EU enlargement to give a big boost to Austria's economy

VIENNA, May 4 (AFP) - Austria will find itself in the centre of the European Union when the bloc takes in 10 new members in May 2004 and will benefit more from enlargement in terms of investment and exports than almost any of the 15 current EU members.

Chancellor Wolfgang Schuessel, a conservative and pro-Europe politician, has been driving this message home for months, saying: "We will go from sitting on the cusp of Europe to being at its very heart. Nobody will benefit more from enlargement."

But economists say Austria has already been reaping the benefits of the historic eastwards expansion of the EU for several years.

"The opening up of the eastern countries has for about 12 years been raising Austria's gross domestic product (GDP) by 0.2 percent per year, and that is a lot," Fritz Breuss of the Institut for Economic Research (WIFO) in Vienna, told AFP.

Breuss said Austria exports more products to the former communist countries than it imports from them and this was "the main reason" for the increase in economic growth.

It was "thanks to eastern Europe", he added, that Austria in 2002 managed to have a trade surplus of 316 million euros (351 dollars), the first in its history.

The Alpine state with its population of eight million is a big exporter of industrial equipment, which is in high demand in central Europe as companies replace the obsolete machinery they inherited from the communist era.

Austria boasts no company of world renown but has managed to survive and prosper in the shadow of the industrial giant Germany, which is by far its biggest export market and main source of tourism.

As a neighbour of Slovenia, Hungary, the Czech Republic and Slovakia, the country is trying to cash in on these smaller economies in transition, which are growing at twice the average rate of EU countries.

Until 1918, they were part of the Austro-Hungarian empire and in a way Austria is merely revisiting its traditional sphere of influence.

Today Austria is the world's biggest investor in Slovenia and Croatia, accounting for respectively 45 and 30 percent of their direct investment, and the third-biggest investor in Hungary, the Czech Republic and Slovakia, according to the Austrian Statistics Institute.

The country's Erste Bank has taken only five years to build one of the biggest finance networks in central Europe, cornering about 30 percent of the Czech market, 12 percent of the Croat market and five percent each of the Slovak and Hungarian markets.

About 75 percent of its turnover is earned in the neighbouring former communist countries.

Erste Bank boss Andreas Treichl, 50, says he considers these countries along with Austria as "our domestic market."

"Austrian companies are firmly entrenched in central Europe, notably in the industrial, building, energy and food and agriculture sectors, where they have found room for growth and profits," says Erste Bank economist Thomas Karall.

But Austria is also attracting foreign companies that are drawn by its closeness to the new markets of the old east bloc.

"More than 1,000 international companies have established their headquarters for central Europe in Austria," the Austrian agency for promoting investment said.

Since 1998 Austria's per capita GDP has been consistently higher than that of Germany, which suffered as a result of the reunification of the country after the fall of the Iron Curtain.

In 2001, it was one of the highest in Europe at 28,600 dollars, according to the Paris-based Organisation for Economic Cooperation and Development.

The country's unemployment rate is 4.3 percent.

Breuss said he believed the "enlargement effect" would taper down in coming years so that it contributes 0.1 percent of economic growth.

"The explosion of economic activity that followed the opening of the countries to the east is already behind us, but the competition that comes with being at the heart of a big market is going to continue to boost growth."