Monetary and financial issues

Economic Survey of Austria 2009: Facing the financial crisis


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The following OECD assessment and recommendations summarise chapter 1 of the Economic Survey of Austria published on 2 July 2009.




Austria has been affected by the international crisis...

Austria’s economic expansion came to a halt with the global financial crisis which erupted in the summer of 2007 and intensified in the autumn of 2008. However, till end–2008, the downturn proved less abrupt than in most other high-income euro area countries. Private consumption and investment held up better, as did exports, notably to Central and Eastern Europe (CEE). International contagion first took the form of general tensions in the financing of banks and a tightening of economy-wide credit conditions. In response, the authorities put in place measures to bolster banks’ liquidity and capital, and the confidence of depositors and creditors. The ongoing slump in world trade is the second channel through which global weakness is affecting Austria, where exports amount to some 60% of GDP. Coupled with the financial-sector uncertainties, and with the expectation of shrinking domestic employment, this foreshadows subdued spending by households and enterprises. Against this backdrop, and despite significant policy action, Austria is projected to experience its deepest and most protracted recession since the mid–1950s, with unemployment rising sharply, albeit with a lag.


… and is exposed to risks in Central and Eastern Europe

The financial system has been less affected than elsewhere, being less exposed to the most toxic international asset classes or to souring domestic credits. Strains arose in February 2009, however, when the perceived riskiness of credit positions in a number of CEE countries rose sharply in light of a deteriorating economic outlook and balance of payments problems. Austrian banks have been very active across a broad spectrum of countries in the region in recent years through cross-border loans and credits by subsidiaries, which accounted for a prominent portion of their total earnings. With Austrian banks’ assets in CEE representing over 60% of Austrian GDP, the fiscal implications of a potential banking crisis raised concerns and the risk premium on Austrian government bonds soared to as much as 130 basis points in early 2009, though it has edged down since. Uncertainty about the situation in certain CEE countries endures, however, and deep recessions in the region would put additional strains on Austria’s financial system, regional trade and domestic activity and investment. The ensuing risks differ across the CEE countries, however, both because of large differences in economic conditions there and as a function of their relative importance to Austria as economic partners.


A number of policy measures have been taken in response to the crisis

A series of monetary, financial, fiscal and labour market policy measures have been put in place since last autumn.

  • In addition to the monetary stimulus imparted by the Eurosystem, the Austrian authorities have introduced a € 100 billion (36% of GDP) package, including a top-up of the deposit guarantee scheme by € 10 billion, € 15 billion for capital injections in financial institutions, and € 75 billion for supporting interbank lending (via a new clearing bank) and for government guarantees of bank bond issuance. Banks soliciting these resources need to sign agreements with the authorities and to step up lending. A new guarantee scheme underwrites the borrowings of small-and-medium sized enterprises for their investment and working capital needs. These measures have helped alleviate the strongest sources of tension in the financial system between October 2008 and April 2009.
  • Fiscal policy has also responded to the exceptional circumstances. As the share of taxes and public spending in GDP is high, and as social transfers are comprehensive in Austria, the automatic stabilisers play a particularly large role. Moreover, discretionary stimulus is being injected, notably through measures to support households’ purchasing power (including increases in family benefits, cancellation of student fees, and VAT cuts on medication), personal income tax cuts (brought forward from 2010 to 2009) and other measures such as new infrastructure investments. The fiscal deficit is projected to rise from close to zero to about 4.5% of GDP in 2009 – with approximately two thirds of the increase a result of automatic stabilisers and one third stemming from discretionary stimulus.
  • Labour market policy action has also been taken. In Austria, workers’ incomes are well protected in case of unemployment, initially through unemployment insurance and then through equally supportive social assistance. All recipients of unemployment insurance and social assistance are in principle referred to active labour market programmes, which seek to assess and, if possible, adapt their labour market skills. More recently, a rarely-used public subsidisation scheme for enterprises that keep on their employees despite falls in activity has been expanded. It is now available for up to 18 months, and compensates income losses due to working time reductions of up to 90% of the basic salary. Participating firms are encouraged to use the subsidised hours for re-qualification and retraining. Some 50 000 workers had been covered by this measure by April 2009 and the total take–up is expected to approach 70 000 by end 2009, amounting to a quarter of the current number of registered unemployed.

More may be needed, but without creating distortions

These various policy levers should continue to be used in a timely and flexible way, keeping in mind the need to avoid lasting negative side effects and to start phasing out policy support once economic conditions improve. Generous income maintenance is in principle associated with programmes aiming at improving recipients’ employability and care should be taken that they keep fulfilling that role through the crisis. Neither the recent tax cuts nor social protection appear to unduly distort market signals or hinder the adjustment of corporate structures and worker qualifications and it is essential that further measures – if any – also be as neutral as possible in that respect. Measures aimed at securing financial stability appear broadly effective to date, but further support may become necessary in the event of additional regional or global shocks. Plans should be ready in the event that the financial crisis worsens in one or more CEE countries. The Austrian authorities are closely monitoring developments. They have actively facilitated confidence-building and crisis-management contacts within the CEE region and the international financial community, and are keeping in close touch with their relevant counterparts. Depending on developments, further cross-border initiatives may be called for.

Austria has made a welcome step forward in tax co operation

In response to the changing environment Austria has endorsed the OECD standard for the exchange of information in tax matters, and withdrew its earlier reservation on the applicable article in the OECD Model Tax Convention. Once information exchange consistent with the OECD Model is implemented, Austria will be in a position to exchange information on all tax matters foreseeably relevant for the administration or enforcement of the domestic law of its treaty partners. Austria is encouraged to implement this decision as rapidly as possible.


Comparing major downturns in Austria1
Real GDP index

1. Since the start of the quarterly data series, in 1955. Some of the minor downturns are not shown here.
2. OECD Economic Outlook 85 projections from 2009 Q2.
Source: OECD, Economic Outlook database.


Increased economic linkages with CEE1

1. CEE includes: Albania, Belarus, Bosnia and Herzegovina, Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Former Yugoslav Republic of Macedonia, Moldova, Republic of Montenegro, Poland, Romania, Russia, Republic of Serbia, the Slovak Republic, Slovenia, Turkey and Ukraine. The country coverage slightly differs between trade, FDI and banking statistics.
2. CEE4 includes: the Czech Republic, Hungary, Poland and the Slovak Republic.
Source: Statistics Austria, OeNB, Bank for International Settlements.



How to obtain this publication


The complete edition of the Economic Survey of Austria is available from:

The Policy Brief (pdf format) can be downloaded in English. It contains the OECD assessment and recommendations.


Additional information

For further information please contact the Austria Desk at the OECD Economics Department at

The OECD Secretariat’s report was prepared by Rauf Gönenç, Lukasz Rawdanowicz and Christian Hederer under the supervision of Vincent Koen. Research assistance was provided by Béatrice Guérard.




Countries list

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