Austria: Bridging the East-West Economic Divide

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 investing in former Soviet states

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 its Romanian rival Petrom.

Friedrich Mostböck, 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.

Mostböck 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."

Connection with Eastern Europe an advantage

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, Mostböck 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, Mostböck 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 benefiting more than others from expansion

Austria is benefiting from what has become an "extended home market," Mostböck said.

In addition, Austria gets more of a boost from trade with the east than does an economic giant like Germany.

Mostböck 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)," Mostböck said.