When Vladimir Putin visited Vienna in June 2014, the long-serving head of the Austrian Federal Economic Chamber said it was already the third time he had received the Russian president. Putin, jokingly criticizing his host’s longevity, cried out in German: “Dictatorship! But good dictatorship.” Austrian and Russian entrepreneurs in the audience burst out laughing. So did Austria’s president, Heinz Fischer, who amicably patted Putin on the back.

Is #Austria out of tune with its European partners? It might seem so.
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It is hard to imagine this scene in London or Berlin these days. Is Austria out of tune with its European partners? It might seem so.

In summer 2014, while EU-Russian relations were sinking toward Cold War levels, refocusing NATO’s attention on its Eastern flank, Austria was giving the Russian president the red-carpet treatment. Officially, Vienna supports EU sanctions against Russia, but most Austrians are unhappy with the measures, even after much fighting in eastern Ukraine. Austria is also moving ahead with the South Stream pipeline, a venture that will bring more Russian gas to Europe but that Brussels has criticized for its noncompliance with EU rules.

It is not just Vienna’s stances on the Ukraine crisis and Russian energy that set it apart from many other European capitals. Austria’s entire European discourse is different. Few Austrians care about the euro crisis or the new European commissioners who entered office in November 2014. The country has its back to Brussels and looks toward Eastern and Southeastern Europe, where it earns most of its money.

Caroline de Gruyter
Caroline de Gruyter is Europe correspondent for the Dutch newspaper NRC Handelsblad. She is based in Vienna.

When Austrians are asked about their place in the EU, they often answer that theirs is a tiny country between East and West that is conflict averse and obsessed with neutrality after many wars in the twentieth century. Austrians see themselves as ultrapragmatists who never take a stand except when it comes to promoting their business interests. Muddling through is second nature to them.

To understand this assessment, one has to take three factors into consideration. The first is Austria’s geography. The Ukrainian border is closer to Vienna than the Swiss border is. Bratislava is a fifty-minute drive away, and Budapest can be reached in a few hours.

Second, look at Austria’s cultural and economic ties to the East. The Habsburg Empire once stretched from Italy’s Lombardy to Ukraine’s Lviv. Despite having been cut off from this hinterland during the Cold War, Austrians feel close to Central and Eastern Europe. There are family ties; the mentality is similar. Austria is also the second-biggest investor in Central and Eastern Europe, in terms of GDP, after Germany. Austrians’ stability and prosperity depend on the region’s well-being.

And third, Austria has a distinctive history with Russia. Austria is one of the few places in Europe from which Russian soldiers withdrew before the Berlin Wall came down. This happened in 1955, after Russia had co-administered the country with the United States, the UK, and France. Austria paid a price for its independence, however—a price set by Moscow: be neutral. Russia wanted little Austria to make sure there would never be a line of NATO members running from north to south in Europe. When Germany and Italy joined the alliance, Moscow asked Austria to interrupt this line.

Pragmatists to the Core

To this day, neutrality is a secular religion in Austria. The country has a different relationship with Russia from that of Poland or the Baltic states: those countries were “freed” after the Cold War ended, while Austria’s understanding with Moscow continues. Vienna applied for EU membership only after an explicit go-ahead by then Soviet leader Mikhail Gorbachev in 1989. Austria joined the EU in 1995, along with Sweden and Finland. It doesn’t dare join NATO. Austria’s former conservative vice chancellor Erhard Busek says, “Our credo is, keep out! This has been our survival strategy for years.”

Austria has survived well on this strategy, which has become part of the country’s national identity. It is the second-richest EU member state after Luxembourg. Government debt and the budget deficit are modest by eurozone standards, at 80.3 percent and 2.8 percent of GDP respectively in 2014, according to the European Commission’s forecast in May of that year. After one sharp contraction of 3.8 percent of GDP in 2009, the Austrian economy has continued to grow. However, the national bank recently downscaled growth prospects for 2014 from 1.6 percent to 0.9 percent because of the impact of the Ukraine crisis and sanctions against Russia.

Today’s successes were achieved only after half a century of turmoil. When France and Germany pooled their war industries in the European Coal and Steel Community in 1952, Austria was a war-torn place with a smashed identity. It had lost the First World War, shedding an empire in the process. Vienna, which had been a metropolis of 1.8 million inhabitants in 1900, became the capital of a tiny, mountainous country.

In the 1930s, Austrians fought Austrians in a civil war. Then came Nazi Germany’s annexation of Austria in 1938, with big Austrian crowds cheering Hitler. After the Second World War, Germany went through a painful soul-searching process. Austria did not. It still portrays itself as a victim of the Germans.

With such a dramatic, bloody history, Austrians began to do everything to avoid conflict. During the war, Austria’s political elite was shipped off to the Dachau concentration camp. The Austrians loathed each other, but in Dachau, they agreed never to let Austria be torn apart again. They worked out a way to manage their postwar country without provoking further conflict: by doing everything by consensus. From that point on, coalition governments of conservatives (“blacks”) and Socialists (“reds”) dominated Austria’s political system. The two parties agreed not to criticize each other’s behavior during the war.

This system, which has kept a lid on wartime revelations, survives to this day and is key to Austria’s pragmatism. Left and Right detest each other but still divide many jobs among themselves. For example, conservative politician Johannes Hahn was nominated to be a European commissioner in 2009 because a Socialist, Michael Häupl, was mayor of Vienna. In the national bank, there’s a saying: “We have one black, one red, and one who does the work.”

The eternal coalition between right and left makes Austria a rather corrupt country in many senses.
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This eternal coalition makes Austria a rather corrupt country in many senses. Austrian syndicates never go on strike—but they have one of the most generous social welfare systems in Europe. Corruption scandals involving (former) politicians erupt regularly, leading to court cases and convictions. The cleanup of banks in Austria is slower than in other countries because banks are full of political appointees who enjoy protection. In Austria, corruption doesn’t involve paying bribes for drivers’ licenses or birth certificates. But for certain jobs, it helps to be a member of a particular political party. The Western-led Organization for Economic Cooperation and Development regularly urges Austria to improve transparency.

Many Austrians dislike the black-red coalition. Politics in Austria isn’t about having ideas and debating them but about keeping a sclerotic system afloat. This is why the extreme right-wing Freedom Party of Austria (FPÖ) is so popular. Still, the party has never achieved more than 30 percent of the vote; after a period in coalition government from 2000 to 2005, the party’s vote share shrank to 11 percent.

Despite their occasional right-wing leanings, however, Austrians are no revolutionaries. They like the good life and are risk averse. “We are pragmatists to the core,” admits Alfred Gusenbauer, a Socialist who was chancellor from 2007 to 2008. He advises the Serbian government on its EU accession process and the Austrian government on EU enlargement. “Compared to us, the rest of Europe are a bunch of idealists,” he says. “Some Western Europeans seem nostalgic for the Cold War. They like having Russia back as the enemy. Well, we don’t.”

The Long Road to EU Membership

Austria has never really engaged with the European Union. It has been too busy with itself, making its consensual model of democracy work while not stepping on Moscow’s toes. The Iron Curtain hung close to Vienna. Older Austrians still remember putting mattresses on the floor for Hungarians fleeing from Soviet tanks during the 1956 Hungarian Revolution.

#Austria has never really engaged with the European Union. It has been too busy with itself.
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Thanks to Austrian neutrality, Vienna became the UN’s third headquarters after New York and Geneva. The Organization of the Petroleum Exporting Countries also meets in Vienna. But the city has been particularly famous for being a Cold War spy nest. It is no coincidence that the U.S. agents who were caught spying on German trade policy in July 2014 received their instructions and payment from the U.S. embassy in the Austrian capital.

For decades, membership in the European Economic Community (or EEC, a forerunner of the EU) was impossible for Austria. Many Western European countries were members of the EEC and of NATO. For Moscow, the two clubs were indistinguishable. (Incidentally, Putin is using the same argument today.) Austria did join the European Free Trade Association in the 1960s. Neutral Sweden and Finland were also members. They were in the same situation as Austria: belonging to the West but unwilling to provoke Moscow by displaying their Western credentials too much. An Austrian saying goes: “Don’t bite the Russian bear in the tail.”

Then, in 1985, two things happened that brought Austria closer to EU membership. First, the European Commission president, Jacques Delors, presented a white paper that would lead to the introduction of the single market. Austrian businessmen immediately showed interest. Their companies were—and are—mainly export oriented. When the first signs of globalization arrived in Europe, Austrian entrepreneurs didn’t want to miss the boat.

The second development was that Gorbachev became the Soviet leader. When asked by a Finnish journalist whether Austria could become an EU member, Gorbachev replied: “Well, Austria is a free country.”

The first Austrian political party to propose EU membership was the FPÖ, in the late 1980s. The party’s leader, Jörg Haider, embraced accession because the main parties were against it. But soon, the mood in the country began to shift. Support for membership started to grow—first among the conservatives, then more broadly among other politicians, who slowly warmed to the idea.

In the end, both coalition parties supported Austria’s EU membership. Even the populist newspaper Kronen Zeitung, which is now very Euroskeptic, was in favor. The last hurdle to accession was overcome when a report by lawyers argued that the country’s neutrality would remain intact because Austria would have a veto in Brussels. In the words of Michael Gehler, a history professor at Hildesheim University in Germany, this was “neutrality gymnastics in the extreme.”

Other EU countries, especially France, reacted cautiously to Austria’s potential accession. There was talk of a reunification of German-speaking countries. For Paris, a bigger Germany was difficult to stomach. Delors, a Frenchman, reportedly asked: “How is this possible?”

Austria did everything to reassure other capitals of its good intentions. Vienna’s then ambassador in Paris, Eva Nowotny, explains that Austria wanted to deepen the EU, not enlarge it further. “I had no instructions from Vienna,” she says. “One day, I called my colleague in London to ask what his line was. ‘Oh,’ he replied, ‘I tell the Brits we are pro-enlargement!’”

In July 1989, Austria submitted a request for EU membership. The FPÖ was now against it. With many Austrians supporting accession, the far-right party saw electoral gain in opposition.

Later that year, the Berlin Wall came down. That this event coincided with Austria’s move toward EU membership was an unbelievable piece of luck for Vienna. The fall of Communism meant that Eastern European countries would eventually join the union, shifting Europe’s heart eastward. Austria would sit right in the middle of this “new Europe.”

This transition gave the Austrian economy a tremendous boost. The country’s entrepreneurs traveled all over Eastern Europe, buying up banks and companies and starting businesses. Austria’s Billa supermarket chain has opened branches in the Balkans and closed ones in Italy. Multinationals now hire Austrian consultants to explore Central and Eastern Europe.

The end of Communism also rekindled old cultural ties between Austria and its Eastern neighbors. Thanks to immigration, Vienna grew again and has some 1.8 million inhabitants today. The city has the second-biggest Serbian population after Belgrade. Ukrainians or Serbs seeking to enter the EU often use Austria as a first port of call.

In 1994, Austria held a referendum on EU accession. Gusenbauer says, “We convinced citizens that nothing much would change, except that borders would open and trade barriers would be lifted. It was an easy job: Austrians are big exporters.” In the referendum, 66.6 percent of the population voted yes.

That figure has changed little since. Every year, the Austrian Society for European Politics, a nongovernmental organization, conducts a poll that asks whether Austria should remain in the EU. The result is always the same, says the society’s director, Paul Schmidt: “With minor fluctuations, two-thirds want to stay.”

Straddling East and West

Austria has reaped the rewards of its close ties with its Eastern neighbors.

True, some banks have overeaten in Eastern Europe and have had to be bailed out. Hypo Alpe-Adria-Bank has absorbed €5.5 billion ($7.0 billion) in state aid since 2009 after going on a spending spree in Southeastern Europe in the 1990s. Austrian companies that did business with Russia throughout the Cold War have been hit by the Ukraine crisis. In 2014, Raiffeisen Bank saw its business in eastern Ukraine disrupted by the conflict there and had to close all its branches in Crimea after Russia annexed the peninsula in March. In September, the bank predicted its first annual loss because of regional uncertainties. Analysts warn that Austria’s growth prospects will be downscaled if tensions persist.

And yet, thanks to booming economies at its Eastern doorstep, Austria has mostly escaped the eurozone recession. Most Central and Eastern European countries are growing faster than the EU average, providing Austria with an economic perspective that many other eurozone countries utterly lack. An Austrian entrepreneur says, “Our work ethos comes from the West, our profits from the East.”

#Austria has profited immensely from EU membership. But Austrians don’t love the EU.
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Austria has profited immensely from EU membership, too. But like many other Europeans who have done well out of EU membership, Austrians don’t love the EU. Public debates are often interrupted by Euroskeptic outbursts. Newspapers adore Brussels bashing. Visitors to the country sometimes ask why the government does not “sell” the EU a little more.

Austria doesn’t contribute much to the EU apart from knowledge and intelligence about the Western Balkans, ideas for combating youth unemployment, and occasionally a smart European commissioner for agriculture. Austria’s Socialist Chancellor Werner Faymann, a committed European, is passive in Brussels.

The EU is less a part of the political system in Vienna than in other capitals. While other national governments organize weekly briefings with their EU ambassadors, diplomats in Vienna try to hold such meetings once a month. Despite regular policy coordination with members of parliament, who have joint decisionmaking powers on several issues, Austria has never had a European strategy, according to Busek. “Accession was the end of our strategy. We have no plans for Europe. We do have plans, however, for our neighbors in the East and Southeast.”

Diplomats say that Austrian Foreign Minister Sebastian Kurz has shown more interest in EU matters than his predecessor did. But Austrian ministers’ contributions to Brussels tend to be individual rather than national. The two coalition parties look after their own ministers and portfolios. Former conservative finance minister Maria Fekter upset many of her counterparts in Brussels by making harsh statements against Greece during the euro crisis. In Vienna, few paid attention, beyond asking each other: “Have you been Fektered yet?” (“Have you had a dressing-down yet?”) The Socialist chancellor, while disagreeing with Fekter, never rebuked her.

“The coalition is about ‘live and let live,’” says Gusenbauer. “We like it the Deng Xiaoping way,” he adds, referring to the former Chinese leader, “We don’t care if the cat is black or white, as long as it catches mice.”

Most Austrians agree the EU has made a mistake by getting closer to Ukraine, Georgia, and Moldova, and not to Russia.
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In Vienna, there is irritation about past and present EU policies toward Moscow and Kiev. Most Austrians agree the EU has made a mistake by getting closer to Ukraine, Georgia, and Moldova, and not to Russia. “We should have offered Russia these prospects [of closer association] too, including EU membership,” says a prominent Austrian politician off the record. “[The Russians] would have declined, of course, but at least they would have received the same treatment as others. Now they say we are plotting behind their backs. They feel offended.”

After the fall of the Soviet Union, then German chancellor Helmut Kohl and other Western leaders made firm promises to Moscow that Eastern Europe would not become NATO territory. The West has broken this promise, Gusenbauer says. “The Baltics and Eastern European countries joined NATO, then the EU. Then speculation started about Ukraine and Georgia. I understand why Moscow is upset.”

Austria was the first European country to receive Russian gas, in the late 1960s. A big storage facility, co-owned by Russia, lies close to Vienna. Austrians, who insist that this gas has always arrived on time, see no need to reduce their dependency on Russian energy.

After Putin’s speech to Vienna’s chamber of commerce in June, he received a standing ovation. One applauding Austrian businessman explained: “I don’t trust Putin, but he is our guest.” Austrians don’t feel close to Russia, but they are reluctant to slam the door in Putin’s face.

Signs of a vibrant commercial relationship with Russia are everywhere. Rich Russians buy upmarket penthouses in Vienna and pay in cash in luxury stores. A Russian businessman, asked why he doesn’t move to Switzerland, where foreigners often pay less tax, says, “I feel more at home here.”

We’ll Do It Our Way

In the future, Austria will keep walking a tightrope in Europe. Itself a product of tension between East and West, the country will abide by EU rules and will be careful not to burn bridges.

Austria is not entirely alone in this. Germany has also pursued a relatively balanced line in its response to the cooling of relations between the West and Russia. So too has Italy. Viennese officials suggest that Putin’s June visit had the quiet blessing of Berlin, which sought to use Austria to do something it couldn’t do itself. Putin recently mentioned Vienna as a good place to negotiate a peace settlement with Ukraine.

Austria’s consensual model of democracy depends largely on the country’s black-red coalition—and it is unclear how long that partnership will hold. This is probably the last time the conservatives and Socialists will have a parliamentary majority, as they secured only a narrow margin of 50.8 percent of the vote at the last election in September 2013. No one knows what will come next, although another form of coalition seems likely.

The FPÖ might be part of such a coalition. Many don’t seem to think this would be a disaster. Despite its rhetoric, the party doesn’t advocate an Austrian exit from the eurozone or from the EU, as many FPÖ voters don’t want to endanger their business ties with Eastern Europe. However, the fact that many European far-right parties, including the FPÖ, have suddenly become close to Putin does raise eyebrows across Austria.

The energy Austrians invest in Brussels will be dedicated to a few issues they find important, such as EU enlargement to Serbia and Albania. In the new European Commission, Hahn has been reappointed as Austria’s commissioner, with the portfolio of the European Neighborhood Policy. Vienna couldn’t have asked for anything better.

#Austria’s message is that the EU has helped Western Europe, and now it has to help Eastern Europe.
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Austria’s message is that the EU has helped Western Europe, and now it has to help Eastern Europe. Vienna has tried hard to get Berlin to share this way of thinking. In August, Austrian diplomats secured a high-level conference in the German capital on EU enlargement. The two countries’ foreign affairs ministries are forming a working group to start exploring paths toward Serbian and Albanian EU accession.

Austrians believe they are at the center of the new Europe. Whatever this means, they must somehow make it work. And that is precisely what Austrians have always been doing: trying to reconcile irreconcilable viewpoints, and doing well out of it. “Don’t forget,” Busek says, “Vienna is the capital of a former court. We love operettas, masquerades, and etiquette. We make the best out of any situation.”

Caroline de Gruyter is Europe correspondent for the Dutch newspaper NRC Handelsblad. She is based in Vienna.