports. Approximately 35 percent of the total exports went to Germany and 10 percent went to Italy. Austria's location is of immense importance for its economic growth. Vienna is one of three capitals forming a strategic Central European triangle. Slovakia's capital, Bratislava, and Hungary's capital, Budapest, are within short distances to Vienna. Expanding trade and investment in the emerging markets of Central and Eastern Europe continues to be a major element of Austrian economic activity. Exports to that region increased significantly since 1989, reaching an estimated 17 percent of Austrian exports by 1998. Austrian firms have sizable investments in—and continue to move labor-intensive, low-tech production to—the region. Although the Austrian government and businesses support the European Union's plans to offer membership to several East European countries, they insist that the candidates meet EU economic standards before accession. They have also favored a transition period for the free movement of labor and services to prevent severe competition in the Austrian labor market during accession.

For many years, the government and its state-owned industries played a primary role in the Austrian economy. Many of the country's largest firms were nationalized after World War II to protect them from Soviet takeover as war reparations. These included all oil production and refining, the largest commercial banks, and the principal companies in river and air transportation, railroad equipment, electric machinery and appliances, mining, iron, steel, and chemical manufacturing, and natural gas and electric power production. Although the government retains substantial control over the economy, many of these enterprises were privatized in the 1980s and 1990s. Through privatization efforts including the 1996-1998 budget consolidation programs and austerity measures, Austria brought its total public sector deficit down to 2.1 percent of GDP in 1999 and public debt to 63.1 percent of GDP in 1998. After the formation of a new government in February 2000, Austria promoted further economic liberalization , privatization, reform of the welfare system, and abolition of the system of political patronage (where those in political power protect and support certain businesses). An opinion poll published at the end of May 2000 showed that 43 percent of Austrians were in favor of these reforms, and 23 percent were against.

Membership in the EU has brought economic benefits and challenges. An influx of foreign investors, for example, have been attracted by Austria's access to the single European market. Austria also has made progress in increasing its international competitiveness. Since Austria is a member of the European Monetary Union (EMU), its economy is closely integrated with other EU member countries, especially Germany. Although economists have generally agreed that the economic effects of the EMU on Austria, such as the use of a common currency, have been and will be positive, support for the EU in late-2000 fell to an all-time low. According to a poll by the national newspaper Die Presse, on 27 October 2000, only 34 percent of Austrians thought that their country has benefited from EU membership; the figure was 45 percent in autumn of 1999. Some Austrians have asked for their country's complete withdrawal from the EU. It is not likely that such initiatives will get very far, however, with the Austrian chancellor having attacked the idea of withdrawal as a "betrayal of the European idea."

POLITICS, GOVERNMENT, AND TAXATION

Austria has a well-developed market economy and a federal republic form of government; the state has historically played a large role in the economy, though that role decreased dramatically at the end of the 20th century. Governed by 2 major parties, the Social Democrats (SPO) and the conservative People's Party (OVP), Austria has enjoyed political stability and economic growth since 1945. The SPO, which garnered 33 percent of the votes in the 1999 national legislative elections, traditionally draws its constituency and much of its strength from the urban and industrial areas. In the past, the SPO has advocated heavy state involvement in strategic industries, the extension of social security benefits, and a full-employment policy. In the mid-1980s, the party shifted more toward the advocacy of free market economics and the balancing of the federal budget. The OVP's traditional constituency has been among farmers, large and small businesses, and lay Catholic groups. Its center of strength is rural Austria. The OVP has also advocated conservative financial policies and privatization of previously nationalized industries. The OVP received 27 percent of the votes in the 1999 election.

The major opposition to both parties during the late 1990s and early 2000s elections was the populist right-of-center Freedom Movement Party, headed by the controversial Jörg Haider, characterized as an ultranationalist (one who supports the nation at any cost), and a xenophobe (one who fears foreigners). Haider made several strong remarks praising Nazi policies. The rise of the Freedom Movement Party—from 5 percent of the votes in the 1983 election to 27 percent in 1999—was credited to voters who were disappointed by the employment opportunities in Austria. A system known as Proporz, supported by the ruling parties, distributed most top jobs in state business and public service to members of those parties. After the fall of the Iron Curtain in November 1989, when the U.S.S.R. started to loosen its control on the borders of its Eastern satellites, cheap and skilled labor came into Austria from Poland, Czechoslovakia, Hungary, and Slovenia. Many Austrian workers lost their jobs to the immigrants who were willing to work for lower pay and fewer benefits. In addition, many farmers were dissatisfied over the EU agrarian policy put into place after 1995, which lowered prices for agricultural products. In addition, the lack of professional chances in the civil service and in many other state institutions due to the EU budget criteria aroused the dissatisfaction of many young people who were seeking traditionally secure government jobs. Haider's Freedom Movement Party, which was against immigration and interference from the European Union, won increasing support.

In February 2000 the conservative People's Party, which wanted to establish an effective and legitimate government that would enjoy the support of Parliament, formed a coalition with the Freedom Party. Nearly 54 percent of the electorate voted for the new federal government. The European Union condemned Austria's new coalition, froze diplomatic contacts, and imposed sanctions , accusing Haider of being a racist, xenophobe, and Nazi sympathizer. Austria criticized the European Union for interfering in a democratically elected government. Demonstrations in Austria and throughout Europe followed. Haider did not join the government, and in February 2000 he resigned from the Freedom Movement Party to concentrate on his role as governor of the Carinthia province. In September 2000, the European Union lifted sanctions against Austria. Haider was expected to wield influence from the sidelines, however.

Austria's federal structure of government involves a high degree of decentralization with the executive and legislative functions shared between the Federation (federal government) and the Länder (provinces). The Länder play a significant role in federal legislation, having independent regional legislations which cooperate with the Federation in the execution of the federal legislation. According to the constitution of 1920, the head of the country is the president, who is elected by popular vote every 6 years and who represents Austria in its international relations and serves as commander-in-chief of the armed forces. Thomas Klestil, who was elected on 8 July 1992, was elected to a second term on 19 April 1998, with 63 percent of votes. The president is limited to 2 consecutive terms or a total of 12 years in office. Presidential elections are scheduled for the spring of 2004. The president appoints the head of the government, a federal chancellor, who appoints others to the executive branch. With the chancellor's recommendation, the president appoints the ministers. The president also appoints judges. After 4 February 2000, chancellor Wolfgang Schuessel of the OVP headed Austria's government.

The constitution of Austria provides for a distinct division of power among the executive, the legislative, and the judicial branches of government. Executive authority is vested in the federal government composed of the federal chancellor, a vice-chancellor, and other ministers. Legislative authority is vested in the bicameral (2-chambered) Federal Assembly composed of the Nationalrat (National Council or lower chamber) and the Bundesrat (Federal Council or upper chamber). Legislative authority is concentrated in the 183 members of the Nationalrat who are elected by direct popular vote for 4-year terms according to proportional representation . The Bundesrat consists of 64 members elected by the legislatures of the 9 provinces for 4-or 6-year terms, also according to proportional representation, with each province guaranteed at least 3 representatives. The Bundesrat reviews legislation passed by the Nationalrat and can send legislation back for reconsideration, but the Nationalrat need only pass the legislation a second time to override a veto. Furthermore, the Bundesrat can only initiate legislation by way of the government. The 2 chambers meeting as the Federal Assembly can propose a national referendum, if needed. The highest courts of Austria's independent judiciary are the Constitutional Court, which has jurisdiction over constitutional matters; the Administrative Court, which handles bureaucratic disputes; and the Supreme Court, which deals with civil and criminal cases. All cases initiated in the Administrative and Supreme Courts can be appealed to the Constitutional Court. The president appoints justices of all 3 courts for specific terms.

The federal government is responsible for developing and implementing the domestic and foreign policies of Austria and sets economic policy in consultation with what is known as the social partnership, consisting of the representative bodies of businesses, farmers, and labor. Designed to minimize social unrest, this consensual approach has come under criticism for slowing the pace of economic reforms, particularly in inflexible labor and product markets. With an increasing number of decisions being made at the EU level, the influence of the social partnership has declined significantly. The government no longer has majority ownership in companies such as OMV (oil and gas), Voest (steel and plant engineering) and Elin (electrical machinery and equipment). Subsidy programs have also been scaled back to conform to EU regulations.

In 1997, the government completed an ambitious 10-year privatization program, which included the privatization of steel, aluminum, petroleum, engineering, banking, and other entities. The sale of the Postal Savings Bank and the Austrian Tobacco Company were underway in 2001. Furthermore, the federal railroads were excluded from federal budget accounts, and the newly reorganized Post und Telekom Austria (PTA) (postal and communications company) was divested as a private corporation and was required by law to list its shares on the stock market. Another focus of economic policy was employment creation. Austria has been one of the foremost supporters of the EU's national employment plans, which place strong emphasis on training and education, removal of bureaucratic hurdles, more labor flexibility, and a favorable climate for business start-ups. While some of these plans have been implemented, the government has failed to completely do away with the governing parties' special relationships with business and labor representatives.

The major source of government revenue comes from taxes. The corporate income and capital gains tax rate is 34 percent. A withholding tax of 25 percent applies to dividends, except for those paid to Austrian companies, and interest. A 20 percent tax rate applies to royalties. Only the Austrian-source income of non-resident companies is subject to taxation. When Austria joined the European Union, the government was forced to accelerate structural reforms and to liberalize its economy. Most non- tariff barriers to merchandise trade were removed, and cross-border capital movements were fully liberalized.

The 1996-97 economic program enabled the government to cut the federal deficit to 3.7 percent of gross domestic product in 1996, and to 2.6 percent in 1997. Because of this program, which included tax increases, the share of total taxes in gross domestic product reached a high of 44.8 percent in 1997. In 2000 the government cut taxes. The tax reform was expected to reduce the burden on taxpayers by approximately US$2.2 billion by 2003. These reforms included greater tax privileges for old age, a decrease in marginal tax rates, and an increase in the standard tax credit from US$592 to US$817 per year. These measures will ease the burden on the taxpayer by between US$268 and US$469 a year. About two-thirds of the entire reduction of the tax burden will benefit people earning monthly incomes of less than ATS, 000 (US$1,540). Through these measures, the tax burden on the majority of incomes is expected to be lowered in real terms.

Regarding the taxation of enterprises, the 2000 tax reform package contained 2 new provisions: Interest payments on personal equity will be taken into consideration for taxation purposes, and a tax allowance of US$335,000 will be introduced for inheritance (gift) tax in the case of enterprise transfers. Moreover, the research contribution and apprenticeship allowance will be increased. Private provision for old age will be promoted. In addition, regarding the taxation of capital gains from the disposal of securities, the retention period will be prolonged from 1 year to 2 years.

Relative to the gross domestic product, this tax reform is more comprehensive than the previous ones implemented in 1989 and 1994. The main emphasis of the reform is on easing the tax burden on private consumption. Consumer demand is expected to continue to increase by a cumulative 1.8 percent per year in real terms by 2005. Since direct incentives for investors are extremely modest, investments are not expected to grow significantly. Higher domestic demand, which also results in higher imports, is expected to only modestly contribute to the growth of GDP by 2005. The labor market is thought to be able to absorb another 9,300 employees. Price increases are expected to be insignificant at 0.2 percent.

INFRASTRUCTURE, POWER, AND COMMUNICATIONS

A distinctive feature of the Austrian energy sector is its diversified sources of supply. In 2000, the total primary energy supply included liquid fuels (38 percent), natural gas (24 percent), hydropower (13 percent), other renewable resources (13 percent) and coal (12 percent). Nuclear power is legally banned, following a referendum on the subject in 1978. The renewable resources share in Austria's energy supply increased from 16 percent in 1973 to 26 percent in 2000. The government plans to completely liberalize the electricity market by 2003. Preparations are also under way to open up the natural gas market.

For decades, the telecommunications industry was a monopoly in Austria, with the state-owned Post and Telecom Austria (PTA) being the only national supplier of networks and telecommunication services. Because of EU liberalization directives, the government enforced legislation to open the telecom and energy sectors to competition. The Austrian telecommunications sector now exhibits much liberalization, though high interconnection fees are still a problem. Austria has a highly developed telecommunications system with 4 million telephones, 27 radio stations, 47 television stations, and 4 satellite

ground stations. Radio, television, telephone, and telegraph systems were all state monopolies until the broadcasting system was converted into a joint-stock company in 1957. The Austrian Broadcasting Company operates 3 radio and 2 television stations nationwide. Telephone and telegraph communications are directed by the Austrian postal and telecommunications service. More than 20 daily newspapers are published. Daily newspaper circulation averages more than 3.7 million. Influential dailies include Die Presse (published in Vienna) and Salzburger Nachrichten (published in Salzburg).

Austria has an excellent network of transportation and communication; due to its strategic location and relative political neutrality, Austria has established itself as a broker and an international place of encounter among nations. This role is exemplified by the countless summit meetings and conferences which the country hosts every year. Austria is also anticipating the increasing importance of its transport sector as an essential European communications hub. A factor of the growing importance of the transportation web is the growing European energy transit network (the transport of oil, natural gas and electricity), much of it passing through Austria.

A landlocked and mountainous country, Austria depends on roads and rail passage for a major share of its foreign trade. In the transportation segment, it has 200,000 kilometers (124,000 miles) of roads and 6,028 kilometers (3,744 miles) of railroads, of which about 5,388 kilometers (3,347 miles) are state owned and 640 kilometers (398 miles) privately owned. Furthermore, more than 350 kilometers (217 miles) of inland waterways carry approximately one-fifth of the country's total trade. The main river ports are Linz, Vienna, Salzburg, Graz, Klagenfurt, and Innsbruck. The Danube River, the only navigable waterway with barges carrying up to 1,800 tons, is an important connection between the North Sea, Germany, and the Black Sea. In terms of air connection, Austria has 55 civil airports, 20 with paved runways. The main international airport is Schwechat located in southeast Vienna.

International flights are available from the airports in Graz, Innsbruck, Klagenfurt, Linz, and Salzburg.

ECONOMIC SECTORS

Austria is one of the wealthiest and most stable of the EU member countries. It has a free market economy with a strong emphasis on social factors favoring the economically less privileged and providing conditions for equitable wages and pricing. Service, industry, and agriculture are the 3 major sectors of the Austrian economy. The foremost products are foodstuffs, luxury commodities, mechanical engineering, steel, chemicals, and vehicles. Within the vehicle sector, the production of engines and transmissions is the most important, accounting for an export quota of more than 90 percent. Austria manufactures as many as 800,000 engines per year for major car manufacturers. In the electronic engineering field, Austria is known for its production of customized electronics products such as microprocessors and integrated circuits for airbags, ABS braking systems, and components for Airbus airliners and for high-speed trains.

Approximately 3 percent of all Austrians work in agriculture and forestry. In 1998 that sector accounted for 1.3 percent of Austria's gross domestic product. Although about 41 percent of Austria's total area is thought to be suitable for agriculture, currently about 18 percent of the surface area is actually covered by farmland. Another 27 percent of the country's area is considered as grassland and nearly half (47 percent) is woods and forests. With its 20,000 organic farmers, Austria occupies a leading position in Europe in the branch of organic agriculture.

In 1998, Austrian industry (commodities manufacturing, energy, and mining) accounted for 32.4 percent of the GDP and employed 29 percent of the workforce. In the field of raw materials and energy generation, Austria possesses ample resources. It has major deposits of iron ore and non-ferrous metals. It also has its own resources of oil and natural gas and is the EU's number-one generator of hydroelectric power. However, the constant growth of the industrial sector necessitates a significant amount of supplementary imports. This is also true of fuels and energy and of the electricity which generates industry.

There are an unusually high number of medium-size enterprises in Austria's commercial industrial sector. Austrian industry covers practically every branch of manufacturing starting from basic goods to the labor-intensive production of finished goods. Plant construction (encom-passing the planning, delivery, and assembly of industrial facilities) is among the most important industries of the country. Plant construction and electronics sectors are strongly export-oriented. Another export-oriented sector is Austria's handicrafts, famous worldwide for, among other things, costume jewelry, ceramics, and glassware.

AGRICULTURE

The agriculturally productive land of Austria covers 28.1 million hectares (69.5 million acres), or 94 percent of the total area. The provinces having the largest proportion of arable land are in the southern parts of the country. The total value of agricultural exports in 2000 was US$2.85 billion and that of imports was US$4.56 billion. A large amount of agricultural exports go to neighboring Italy.

FARMING.

Austrian farms, like those of other West European mountainous countries, are small and fragmented. Their products are relatively expensive, with an emphasis on cash crops . Although Austrian farmers provide about 80 percent of domestic food requirements of the country, the agricultural contribution to the gross domestic product has declined since 1950. The principal agricultural products are wheat, rye, oats, barley, corn, potatoes, sugar beets, and cattle turnips. Besides these principal crops, other crops of considerable magnitude are: buckwheat, flax, tobacco, fuller's thistle, and cabbage. The principal garden products are kitchen vegetables and fruit, of which large quantities are exported. The best fruit districts are in Upper Austria and Styria. The primary meat products are beef and veal, chicken, duck, game, goose, horse, lamb, pork, rabbit, and turkey. The most valuable agricultural exports in 2000 were non-alcoholic beverages, chocolate products, beef, pastry, and processed fruit. Large quantities of wheat and maize are imported, much of it from neighboring Hungary. Important exports are barley, oats, milk, beef, and pork.

FOREST PRODUCTS.

Forests occupy just over one-third of the productive area of Austria or 98,000 square kilometers (38,000 square miles). As much as 85 percent of all Austrian forests are dominated by tall timber, such as oak, pine, beech, ash, elm, and spruce, which are important in the paper and pulp industry and in building construction. In 2000 about 17 million cubic meters (590 million cubic feet) of round wood was cut. A comprehensive reforestation and conservation program has been in progress since the early 1950s to compensate for damage inflicted during WWII and for postwar over-cutting of forest trees. Economic development in 1998 and the opening towards the EU market have also affected forestry. Although the number of employees and production decreased slightly, investments in forestry increased.

FISHERIES.

The fisheries of Austria are very extensive. The numerous rivers of Austria swarm with a great variety of fish. The lake fisheries are largely developed and employ about 4,000 vessels and over 16,000 fishermen. Fishing for sport in the mountain streams is popular and constitutes a large source of income. However, most table fish are imported.

INDUSTRY

The essential industries in Austria are construction, machinery, vehicles and parts, food processing, chemicals, lumber and wood processing, paper and paperboard, communications equipment, energy production, and mining. Austria has favorable conditions for industrial activity, including a very well developed infrastructure , a rich source of raw material, and a skilled, moderately expensive labor force . Industrial output in 2000 (including energy production) grew by an estimated 6.8 percent over the previous year. The biggest growth rate, 11.1 percent, was recorded for capital goods , while production of consumer goods expanded by 2.6 percent.

MANUFACTURING.

The Austrian manufacturing industry consists of a few large organizations, most of which operate under government control, and a great number of small and medium-size production units. Manufacturing remains focused on medium-technology sectors producing intermediate and capital goods, much of it bound as exports to neighboring Germany. Due to its well-established export markets, the manufacturing sector has a relatively low level of research and development expenditure, at 1.6 percent of gross domestic product in 1999, as compared to the EU average of 1.9 percent. The principal manufacturing products are textiles, metals, alcoholic beverages, leather, paper, sugar, glass, porcelain, earthenware, chemicals, and scientific and musical instruments. Because of the traditional popularity of Austrian wood, glass, textile, and ceramic handicrafts, many establishments produce such goods. The principal industrial products are pig iron, crude steel, rolled steel, motor vehicles, cement, fertilizers, paper, and cotton, woolen, and synthetic yarns and fabrics. Annual production of crude steel totaled about 3.95 million metric tons in 2000. The textile industry in all its branches (cotton, woolen, linen, silk, flax, and hemp) is a historic industry and is mostly concentrated in the southern part of the country.

MINING AND ENERGY.

The annual production of principal minerals in 2000 included lignite coal (1.8 million metric tons), iron ore (1.6 million metric tons), crude oil (1.2 million metric tons), magnetite (1.0 million metric tons), salt (702,000 metric tons), and zinc ore (16,450 metric tons). Other substances commercially mined included copper, lead, antimony, bauxite, tungsten, and natural gas. Austria has numerous hydroelectric installations, which together produce nearly two-thirds of the country's electrical output. More than 51 billion kWh of electricity are generated each year.

SERVICES

Austria has an advanced industrial economy with a significant service sector. The service sector contributes more than 66 percent of the gross domestic product and employs 68 percent of the population. There is a substantial amount of foreign investment in the service sector. Foreign interests control most of the large computer-servicing firms, whereas tourism is in the hands of local interests. Management consultancy has also come to play a larger role in the Austrian economy, especially given Austria's role as a link between Eastern and Western Europe.

TOURISM.

Because of its wealth of cultural and recreational facilities—including historical sites and winter and summer resorts in the spectacular mountains—Austria has a large tourism industry, which acts as a major earner of foreign exchange. More than 8 percent of Austrians are employed in the tourism industry. Tourism is based on the services of traditional agriculture in the Alpine region of Austria, where tourists appreciate the cultural landscape safeguarded by farmers. As many as 17,000 farmers annually rent private rooms to holiday-makers. In 1998, this category accounted for about 15 million overnight stays out of the total 111 million overnight stays in Austria. Austria's major cities are also a major attraction, for they boast some of the most impressive architecture in Europe and are known for the quality of their theatre, music, and museum art. According to the World Tourism Organization, Austria had 16.7 million visitors in 1997 and these visitors spent US$12.4 billion in the country. Increasingly, however, Austria has experienced a decline in the numbers of overnight stays due to its high prices compared to Eastern European countries.

FINANCIAL SERVICES.

The contribution of the financial services sector to gross domestic product amounted to 6.3 percent in 2000. It employed some 110,000 people, or 3.6 percent of the workforce. The sector grew by 4.1 percent per year over the 1996-2000 period. Austrians' propensity to save, at about 25 percent of gross domestic product, has contributed to the success of the financial services. Austria's domestic savings to GDP ratio in 1999, according to the World Bank, was more than Germany's 23 percent or the United States' 15 percent. With about 1,000 banks, Austria has more than twice as many banks as neighboring Switzerland. Central and Eastern Europe comprise one area where Austria's banks have a competitive lead over European rivals. Raiffeisen Zentralbank has 2,500 staff and 80 branches in Central Europe and Bank Austria has 100,000 personal customers in the region. In addition to its presence in Western Europe, Austrian bank exposure abroad is also found in neighboring Hungary and the Czech Republic. Bank Austria has also been active in Russia.

RETAIL.

At the turn of the 21st century Austria was undergoing a major shift in the nature of its retail establishments from a system based on small, locally-owned shops to one based on larger franchises and foreign-owned chains. EU membership has brought the entrance of large grocery, clothing, and household goods stores to the country, often driving family-owned businesses out of business. Small shops and boutiques once made up nearly 90 percent of the retail sector, but that number began shrinking in 1995. By 1999 large shopping centers and malls accounted for 12 percent of retail sales, and 33 new malls were in development in 2001. German retail chains represent the dominant foreign presence in the retail sector.

Franchising is a small but growing factor in the Austrian economy. Experts estimate that it accounts for about US$830 million in annual sales or just over 2 percent of total retail sales (compared to almost 50 percent in the United States). Current growth in the franchise market of Austria is around 10 percent annually. About 1 in 3 franchise systems operating in the country is of local origin. The top foreign participant in the Austrian franchising economy is Germany, with around 20 percent of the franchise systems, followed by the United States, with about 5 percent of all the systems.

INTERNATIONAL TRADE

Austria's economy is dependent on foreign trade and closely linked to the economies of other EU countries, particularly Germany. Austria trades with some 150 countries, with the European Union accounting for about two-thirds of the total. Beside a variety of goods, Austria exports money in the form of investments. It is a major investor in the former Eastern European countries, with some 40 percent of all direct foreign investments in that part of the world coming from Austria. Another important branch of Austria's foreign trade sector is transit trade for goods and services traveling east and west across Europe.

Austrian exporters sold merchandise worth US$65.6 billion in 2000, up from US$62.9 billion in 1999. In 2000, Austria's international trade continued to grow. The trade balance deficit dropped from 8.4 percent to 5.6 percent of the export volume, reaching its lowest level since 1945. The sound economic situation in Central and Eastern Europe, the booming economy in the United States, and the moderate economic development in the European Union, as well as the favorable exchange rate were the main contributing factors. What grew strongest was foreign trade with the Eastern European countries and the United

States. Exports to Eastern Europe rose 23 percent in 2000 and imports 29 percent, while exports to North America increased by about one-third. Exports to the European Union rose 12 percent, while imports grew by 10 percent. Exports to Asia climbed by almost one-fifth in 2000, while those to Latin America showed a modest rise of 9 percent.

EU countries absorb the majority of Austrian exports and provide the majority of imports. In 1999, EU countries purchased 65 percent of Austria's exports, with Germany taking 36 percent, Italy 9 percent, and France 5 percent. Switzerland and Hungary each purchased 5 percent of Austria's exports. In 1999, 70 percent of all imports came from EU countries, with Germany providing 42 percent, Italy 8 percent, and France 5 percent. The United States is Austria's largest non-European trading partner, taking 4.5 percent of Austrian exports and providing 5 percent of its imports. Although the accession of Austria to the European Union has brought stiffer competition from European producers, U.S. exports to Austria increased considerably in the mid to late 1990s. Some U.S. exporters, particularly those in the data processing hardware and semiconductor sectors, are confronted with higher customs tariffs and regulations. Others have benefited from lower EU tariffs.

The EU ban on beef imports from cattle treated with hormones severely restricted U.S. exports of beef to Austria. Despite a World Trade Organization decision that the ban was inconsistent with the rules of international trade, the European Union did not lift the ban. Furthermore, the European Union ruled out the possibility of importing U.S. poultry or products containing poultry. The import of genetically modified food—what some Europeans call "Frankenstein food"—with the United States being the primary producer, was also banned. Austria went even further than its EU partners: Novartis corn and Monsanto BT corn, for example, which were major genetically modified foods approved by the European Commission, were banned imports in Austria.

MONEY

Austria has pursued moderate, stable, long-term fiscal and monetary policies . Throughout the decade, the money supply was constantly growing, as well as Austria's exports, imports, government revenue and spending, gross domestic product, and income. The Austrian currency, the schilling, is strong and convertible. Once called the alpine dollar, the Austrian schilling has become one of the most stable currencies in the world. The Austrian schilling depreciated against the dollar in 1996 and 1997 but was stable against most European currencies. With the decision on the European Monetary Union in place, fluctuations of the schilling against the currencies of the other 10 European Monetary Union participants were minimal during the remainder of 1998. The dollar continued to strengthen against the schilling during the first half of 1998 and 1999 parallel to its rise against the Euro.

In 1999, Austria adopted the euro, the common currency of the European Union, at a fixed conversion rate of ATS13.76 to Euro1. At the same time, Austria surrendered its sovereign power to formulate monetary policy to the European Central Bank (ECB), in line with other EU member states participating in the European Monetary Union. Austria's central bank, the Österreichische National Bank (ANB), is a full participant in the European System of Central Banks. The government successfully met all convergence criteria due to austerity measures implemented in 1996-97 and is pursuing a policy of further reducing the fiscal deficit and the public debt. The ECB's focus on maintaining price stability in formulating exchange rate and monetary policies is viewed by the ANB as a continuation of the hard schilling policy the ANB pursued since 1981. By fixing the Austrian schilling to the German mark, the government successfully kept inflation under control and promoted stable economic growth.

POVERTY AND WEALTH

The World Bank ranks Austria seventh in the world in terms of annual per capita income. The annual gross

domestic product per capita is estimated to have surpassed US$30,000 by the late-1990s. Living standards are very high, and due to socialist policies of the federal government, the incidence of poverty is minimal. In 2000, the mean unemployment rate stood at 7.1 percent, and the mean gross monthly income was US$1,922.

There is no legally mandated minimum wage in Austria. Instead, minimum wage scales are set in annual collective bargaining agreements between employers and employee organizations. Workers whose incomes fall below the poverty line are eligible for social welfare benefits. Over half of the workforce works a maximum of about 38.5 hours per week, a result of collective bargaining agreements. The Labor Inspectorate ensures the effective protection of workers by requiring companies to meet Austria's extensive occupational health and safety standards. The Austrian system of social insurance is comprehensive, including sickness, disability, accident, old-age, and unemployment benefits; allowances for families with children; and rent aid. The program is financed by compulsory employer and employee contributions. Health insurance and some other types of insurance are voluntary for individuals who are self-employed. Health conditions and facilities in Austria are considered excellent.

WORKING CONDITIONS

Austria was ranked number-one in the World Competitiveness Report of 1999 for quality of life, providing high-performance infrastructure and rapidly falling telecommunications and energy costs. It also has one of the best records of price stability in the world. Corporate tax rates are one of the lowest among leading industrial nations.

There is a strong labor movement in Austria. The Austrian workforce is 3.7 million, 40 percent being females. About 45 percent of the total Austrian labor force belongs to the 14 unions that make up the Austrian Trade Union Federation. Membership in unions is voluntary, but all wage earners are required by law to join their respective chambers of labor. Guarantees in the Austrian constitution governing freedom of association cover the rights of workers to join unions and engage in union activities. The Austrian Trade Union Federation (OGB) comprises constituent unions with a total membership of about 1.5 million. Since 1945, the OGB has pursued a moderate, consensus-oriented wage policy, cooperating with industry, agriculture, and the government on a broad range of social and economic issues in what is known as Austria's social partnership.

Compared to other EU member states, Austria has the third lowest unemployment rate, with only the Netherlands and Luxembourg providing better job opportunities. (The European Union's average unemployment rate was 8.5 percent by the end of 2000.) In addition, Austria prides herself on having the lowest youth unemployment rate in Europe. In the past, both the federal government and the state governments spent billions of schillings to provide vocational training to those who left school at the end of compulsory education and to help others achieve secondary school qualifications. Now that more companies are willing to take on apprentices, the government has decided to restructure its vocational programs.

At a time of prosperity for the Austrian economy, however, the country received unexpectedly poor ratings from the Union of Industrial and Employers' Confederations of Europe (UNICE). It sharply criticized Austria for underfunding research and development. The organization also pointed out that Austria had far too few highly trained information technology personnel. UNICE expected a shortage of 13,000 qualified information technology workers.

COUNTRY HISTORY AND ECONOMIC DEVELOPMENT

1918. Austro-Hungarian empire collapses at the end of World War I, and the Republic of Austria is formed.

1922. Austria receives a loan from the League of Nations, pledging to remain independent for 20 years.

1930s. Dictatorship of Engelbert Dollfuss occurs.

1934. In February civil war breaks out, and the Socialist Party is outlawed.

1934. A coup d'etat by the National Socialists fails in July, and Dollfuss is assassinated by the Nazis.

1938. Austria is incorporated into Germany's Third Reich.

1945. In April Soviet troops liberate the eastern part of Austria, including Vienna. Austria is divided.

1945. Under the Potsdam agreements, the Soviets take control of German assets in their zone of occupation.

1955. All occupation forces are withdrawn, and Austria becomes free and independent.

1955. The Nationalrat enacts the Federal Constitutional Law, declaring the country's permanent neutrality. Austria becomes a member of the United Nations.

1979. Austria gains a permanent seat in the United Nations.

1972. Austria signs a free trade agreement with the European Community, abolishing all industrial tariffs.

1995. Austria becomes a full member of the European Union, together with Finland and Sweden.

1995. Austria joins NATO's Partnership for Peace program.

FUTURE TRENDS

Forecasts for economic growth in 2001 have been positive. A double-digit growth rate is expected in industrial output, retail trade has grown by 5 percent, and tourism is booming. Gross domestic product is likely to advance by 3.1 percent rather than the predicted 2.8 percent. Interest rates will rise slightly but remain low. Demand for Austrian goods is up, and this makes for full order books in the country's exporting industries. In addition to increased sales abroad, recent tax breaks are being used by private households for additional consumer spending rather than stocking up their savings accounts. Business confidence is buoyant given the competitive position of Austria's industry, strong foreign investment, and good export opportunities. Inflation is expected to remain lower than the EU average. The challenges that face the Austrian economy in the future will be securing the greatest possible congruence of its economic policy with common EU policies, most notably in the fields of trade, agriculture, regional development, taxation, and monetary policy.

On the agricultural side, Austria's organic farming and food industry may serve as an example to the world as an alternative to genetically modified food and hormone-treated cattle and poultry. With its ban on imports of genetically modified food, mostly produced in North America, and the outbreak of mad cow disease in Europe and foot-and-mouth disease worldwide, the already well-established organic farming of Austria is expected to continue to grow, generating record profits. Austria also faces social challenges of containing its right wing nationalists, as manifested by the ultranationalist Freedom Movement Party, and upholding the rights of thousands of non-ethnic Austrian and non-European immigrants who now compose an increasingly larger part of Austrian society.

DEPENDENCIES

Austria has no territories or colonies.

BIBLIOGRAPHY

Burtscher, Wolfgang. Austria. <http://cadmos.carlbro.be/Services/Subnat/EU_impl/Austria.htm>. Accessed February 2001.

Economist Intelligence Unit. Austria: Country Commerce. London: The Economist Intelligence Unit, 2000.

—. Austria: Country Profile, 2000-2001. London: TheEconomist Intelligence Unit, 2001.

—. Austria: Country Report, January 2001. London: TheEconomist Intelligence Unit, 2001.

European Union. EuroStat. <http://europa.eu.int/comm/eurostat/Public/datashop/print-catalogue/EN?catalogue=Eurostat>. Accessed February 2001.

Federal Ministry of Agriculture and Forestry. Austrian Market Report 1999. <http://www.unece.org/trade/timber/mis/market/austria.htm>. Accessed February 2001.

Federal Press Service. Austria: Facts and Figures. Vienna:Federal Press Service, 1993.

International Energy Agency. Energy Policies of IEA Countries: Austria 1998 Review. Paris: OECD, 1998.

International Monetary Fund. World Outlook 2000. <http://dsbb.imf.org/category.htm>. Accessed February 2001.

Pacher, Sigurd. "The Economic Development of The SecondRepublic." Austrian Information. <http://www.austria.org/sep95/austria.htm>. Accessed February 2001.

Population Reference Bureau. 2000 World Population Data Sheet. <http://www.prb.org/pubs/wpds2000/>. Accessed February 2001.

United States Census Bureau. International Database 2000. <http://bized.ac.uk/dataserv/idbsum.htm>. Accessed February 2001.

University of Wuerzberg. Austria-Constitution. <http://www.uniwuerzburg.de/law/au00000_.html>. Accessed February 2001.

—Payam Foroughi

Raissa Muhutdinova-Foroughi

CAPITAL:

Vienna.

MONETARY UNIT:

Austrian schilling (ATS). One Austrian schilling equals 100 groschen. There are 20, 50, 100, 500, 1,000, and 5,000 schilling notes, and 1, 5, 10, 20, and 50 schilling coins. There are also 10 and 50 groschen coins. In January 1999 Austria introduced the new European currency, the euro, for all electronic transactions. One euro had a fixed rate of 13.7603 Austrian schillings. It is planned that by 2002, euro bills and coins will replace the currencies in all European Union (EU) countries, including Austria.

CHIEF EXPORTS:

Machinery and equipment, paper and paperboard, metal goods, chemicals, iron and steel, textiles, and foodstuffs.

CHIEF IMPORTS:

Machinery and equipment, chemicals, metal goods, oil and oil products, and foodstuffs.

GROSS DOMESTIC PRODUCT:

US$190.6 billion (purchasing power parity, 1999 est.).

BALANCE OF TRADE:

Exports: US$62.9 billion (1999 est.). Imports: US$69.9 billion (1999 est.).