Financial Times Report - "The Future of Europe"

27.01.2006

Pains and gains as neighbours with a shared past co-operate in the east A NEW AXIS: Stefan Wagstyl on a partnership that has brought together six central and east European countries that share an Austro-Hungarian history.

Among the treasures in Vienna's many palaces are royal and aristocratic portraits of Hungarian, Czech, Slovak and Polish origin dating back centuries.

Even at the height of the Cold War, Austria's historic links with its eastern neighbours were never completely broken.

Today, with Austria assuming the presidency of the European Union, they are more important than at any time since 1914.

Austrian diplomats have made a priority of relations with the new democracies of eastern Europe, not only in the territories of the former Austro-Hungarian empire, but far beyond in the Balkans and in lands of the former Soviet Union.

Austrian businesses have established themselves as leading investors in almost every country from the Baltic to the Black Sea. The three top Austrian banks - Erste Bank, RZB, and Bank Austria - have put their branches and their logos in virtually every capital and in scores of other cities.

Ursula Plassnik, the foreign minister, says that Austria and its neighbours are brought together by the Danube river, a common geography and a common past which together create "a fusion of overlapping layers" and contribute to mutual understanding.

She says: "This is a central European mentality which is really a mixture of mentalities. Austria is a hinge between west and east and north and south." Austria formalised these links in 2000 with the launch of a regional partnership which brought together six central European countries that share an Austro-Hungarian past - Austria, Slovenia, the Czech Republic, Slovakia, Hungary and Poland.

A new phase followed accession to the European Union of these states among the 10 which joined in May 2004. Ms Plassnik says: "For a time this kind of co-operation was dismissed as an Austrian fancy but we have experience of being a newer member of the EU which we can share.

"There is now more understanding for it because (since EU enlargement in May 2004) we all sit on the same side of the table."

As well as encouraging warm feelings among neighbours, these talks have practical benefits. For example, the lands of the former Austria-Hungary share common land registers.

The region's countries have pooled their know-how on transferring this information on to computers to create electronic records.

But the banks of the Danube are not a zone of perfect harmony. There are occasional historic tensions between Vienna and its eastern neighbours such as over disputes concerning property claims dating back to before the second world war, for example those of the ethnic Germans expelled from Czechoslovakia.

Ms Plassnik says: "Of course, there's also pain in this as often in the case of neighbourhoods and shared histories. We have to deal with these questions with patience."

Meanwhile, millions of east Europeans resent labour rules which largely keep them out of Austria's jobs market. Like most other old EU members, Austria chose to keep these restrictions in place at the time of accession and could retain controls until 2011. Only the UK, Ireland and Sweden, opened their doors fully to migrant workers.

Ms Plassnik makes no apology for these restrictions saying they are necessary because Austria lies so close to the new member states.

She says: "The controls have allowed us to have enlargement at a moment when we had to counter trade union opposition over expected difficulties in the labour market."

She adds that agreements covering specific groups of workers, such as commuters and trainees, from the new memeber states, work satisfactorily.

But Ms Plassnik does not see that Britain's success in absorbing large numbers of east European migrants is an argument for Austria to ease restrictions.

She argues that impact in Austria, given its proximity, would be much bigger. "For us it's so close. For example Bratislava (the Slovak capital) is just 45 miles distance from Vienna. For a labour market like the Austrian market this is a different kind of dimension."

But Ms Plassnik insists that, despite these concerns, the economic effects of enlargement on Austria are positive, with the new member states adding 0.5 per cent a year to the country's Gross Domestic Product.

The foreign minister also wants to use Austria's presidency of the EU to focus attention on south-east Europe, especially on the troubled states of the former Yugoslavia.

She says: "This is about stability and security in Europe. We can't have a zone of instability and unrest between Italy and Greece."

Austria's presidency has coincided with a push by the EU to integrate the states of south-east Europe. Romania and Bulgaria have secured deals to join the union next year or in 2008 at the latest. Brussels began talks with Croatia last year and awarded candidate status to Macedonia.

It is in the final stages of negotiating with Albania a stabilisation and association agreement (SAA), the first formal stage of integration. Last year, the union of Serbia and Montenegro and Bosnia both secured approval for the start of SAA talks.

Meanwhile, the EU is playing a key role in talks to settle the status of the troubled province of Kosovo.

The United Nations is hoping to find a settlement this year.

Ms Plassnik says that, given its experience of guiding countries through post-Communist transition, the EU is well-equipped for this work. "The EU now has enormous transformational experience."

The foreign minister acknowledges that this is a difficult time in which to encourage EU voters to concentrate on south east Europe amid widespread scepticism about the costs of enlargement.

She says: "You have to try to keep your feet on the ground as I do and you have to build confidence and rebuild confidence with our own people."

Ms Plassnik adds that the western Balkans with a combined population of 22m do not represent a huge economic challenge for the EU.

It is a region that the union can absorb. Governments will not have to carry the burdens alone. With political conditions stabilising, foreign investors are raising their commitments to the former Yugoslavia, notably in banking. Among them are the ubiquitous Austrian banks.

Executives complain about the difficulties, headed by red tape, corruption and poor infrastructure, but they are putting their money into the region nonetheless.

Ms Plassnik says: "This is about the reconstruction of Europe."