OPINION: Austrian policy towards CEE is likely to change in tone but not substance

OPINION: Austrian policy towards CEE is likely to change in tone but not substance
Heinz-Christian Strache's Freedom Party has expressed a desire to join the Visegrad Group in its effort to cultivate a “Europe of Fatherlands”, bound by shared national interests rather than supranational institutions.
By Marcus How of ViennEast September 25, 2017

The late leader of the far-right Freedom Party (FPÖ), Jörg Haider, often lamented that Austria had not exercised an independent foreign policy since the era of the Social Democratic (SPÖ) chancellor Bruno Kreisky in the 1970s. Kreisky had leveraged Austria’s gateway status and “permanent neutrality” to act as a broker between non-aligned states in the Eastern Bloc and Middle East – with great success. Numerous international agencies, such as the United Nations, Organisation of the Petroleum Exporting Counties (Opec), European Fundamental Rights Agency (FRA) and International Atomic Energy Agency (IAEA) have established themselves in Vienna.

Vienna remains a hub for international diplomacy. However, the end of the Cold War in 1989 and Austria’s accession to the European Union in 1995 has limited the scope for an independent foreign policy.

On the one hand, Austria has spearheaded regional development and diplomatic mediation in the Western Balkans and remains a gateway in this sense – hosting the Energy Community Secretariat and Organisation for Security and Cooperation in Europe (OSCE), key mechanisms for regional integration. Austrian technocrats also hold key international roles in the region, with Johannes Hahn having served as the European Commissioner for Neighbourhood Policy and Enlargement since 2010, and Valentin Inzko as the High Representative for Bosnia and Herzegovina since 2009. Austria has also been very active in “twinning”; namely, sending its civil servants to assist in administrative development in the region.

Yet the Western Balkans is an exception – Austrian foreign policy in Central and Eastern Europe (CEE) and elsewhere has degenerated into an arena for party-political squabbles.

The campaigning ahead of the parliamentary election on 15 October reflects this parochialism. Foreign Minister Sebastian Kurz – the 31-year-old leader of he conservative People’s Party (ÖVP), which is projected to emerge as the largest party – has exploited his low-risk brief to define his public image: shutting down the Balkan route during the 2015 migrant crisis; empathising (if not exactly agreeing) with Hungarian Prime Minister Viktor Orban’s decision to build a border fence; supporting the (unsuccessful) re-election of Macedonian premier Nikola Gruevski’s rightwing VMRO-DPMNE party; and adopting a combative stance with respect to Turkish authoritarianism.

The FPÖ, led by Heinz-Christian Strache since 2005, is grappling with the SPÖ for second place in the election. Its foreign policy platform is even more heterodox: calling for an abolition of EU sanctions on Russia and for the 2014 annexation of Crimea to be accepted; supporting the rejection of EU migrant quotas; advocating for the construction of a border fence; nurturing relations with Serbia, which it regards as a bulwark against Islam and whose diaspora is a targeted constituency; and expressing a desire to join the Visegrad Group in its effort to cultivate a “Europe of Fatherlands”, bound by shared national interests rather than supranational institutions.

Lastly, the SPÖ is a long way from its foreign policy heyday during the Kreisky era. When it re-entered into the post-war grand coalition arrangement in 1986, the party ceded control of the foreign ministry to the ÖVP, which has dominated the diplomatic establishment ever since, fielding heavyweights such as Alois Mock and Wolfgang Schüssel. Even with the dynamism of Chancellor Christian Kern, the SPÖ appears directionless on foreign policy as it heads into the election. It has no dog in the foreign policy fight, and softly echoes the ÖVP/FPÖ-controlled narrative.

A paradigm shift?

The FPÖ will almost definitely form part of the next government. Its natural coalition partner is the ÖVP; however, their relations are complicated historically. It is not unforeseeable that the FPÖ could instead form a coalition with the SPÖ, which has lifted its categorical embargo on cooperation, and maintains a powerful ‘pragmatic’ wing led by Defence Minister Hans-Peter Doskozil and Burgenland Governor Hans Niessl.

With the FPÖ in government, and expressing particular interest in assuming the foreign ministry brief, convergence with the Visegrad Group may increase. An Austrian alignment with Visegrad would strengthen the diplomatic clout of the group, especially with respect to its regional influence. Yet such an alliance would hinge on tone rather than substance. The qualified but fundamentally Euro-Germanic orientation of the ÖVP and SPÖ will necessarily constrain the more radical instincts of the FPÖ.

The Austrian political establishment would be unwilling to strengthen the political positions of nationalist governments in the region for the simple reason that their emergence has been detrimental to Austrian foreign investors. The enlargement of Nato and the EU to CEE gave Austrian companies a new raison d’etre, allowing them to exploit a first movers’ advantage to re-access the old Habsburg Empire stomping grounds as systemic investors.

But the 2008-2009 financial crisis resulted in the fragmentation of the Austrian banking empire in CEE, with the subsidiaries of banks such as Raiffeisen, Erste Bank and UniCredit Bank Austria relying to a decreasing extent on cross-border credit flows from their parents, and instead relying on local sources of financing. Although the 2009 Vienna Initiative – which saw a dozen banks agree to a state-backed maintenance of their CEE cross-border lending – stabilised the situation, ultimately it served only to hold the line.

Furthermore, the hostility of several CEE governments to foreign direct investment (FDI) tested nerves. The uncertainty engendered by political developments in the Visegrad Four and Western Balkans (as well as the competition posed by non-EU market entrants offering preferential terms) is reflected by Austrian FDI flows. According to a report by the Vienna Institute for Economic Studies (wiiw), Austrian FDI flows into CEE decreased from 46% OF total FDI in 2012 to 31% in 2016.

Indeed, FDI comprises the core pillar of Austrian foreign policy – even if it is invisible politically – which is commercialist above all else. The political parties are not likely to compromise the interests of strategic companies, especially those affiliated with them through Austria’s post-war ‘Proporz’ culture. As such, even as the tone of Austrian foreign policy becomes evermore heterodox, the parties will continue to straddle Western and Eastern Europe, relying on the post-1989 Austrian habit of pragmatically cutting deals to safeguard domestic business interests, rather than committing to ideological causes per se. 

Marcus How is senior political risk analyst at ViennEast, a boutique business intelligence specialising in the CEE region.