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Number 31
Working Paper Series by the University of Applied Sciences bfi Vienna
The Development of Austrian FinancialInstitutions in Central, Eastern and
South-Eastern EuropeComparative European Economic History Studies
November 2006
Susanne Wurm
University of Applied Sciences bfi ViennaDepartment of Banking & Finance
Working Paper Series No. 31 3
Preface
This paper was written to provide students of banking and finance with an overview of the development of Austrian financial institutions in Central, Eastern and South-Eastern Europe and to offer them an insight into the most important literature in this field. Furthermore an attempt was made to assess whether there were historical reasons for the recent successes of Austrian banks and businesses in Central, Eastern and South-Eastern Europe. On the basis of interviews with people involved in this expansion of Austrian banks and businesses the intercultural aspect of the relationships between Austrians and their business partners in this region was analysed. I would like to warmly thank all those people who were prepared to give me their opinion on this issue of intercultural communication and business relationships.
In my opinion many excellent and detailed analyses of individual phenomena are published in this field of research in Austria but few comprehensive, concise and readable overviews are written for students and an interested public. With this paper I hope to make a small contribution to filling this gap.
Vienna, September 2006
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Working Paper Series No. 31 5
Contents
1. Introduction - Austria: Back at the Economic Heart of Central Europe after the Fall of the Austro-Hungarian Empire in 1918?.................................................................................... 7
2. The Historical Division of Europe into East and West - and where or what Is “Central Europe”?........................................................................................................................................ 11
3. Economic Backwardness and Economic Development in Central and Eastern Europe......... 14 4. Economy and Finance in the Austro-Hungarian Empire............................................................. 16 5. The Development of the Austro-Hungarian Banking System..................................................... 22
5.1. Types of Banks .......................................................................................................................... 22 5.2. International Financial Relations................................................................................................ 25 5.3. International Investment............................................................................................................. 27 5.4. International Industrial Finance.................................................................................................. 28
6. Financial Institutions in Central & Eastern Europe during the Interwar Years......................... 31 6.1. International Capital Flow to Central & South-Eastern Europe.................................................. 33 6.2. Banks and Industrial Enterprises ............................................................................................... 34
7. The Great Depression: The Credit-Anstalt Crisis 1931 ............................................................... 36 8. The Consequences of the Credit-Anstalt Crisis for Central & Eastern Europe........................ 39 9. The Role of Austrian Banks in Nazi Germany’s Expansion to Central, Eastern &
South-Eastern Europe .................................................................................................................. 41 10. Austrian Banks after 1945 ............................................................................................................ 45 11. Austrian Banks Have Led the Way in Central & Eastern Europe since 1989.......................... 47 12. The Transformation in Central & Eastern European Banking & Industry after 1989
and a Century ago – a Comparison............................................................................................. 50 12.1. The Role of Banks in Economic Development......................................................................... 50 12.2. Bank-Based versus Capital Market-Based Financial Systems................................................ 50 12.3. The Functioning of the Banking System in the Transformation Processes ............................. 52
13. Vienna Stock Exchange: A Financial Hub for Central & Eastern Europe? ............................. 53 14. The Expansion of the Three Largest Austrian Banks in Central, Eastern &
South-Eastern Europe since the Fall of the Iron Curtain.......................................................... 55 14.1. Bank Austria Creditanstalt........................................................................................................ 55 14.2. Erste Bank................................................................................................................................ 57 14.3. Raiffeisen International ............................................................................................................ 59
15. Intercultural Relationships and Communication in Central, Eastern & South-Eastern Europe............................................................................................................................................ 61
15.1. “K.u.k. Post-Colonial Relationships”? ..................................................................................... 62 15.2. Intercultural Business Communication in Central, Eastern & South-Eastern Europe:
An Analysis of Austrian Executives’ Personal Impressions .................................................... 63 16. Conclusion ..................................................................................................................................... 68 Bibliography......................................................................................................................................... 69 References ........................................................................................................................................... 71
6 University of Applied Sciences bfi Vienna
Working Paper Series No. 31 7
1. Introduction - Austria: Back at the Economic Heart of Central Europe after the Fall of the Austro-Hungarian Empire in 1918?1
European Union accession by Austria’s neighbouring countries in 2004 has boosted links. Austrians
initially reacted with mixed feelings and some reservation to this EU enlargement, yet now they are
more supportive of the idea. Increased economic involvement with Slovakia, Hungary, Czech Republic
& Slovenia means more economic growth. The banking sector is benefiting from increased business
with CEE countries while on the domestic front the market is weak. The Vienna Stock Exchange is
looking for a prominent role in the new EU, but its sleepy reputation remains a burden. Yet once it was
the capital market for continental Europe’s economic bloc. Now the bourse wants to restore its good
reputation, not as the domineering hub of a former empire, but as the focal point for a network of
independent equity markets across Central & Eastern Europe.
Austria has moved from the edge of European political and economic geography into the centre again.
After more than four decades of facing the Iron Curtain, and since its coming down in 1989 a region of
potential instability on its eastern borders, Austria is now a neighbour to stable democracies and some
of Europe’s fastest growing economies. Trade with Central, Eastern & South-Eastern European
countries and countries further east which have emerged from the disintegration of the former Soviet
Union and Turkey is one of the main engines of Austria’s economic growth. Banks such as Erste
Bank, Bank Austria Creditanstalt, and Raiffeisen Zentralbank and industrial companies, such as OMV
and Wienerberger are stepping up their already significant investments in a region that is coming to
represent a second home market for a country of only 8 million inhabitants. The bond is still not
perfect, neither physically nor emotionally as the paper will show. Fast road and rail links between the
important capital cities of Bratislava, Prague, Budapest, Ljubljana and Vienna are still lacking, a
reminder of the Iron Curtain and Austria’s ambivalent attitude to its neighbours and the neighbours’
ambivalent attitude to the capital city of the former Austro-Hungarian Empire. Yet development plans
abound and are also thwarted: The Vienna Airport had won a public tender to buy a majority share in
the Slovakian airports of Bratislava and Kosice in spring 2006. The signed contract to jointly operate
the airports of Vienna, Bratislava and Kosice was rescinded by the new Slovakian government in
August 2006, so the planned extension of the fast City Aiport Train (CAT) Vienna city centre – Vienna
airport to Bratislava might not be realised either. But a speedboat on the Danube connects the two
cities in 40 minutes’ time on a regular basis since 2006.The rescinding of the contract by the Slovakian
government might not only be an expression of national pride but also of the fear of being dominated
by Vienna again as during the time of the Habsburg Empire.
Although Austria has been taking full advantage of the seven-year transition period before workers
from the accession countries of 2004 can enjoy full freedom of movement and is keeping the domestic
job market temporarily more or less closed to the newcomers, the numbers of job seekers from the
east are rising and especially skilled workers are in high demand, particularly in construction and
services. Especially in Eastern and South-Eastern Austria cross-border commuting on a daily or
weekly basis has become very common. Despite some hesitant feelings among the population that
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are nurtured by populist politicians, business people and also many politicians have recognised that
Austria’s future lies in closer relations with its neighbours in Central, Eastern and South-Eastern
Europe, given its relatively small size and chequered history. Political and economic relations with
Slovakia, Hungary and Slovenia – apart from sad hassles with Carinthia over the acknowledged rights
of the Slovenian population there - have been more or less frictionless, but links with the Czech
Republic have been overshadowed by differences over the safety of the Czech nuclear power plants
and demands of the German-speaking population that was driven out of Czechoslovakia after the end
of the Second World War and settled in Austria.
It is believed that if a small country like Austria wants to have a voice in the European Union, it has to
join a regional group, preferably and most conveniently with its eastern neighbours, specially as these
bonds have been established over centuries when the Habsburg empire created an economic entity in
the Danube basin and they were only interrupted during the Cold War. If Austria acts reluctantly, there
is the danger that the accession countries of 2004 will form alliances with each other and close the
door to Austria.
However, at the time when the latest enlargement has been accepted by the population in Austria and
its neighbouring countries, a new public debate has arisen over a much touchier issue: the accession
of Turkey. Hostility to Turkish membership has been reinforced by continuing concerns about
nationalism and identity and above all by a wide-spread feeling that the enlargement process is too
fast, incorporating too many very diverse countries and is only serving the purposes of the economic
elite and not the populations of the member countries as such. One example: generous corporate tax
reductions have boosted Austria’s appeal as an investment location, allowing improving
competitiveness against lower cost rivals among its EU neighbours.
If we take a look at Austrian top banks, there is the domestic market with fierce competition, thin profit
margins, high personnel costs and limited growth prospects. And there are the booming markets in
Central and Eastern Europe where Austrian banks were the first to enter and are now big players.
Among the top five banking groups in the east, including Russia, three - Erste Bank, Bank Austria
Creditanstalt BA-CA, now a part of the Unicredit Group, and Raiffeisen Zentralbank (RZB) – are
Austrian. Between them they hold more than one third of the total banking assets in the region. Only
Belgium’s KBC, the overall market leader, Unicredit of Italy and Société Général of France can play in
the same league. Unicredit’s decision to buy the German HVB in 2005 was triggered by the wish to
acquire BA-CA’s CEE network, the most profitable part of the HVB Group.
Austrian banks were the first to venture into the east, some of them even before the fall of the Iron
Curtain. They first set up branches to serve Austrian trading and export companies but then moved
quickly when state-owned banks came up for sale all over Central and Eastern Europe. For reasons of
geography and trade flows, but also for historical reasons it is viewed as a natural common market
with Austria in the middle, just like Scandinavia and the Baltic States. Erste Bank came later than the
others but managed to gain a strong retail banking position through the acquisition of large savings
banks in the Czech Republic, Slovakia, Hungary and Romania. BA-CA was until its takeover by the
Working Paper Series No. 31 9
Unicredit Group one of the market leaders in Poland and well established in commercial and
investment banking throughout the whole region. Although BA-CA lost out to Erste Bank in major
privatisations in Slovakia and Hungary, it strengthened its overall position through smaller acquisitions.
In 2006 BA-CA became responsible for all Eastern European operations of the UniCredit Group
including Turkey, but except Poland. With its IPO in 2005 Raiffeisen Zentralbank was able to tap the
stock market later than its rivals, managed fewer acquisitions, but followed due to its co-operative
philosophy a different strategy of local start-ups and organic growth in 16 countries. Its eastern
subsidiary, Raiffeisen International RI, combines commercial and retail banking and is also active in
difficult markets like Russia, Bosnia-Herzegovina, Albania and Ukraine.
Eastern Europe was certainly the saviour for Austrian banks. Banking in the east makes up 40 to 70
per cent of the banks’ net income and this share is likely to rise further, as customers in the EU
member states of the accession round of 2004 see their incomes grow. In the first years of 2000
deposits rose at an annual average rate of 10 per cent in the east, which was twice as fast as in the
euro-zone. On the asset side, private loans expanded more than 20 per cent a year, compared with
around 7 per cent in the euro-zone. With the big privatisations in the east now at an end, most of the
market is divided up and the banks now have to focus on internal growth. Meanwhile, high profit
margins and excellent growth prospects in the east are raising the stock prices of the three Austrian
banks, ranking among the best-performing banking stocks in the EU.
Also small and exclusive Austrian banks with a traditional link to CEE countries are doing extremely
well. One example is Meinl Bank. Julius Meinl was founded in Vienna in 1862 as a specialist store and
later a coffee roasting plant. After the end of the First World War in 1918 the company expanded into
the new states that were created after the fall of the Austro-Hungarian and the Turkish Empire. At the
outbreak of World War II in 1939 the company operated over 1,000 stores. The family fled to Britain
and in the course of the war and afterwards due to the expansion of Soviet Communism most of the
company’s assets in Central and Eastern Europe were lost or destroyed, but after the end of the Cold
War, Julius Meinl started operations again in this region and bought lots of property during the first
wave of privatisation. The company exited general food retailing, yet the property acquired then
formed the basis of Meinl European Land, a listed real estate fund that develops and operates
shopping centres from the Czech Republic, Poland and Hungary to Russia and Turkey, around 200 at
the moment with a real estate value of 3 billion euros and further growth potential and a yield of 10 per
cent and more for the shareholders. This is only one area of business of Meinl Bank which developed
from the company’s savings association in 1927 and is now a very successful investment and asset
management bank. It launched several IPOs and was involved in the privatisation of the airports of
Bratislava and Kosice in Slovakia and the restructuring and privatisation of the public electricity works
in Macedonia.
The Vienna Stock Exchange was once the capital market for continental Europe’s foremost economic
bloc in the Danube basin, but has been dismissed now for decades as small, illiquid and largely
irrelevant, yet now it aspires to become the centre for a network of independent equity markets across
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Central and Eastern Europe, not the domineering hub of a former empire. The Vienna Stock
Exchange was founded by Empress Maria Theresia in 1771. Due to the political and economic
significance of the Habsburg Empire, the Vienna Stock Exchange gained international recognition in
the 19th century, which ended with the fall of the empire. After decades of underdevelopment there is
now a renewal of interest in the stock markets of the new EU members in Central and Eastern Europe
and the Vienna Stock Exchange wants to operate there. In 2004 a first step was taken by the takeover
of the Budapest Stock Exchange, which is now majority-owned by a consortium of Austrian banks and
the Vienna Stock Exchange. Yet the main aim is to establish common trading and clearing systems
and to improve links with neighbouring markets and not to nurse “colonial ambitions” towards its
neighbours. How realistic the aim of an alliance of equal partners is, given Vienna’s preponderant
trading volumes and market capitalisation, is doubtful. Vienna has to tread carefully, not to create the
impression of trying to use the collapse of communism to recreate the trading structure of a century
ago when the city dominated trading in stocks and shares in the Austro-Hungarian Empire. For the
countries in this region re-establishing independent stock exchanges symbolised the restoration of
democracy and capitalism. Closer links are being established between Vienna and Budapest and
Warsaw and Prague. Yet local uncertainties overshadow the development. The Vienna Stock
Exchange has been boosted by foreign interest in the growth potential of Central and Eastern Europe.
It was further helped by privatisations, increases in the free float in some state-owned companies and
legislation boosting equities for institutional investors. Yet the stock exchange’s former sleepy
reputation remains a burden as well as the scant equity culture in Austria. Share ownership amounts
to between 7 and 8 per cent, which is very low, even lower than in Germany (10 per cent). The
country’s economic structure is partly responsible for this situation, due to the fact that business is
dominated by small and medium-sized companies, most of which are too small to consider floatation.
Bank credit remains the dominant form of corporate finance. Borrowing accounts for 70 per cent of
company funding compared to 50 per cent EU-average and 40 per cent in the UK.
Among the Austrian companies pushing into Central and Eastern Europe, the banks and OMV, the
energy group, have stood in the limelight. Wienerberger, the world’s biggest brick maker, – just to give
one example of several Austrian companies in various fields - has been less conspicuous.The
mundane nature of the business and less eye-catching size of its individual investments explain why
the Vienna-based group has not caught international attention. However its international expansion,
particularly in the east, in recent years can be compared to the banks’ successes there. The
predominance on the world market is striking for a company that was in troubles a decade ago. It was
founded in 1819 in the clay fields south of Vienna and floated 50 years later as the first public
company of the Austro-Hungarian Empire. In the late 1980s it was a purely domestic manufacturer
with 11 plants in eastern Austria. After the collapse of communism a new management brought in a
dual strategy of shedding surplus businesses to concentrate on bricks and tiles and
internationalisation through takeovers and green field development. Austria now accounts for less than
3 per cent of sales. In the east the opportunities for building efficient new plants have made for a mix
of takeovers and green field expansion, whereas in the west growth has come largely through
Working Paper Series No. 31 11
acquisitions. The biggest growth potential is in the east. Large works have been opened in Romania,
Hungary, the Czech Republic, Russia and many other areas in the east.
So what makes Austrian companies so successful in the east? Is it the right timing, is it flexibility, is it
coming from a small inconspicuous and therefore “unthreatening” country, is it geographical location
or - is it historical relations?
2. The Historical Division of Europe into East and West - and where or what Is “Central Europe”?2
Curiously, one of the things that Europeans have long shared, that has bound them together is a
sense of their divisions. The east – west distinction was remarkably well established at a very early
time in history. It is sometimes supposed today that the line dividing Eastern from Western Europe
was an artificial creation of the Cold War, but that is not so. The division of the continent started with
the break-up of the Roman Empire into two distinct parts in the 4th century AD. The emergence of the
Carolingian Monarchy reinforced the division by giving the hitherto anarchic western part distinction
and enduring frontiers. Charlemagne’s 9th century empire corresponded, curiously enough, with
precision the post-war “Europe of Six”; it just left out central and southern Italy and Catalonia. The
eastern boundaries of the Carolingian Empire were still imprecise just as the northern borders of
Byzantium, but by the 14th century the east-west distinction was well established.
Although partly based on prejudices, historical documents confirmed that invisible line that separated
east from west. Conradus Celtis in the 15th century recorded a sentiment that was wide-spread in
Western Europe since the 10th century: Where the Roman/Carolingian, Lothringian and Hohenzollern
empires ended, there ended Europe. An Englishman travelling the Habsburg lands in 1669, Edward
Brown, remarked upon entering Hungary that he left his world and entered a land quite different from
western countries. Long after the Habsburgs had established effective authority over territories
stretching well into today’s Ukraine, Metternich spoke of “Asia beginning at the Landstrasse [a street in
the eastern part of Vienna then]”.
The only major population movements within Europe since the 4th century’s migration of the peoples
was the arrival of the Magyars in the 9th century and the German settlers moving east. Western
Europe thought of the land east as terra incognita, rough people awaiting civilisation and government.
Some of that attitude remained. Reinforcing the ancient division was a religious one. The Byzantine
Empire imposed orthodox Christianity upon its territories and Charlemagne enforced the Roman
version of Christianity in his lands, Austrian and Russian heirs to these empires did likewise. Two
forms of Christianity came to define different regions in Europe. In fact ecclesiastical boundaries of the
distant past are the most enduring of European divisions - e.g. dioceses of the Catholic Church in
France which follow geographical subdivisions of the Roman provincial organisation. In the areas of
mixed population religion expressed social standing; for instance in the Baltic States the landowners
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were catholic, the peasants orthodox. This division was further echoed by the use of different
languages. The emergence of national identity in the Habsburg lands in the 19th century was often a
matter of language, even if the language in question was not always ancient, sometimes even
reinvented for political ends, as for instance the random adoption of one Croatian or one Slovak
dialect as a national language.
Within Western Europe a north-south division has established itself as well but these differences never
acquired such a deep significance as the east-west division. Since the 17th century the north was
protestant, Germanic-based languages were spoken there, it was divided into nation states while the
south was Roman Catholic, Latin-based languages were spoken there and the region was still ruled
by emperors and popes. Yet Western Europe was always bound by cultural and commercial links that
transcended these divisions.
A common and distinctive history characterises the west. First the Urban Renaissance of the 12th
century, second the Enlightenment of the 18th century and third the Industrial Revolution of the late
18th and early 19th century. The centre of economic and cultural gravity moved around between the
Rhine, Lombardy, Venice, Tuscany, the Low Countries, Spain, France, and England, but it never
moved beyond Vienna. Except the passing brilliance of civilisations in Prague or Vilna, there were
never any truly European capitals east of Vienna. The rise of the Ottoman Turks and the discovery of
the Americas shifted gravity further to the Atlantic.
If there is a distinctive division, where does east and west meet? There is an ancient invisible line from
Gdansk in the north to Trieste in the south that separates the two parts with remarkable continuity
from the eastern border of the Carolingian Empire to the frontier between the Austrian and Hungarian
part of the Habsburg Empire to the western border of “real existing socialism” after 1947. From the
Dalmatian coast to Lithuania there is a line dotted with fortresses, frontier settlements, strategic towns
and historic cross roads. For centuries this area has been a point of encounters of Germans and
Slavs, Austrians and Turks, Catholics and orthodox Christians. But it falls across a terrain, where
peoples for centuries have met, mixed and fought. Contrary to other areas in Eastern Europe,
Bohemia was until 1948 a flourishing component in the Industrial Revolution, which marked the
western part off from the rest of the continent more than anything else, and it was firmly settled in the
western European culture.
So is there a “Central Europe”? The geographical position is not clearly defined, but it would denote a
quadrilateral from Riga to Prague down to Trieste and Zagreb and back to Lvov and the Baltic states.
This area has much in common. It is predominantly catholic, rural, majority Slav speaking,
characterised by outstanding towns and cities with unmistakable European architecture and heritage
and a European cultural and literary tradition. In addition distinctive traditions of its own had developed
over the centuries and an influential intelligentsia dominated the intellectual life since 1848.
All this differentiates Central Europe remarkably from the lands to the east and south. “Central
Europeans” of this area place much emphasis upon the ancient division between the Western and
Working Paper Series No. 31 13
Eastern Roman Empires which leaves them well in the west. The idea of Central Europe came into
existence with political and economic reforms of enlightened despots, especially Joseph II of Austria,
who made possible the assimilation of Jews, and Friedrich II of Prussia. This blooming multi-cultural
region was destroyed by the Versailles peace treaty in 1919 and the national divisions created then.
Hitler administered the death blow. The “Golden Time” of Central Europe were the last decades of the
Habsburg Empire when Prague, Krakow, Budapest, Lvov, and Zagreb flourished.
But the distinction that existed between Central and Eastern Europe was by no means clear to the
West. Central Europe was more or less the civilisation of the cities of “Habsburgia”, a cosmopolitan
culture, often written and spoken in a then international language, namely German. Many of the most
accomplished representatives were Jews. The destruction of this genuinely Central European culture
has left the cities as provincial towns, their claim as to being distinctive Central European is
sometimes viewed as nostalgic in the West. Their desire not to be confused with the people east of
this important divide has deep historical roots as “frontier people”.
This frontier has shifted over the centuries, but the most distinguishing feature remained, the division
between rural and urban societies. The largely rural eastern and south-eastern parts of Europe fell far
behind the urbanised north-west. The north-west was formed into recognised nations and permanent
states in earlier centuries, whereas the nation states in the east and south east were formed after the
collapse of the Austrian, German, Russian and Turkish empires in the beginning of the 20th century.
The area was characterised by an all or nothing claim to territory and power at the expense of a
neighbour making an identical claim. This resulted in the great misfortune of Eastern Europe. The
division into states came late and all at once. Germany and Italy also united late, but overcame that
disadvantage. The intelligentsia of Eastern Europe has always striven to associate with the West,
especially with France. Francophilia was especially wide-spread among Polish, Romanian and Serb
intellectuals in the 19th and early 20th century. Yet their efforts to identify with Western European
culture were met by a gulf of disinterest and misunderstanding. As a result the cosmopolitan elite was
further alienated from the masses of the people and this provoked hyper-nationalism among local
leaders.
So in fact, countries west of the rivers Elbe and Leitha have always been seen as European, the
countries east of that divide have always been in the process of “becoming European”. The
enlargement of the European Union to the east and south-east represents a special challenge to the
existing set of European policies. But it also presents political opportunities for creating a peaceful,
democratically governed and economically efficient Europe that finally puts an end to the legacies of
World War I and II and in the long run will overcome the ancient division line between east and west.
14 University of Applied Sciences bfi Vienna
3. Economic Backwardness and Economic Development in Central and Eastern Europe3
Central and Eastern Europe was characterised by transition from a collection of agrarian societies
under dynastic rule to modern industrialised societies within the European system of nations over the
last two centuries. Western Europe achieved modern economic growth with mixed capitalist economic
systems and high levels of integration into the world economy while the Russian Empire in the 19th
century and its successor, the Soviet Union, in the 20th century experienced delayed economic
development with weak or no capitalist institutions and feeble international economic links. As
mentioned above the countries of Central Europe form the area “in-between”: Austria and
Czechoslovakia before the Second World War followed the Western model, while Bulgaria and
Romania stuck to the Russian model, Hungary, Yugoslavia and Poland opted for a mixture of those
different ways.
The roots of economic backwardness in Central and Eastern Europe reach far into the past, as
mentioned in Chapter 2, and cannot solely be attributed to the Cold War, the Iron Curtain and the
mismanagement of communist command economies. Even though Austria, the only country outside
the former East Bloc, could be seen as an example that the huge gap between Western Europe and
the former East Bloc countries before 1989 was due to post- World War II economics, too. Austria was
the worst performer in Central Europe during the interwar years, but then participated in the Western
European economic “miracle years” and reached Western European per capita income levels quite
fast. On the other hand Austria constituted the western part of the Habsburg Empire and by that
participated in the early industrialisation of Western Europe, while Eastern Europe remained in a
phase of medieval serfdom. By the 18th century the Alpine lands and Bohemia, the western part of the
empire, were not far behind Western Europe’s more developed regions and much more advanced
than the agrarian regions of the east. In the 19th century the gap between the western and the eastern
half of the empire widened. After 1867 economic integration and Dualism boosted economic
development also in some areas of the east. But economic growth spread throughout the empire at
unequal rates, so that disparities widened. Only Western Hungary kept pace with the Alpine regions
and Bohemia. Further east and to the south income grew but much more slowly. Until the outbreak of
the First World War the gap between the advancing regions in the west and the backward regions in
the east, especially Transylvania, Croatia-Slavonia, Dalmatia and the Carpathian lands, continued to
widen. Yet the per capita income of the poorest regions of the empire was still above Russia and the
independent Balkan states and at the same level with Spain and Greece. So the eastern portion of the
empire, although it was lagging behind the western part in economic development, was well in
advance of the rest of Eastern Europe.
With the exceptions of its peripheral regions, most of the Habsburg lands grew more quickly than
England by 1910 and began to catch up to England. Within the empire Austria proper grew the fastest
and reached average Western European standards. Based on their growth rates, the Czech lands,
Hungary proper and the coastal and northern regions of the southern Slav lands followed Austria
Working Paper Series No. 31 15
proper. During the interwar years the successor states of the Habsburg Empire performed poorly and
they lost ground. Austria stagnated, so that other Central European states like Czechoslovakia could
catch up as it grew faster and reached the Austrian level in 1938. These historical data put the
communist era in another perspective. During the Cold War most of the East Bloc countries grew
faster than for instance Great Britain but of course from a much lower base. The period might not have
caused the relative backwardness of the former East bloc countries but delayed economic progress. In
1989 the economic gap between the Eastern European countries and the Western European
countries was as wide as it had been a century ago.
Abb. 1: The View from History, Centre for Austrian Studies 1997, Table 2 Source: Good, David, Economic Transformation in Central Europe.
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4. Economy and Finance in the Austro-Hungarian Empire4
The Austro-Hungarian Empire was one of the latecomers in industrialisation together with Switzerland,
the Netherlands and Scandinavia. Its reputation of economic backwardness in the 19th century is
largely unjustified as only some portions of the empire were really backward, as can be seen above.
To an even greater extent than France or Germany the empire was characterised by regional diversity
and disparity. The western provinces – “Cisleithania” -, especially Bohemia, Moravia and Austria
proper, were economically far more advanced than the eastern part – “Transleithania”. In the west the
first stirrings of modern economic growth could be observed as early as the second half of the 18th
century, but the topography made internal and international transport and communication difficult and
expensive and the poverty of natural resources, most of all coal hindered economic development.
In the 18th century textile, glass, iron and paper industries grew up in Austria proper and the Czech
lands. The textile industries were by far the largest, especially wool and linen and a fledgling cotton
industry developed since 1763. The technology was traditional, but already a few proto-industries with
large workshops and the use of mechanical power were established, yet most of the production was
organised under the putting-out system. Mechanisation began in the end of the 18th century and
spread to the woollen and linen industry later. By the 1840s the empire was second only to France on
the continent in the production of cotton goods. The well-established industries of the west continued
to expand gradually after the revolution of 1848.
As everywhere the business cycle produced short-term fluctuations in the rate of growth. But the
social institutions in the empire were extremely hostile to growth, especially the persistence of serfdom
until 1848 hindered economic expansion. The reforms of Joseph II in the 1780s had already allowed
peasants to leave the land of their lords and to market their crops as they chose and to pay rent and
taxes to their feudal lords, but little more. The abolition of serfdom was to grant the peasants freehold
tenures and substitute taxes paid to the state that were formerly paid to the lord. An improvement in
agricultural productivity had already been started by the noble landowners. In 1850 the abolition of all
internal customs frontiers created an empire-wide customs union but the territorial division of labour
had already been well established before: the export of manufactured goods from Austria to Hungary
and the Hungarian exports of agricultural products to Austria.
Another obstacle to more rapid growth was the monarchy’s foreign trade policy which remained
staunchly protectionist and by that helped Prussia to exclude it from the German customs union, the
“Zollverein”. High tariffs further limited imports and exports because the high-cost protected industries
were unable to compete on the world market. Yet the major reason for slow economic growth was the
diversity in levels of education and literacy. The Austrian half had the same levels as France, yet
unevenly distributed, but the Hungarian half’s level of education and literacy was even lower. A
distinctive west – east gradient was obvious in this field as well, which had serious consequences for
the economic development due to the high correlation between literacy, industrialisation and per
capita income.
Working Paper Series No. 31 17
Transport played a crucial role in the industrialisation process and as much of the country is
mountainous land transport was expensive and water transport was more or less nonexistent. Few
canals had been built, the Danube and a few other large rivers flow eastward and southward, away
from the large markets and industrial centres. Only since the 1830s steamboats could be used for
upstream navigation. The earliest railways were constructed in Austria and the Czech lands. Only after
the Compromise with Hungary in 1867 Hungary invested more in the transport infrastructure. This
consolidated the geographical division of labour and the west – east gradient. Mainly grain and flour
was transported in the eastern part of the empire as Budapest developed into an industrial centre, the
largest milling centre in Europe. The Hungarian industry concentrated on food products, the
processing of food and the manufacturing of machinery in this sector while Austria and Bohemia put
the emphasis on textiles.
Charcoal-fired iron industry had existed in the Alps for centuries; especially Bohemia had a long
tradition of metal working. With the advent of coke, charcoal industries declined. In Bohemia and
Austrian Silesia, better endowed with coal, modern metallurgical industries developed since the
1830s. Not only the primary production of pig iron, but refining and fabricating was established as well
together with machinery and machine-tool factories and heavy chemical industries. Some rather
sophisticated industries grew up around Vienna and Lower Austria such as the locomotive factory in
Wiener Neustadt. Austria steadily fell behind the united Germany in industrial growth, but the industry
in the western half continued to grow, the eastern half caught up after1867. At the beginning of the
20th century the western half was about the same level of development as the average for Western
Europe, but the eastern half was lagging behind, yet well in advance of the rest of Eastern Europe.
Industrialisation and the industrial boom in Cisleithania, the western part of the “Dual Austro-
Hungarian Monarchy”, boosted the confidence of Austrian liberalism, while the crash of 1873
weakened it again considerably. The Gründerzeit (literally: founding time) resulted from a combination
of several factors, a mushrooming financial sector willing to invest in the economy, an expanding rail
network making demands on the iron industry and technical innovation in various coal-consuming
industries, all of this interacting to produce an economic leap forward. As in the 1850s the railway
expansion spurred financial innovation, the Gründerzeit was characterised by a blossoming of banking
institutions. After the financial crisis of 1857/58 most private bankers experienced a serious downturn,
but finance grew again from 1867, the founding of the dual monarchy, via the multiplication of joint
stock banks through the established Creditanstalt, associated with Anselm Rothschild, and the
Niederösterreichische Escomptegesellschaft. Utilising high profits, the banks helped sponsor the
growth of joint stock companies, 1005 of which received charters in the years 1867-73. Vitkovice,
controlled by Rothschild, led the way in the adoption of the Bessemer process by the monarchy’s
major iron works by 1870, along with puddling, the rolling mill and increasingly the use of coke instead
of charcoal. Chief among them was the Bohemian Iron Company, centred at the coal-mining town of
Kladno near Prague, which had emerged from amalgamation of three predecessors in 1857. The coal
production received a powerful impetus from technical innovations in a series of industries in the
1860s, like flour milling, sugar refining, paper making and of course the textile industry.
18 University of Applied Sciences bfi Vienna
The speculative side to this impressive progress – only two thirds of the 1005 charters led to actual
foundations – was revenged in the big crash of 1873 when share prices plunged, crowds stormed the
banks, several frauds were exposed and 152 suicides related to the crash were registered in its
immediate aftermath. In the following six years of severe depression the boom sectors of finance,
heavy industry and the building trade were worst hit. The most lasting effect of the slump was the
distrust of laissez-faire liberalism and the caution it instilled into the banks over too active and direct a
role in promoting the growth of industry. The crash coincided with the trials for inefficiency and
labyrinthine sub-contracting of the directors of the Eastern Railway in Galicia, which exposed the
dangers of the system of state interest guarantees for private capital.
From 1880 the Austrian economy began to recover more strongly and again the railways headed the
growth phase, now under state control and with extensive re-nationalisation of private lines. Bank
capital rose, too, in larger but still far fewer joint stock banks compared to the Gründerzeit. The nine
Viennese “big banks” held just under half of all bank share capital in 1900 and two thirds in 1913. A
concentration of Austrian industry is visible since the 1880s as a reaction to the depression and to the
growing tendencies towards protectionism and concentration, especially in Germany. Also the Austro-
Hungarian Empire adopted a more protectionist tariff in 1882. In this concentration of industry the
leading Austrian banks played a significant role. The banks’ role in Central European development can
be linked to the need of later industrialising areas for larger investment in order to fund more advanced
technology. This explains why the “universal bank” was so wide-spread in Austria and Germany as
this kind of bank took over an industrial role as well as a commercial role, financing enterprise, just as
discounting bills of exchange and receiving deposits. Yet the Austrian banks remained suspicious of
an entrepreneurial role after the crash of 1873 and contented themselves with promoting relationships
with already successful firms, to whom short-term credit through repeated renewal could become long-
term credit in all but name. In such relationships banks might contract to sell a client’s produce on
commission and receive a seat on the board of directors. From 1890 on the links of finance and
industry began to become tighter and banks were increasingly more willing to sponsor the conversion
of private firms into joint stock companies and their mergers into more complex groups of companies.
Joint stock companies doubled to 780 in the empire by 1912, holding approximately half of the
industrial capital of the Austro-Hungarian Empire. In other estimates the nine Viennese banks held
more than half of the joint stock capital in 1914 and banks participated in 146 new joint stock
foundations since 1897.
A further aspect of the industry’s links with the finance world was the bank sponsorship of cartels.
There firms or branches of firms agreed to regulate prices, output and carved up markets. Starting
with iron rails in 1878, there were around 200 cartels in the empire by 1912. A supervisory
Kontrollbank was set up by the big banks in 1914 to establish some control over the situation and
supervise the development of cartels. But the tendency towards cartels applied to the banks
themselves as well, for a major bank like the Creditanstalt would have a number of smaller provincial
banks in tow and via these enjoyed links with outside capital. This development took place in addition
Working Paper Series No. 31 19
to the extension of its own branch network. This helped the joint stock banks to advance their share of
savings at the expense of savings banks and credit associations since 1900.
The trends towards concentration of industry, bank involvement and cartelisation were accompanied
by another important tendency in the Austro-Hungarian economy, namely the shift of economic power
from the Alpine regions to the Czech parts of the empire, especially Bohemia. Many factors
contributed to this fact such as the switch from charcoal to coal, the closeness to German markets and
the Elbe – Hamburg route, the success of the sugar refinery and the emergence of Prague as a
financial, food-processing and metallurgical centre. The Moravian capital Brno lost out to Bohemian
Reichenberg in textiles. By 1900 56 per cent of Austrian industrial workers were in the Czech lands
and more than 75 pre cent of output in chemicals, mining, textiles, sugar and glass came from there.
Bohemia had become, after Lower Austria including Vienna, the second richest Cisleithanian province
in per capita income terms. Yet the Austro-German economic dominance of the Czech lands remained
in place, strengthening the perception that the industry was in the hands of the German-speaking
population, the managers were German-speaking and the workers Czech-speaking. The two most
dynamic personalities in the Bohemian-Moravian industry counted socially as Germans: Emil Skoda,
who opened an armaments factory in Pilzen in 1900, and Karl Wittgenstein, the father of the
philosopher, who ran the Prague Iron Company. Also the refining sector was largely in German hands
and was supported by Viennese banks. Only in the 20th century the situation began to change
significantly. After 1900 Austria’s financial assets more than doubled, investment is estimated to have
been around 13 per cent of GNP and per capita national income rose annually by around 5.4 per cent.
During the boom years 1904-07 employment rose by a third in the iron and steel industry and by 23
per cent in the cotton industry. New technologies like electro-technology developed, the industry
became electrified and Porsche began producing cars.
Despite lagging behind in economic growth and efficiency the economic development of the
Hungarian part of the Austro-Hungarian Empire bore many similarities to the Austrian half. In the same
way similarities can be pointed out between the Austrian and German economic development. In this
context the Austrians were always lagging behind. So Robin Okey tentatively speaks of “a central
European economy sharing certain structural traits. Close bank ties with industry, an overall
complementarity of financial flows and markets, despite mutual rivalries, and other resemblances
rooted in elite acquaintance with German culture and educational norms: all this shaped a more
intimate regional nexus than central Europe has known since 1918.” (Okey, Robin, The Habsburg
Monarchy 1765-1918, Palgrave 2002, 233)
Hungary had for centuries been an agrarian land. The corn exports of 1867/68 stimulated by
exceptionally good harvests triggered the first real economic growth phase together with the rapid rise
of Budapest’s flour milling industry. A third of Hungary’s joint stock foundations during Gründerzeit
were in flour milling and the production in Budapest rose eight times within 10 years. Half of
Germany’s flour imports at that time came from the empire and mostly from the Hungarian part. Also
Hungary’s expansion of the railway network could match the Austrian part. The Hungarian government
20 University of Applied Sciences bfi Vienna
pursued the nationalisation and re-nationalisation of the railways earlier and more vigorously than
Austria. This resulted in a progress in economic integration, indicated by a fall in regional wheat price
differences. Railway and bridge building stimulated the iron industry, which grew annually by 4.5 per
cent. Hungary’s industrial breakthrough took place in the 1880s, when investments and credit
institutions trebled, iron and coal output doubled and Budapest joint stock companies increased four-
fold. This rapid progress has to be linked to the Austrian economic growth and the Austrian capital
exports to the eastern half of the empire. Until the crash in 1873 60 per cent of the Hungarian
industrial capital was of foreign, mostly Austrian descent, and the recovery after 1880 was further
financed by Austrian capital. In the 1880s half of the Hungarian share capital was Austrian. This is
illustrated by the transfer of Zsigmond Kornfeld from the management of the Prague branch of the
Creditanstalt as head of the Hungarian General Credit Bank in Rothschild’s interest. Just as Vienna,
Budapest developed a set of five “big banks” that held 58 per cent of the bank capital in 1914. The
profits of these banks exceeded 10 per cent annually. By 1910 industrialists and financiers headed
Budapest’s taxpayer lists. The executives of the Hungarian Commercial Bank held 150 directorships
between them as they moved into the sponsoring of heavy industry. The director of the Hungarian
General Credit Bank organised four state debt conversions and the development of the port of Fiume.
These examples show the power the financial sector had in the Hungarian economy.
In Hungary two industries, namely flour milling and mining/metallurgy, were at a European level, but
there was little else. Similarly Budapest had a modern financial sector and an underground public
transport system, the first in continental Europe (1896), but the second largest town in the Hungarian
half was ten times smaller. The Hungarian governments took over an important role in infrastructure
development, such as the nationalised railways, the regulation of the rivers Tisza and Danube and
bridge building; in the 1880s eight iron bridges were built over the Tisza. Around the turn of the
century Hungary opted for economic emancipation within the Austro-Hungarian Empire. While the
volume of Hungarian shares held in Austria remained stable, those held in other countries grew four-
fold, half of them in Germany. And above all, 75 per cent of Hungarian industrial capital by 1914 came
from domestic sources. But the narrowness of the industrial base had to be taken into account
compared to the vastness of the agrarian sector. These shortcomings prepared the ground for
nationalistic Hungarian rhetoric.
In the Austrian half of the empire Czech activists pointed out that the economic development of the
Czech lands did not benefit the Czechs themselves, which resulted in fierce nationalistic resentment.
Czech activists were well aware of the importance of economic power in the ethnic struggle. The first
explicitly Czech joint stock sugar company was founded in 1863. The profitable sugar production
enabled the Czechs to quickly build an industry as a base for well-to-do and politically active Czech
farmers because the Czech countryside had already had a long tradition of literacy. At the turn of the
century the Czechs were the most literate nation in the monarchy. District self-government since 1862
gave well-off farmers a political and organisational base and above all, the foundation of the
Zivnostenská banka (Zivnobanka) in Prague in 1868 provided them with a financial backing. The
Zivnobanka remained the most important single economic impetus in Czech economic life until World
Working Paper Series No. 31 21
War II. It was particularly successful at absorbing the savings of Czech small investors directly or via
the proliferating local savings banks and credit societies and directing them to Czech businesses.
Zivnobanka for instance took over the responsibility for the tax payments of 18 sugar refineries already
in 1870. As an act of economic self-assertion the Prague chamber of commerce called for an end to
the “neglect” of Czech interests by the Austro-Hungarian Bank. ”Neglect” usually referred to a refusal
by the Austro-Hungarian Bank to discount bills of Czech organisations, which had social and not
ethnic reasons as the bank was not used to dealing at the humble levels of most Czech associations.
Around 1900 Czech economic power began to increase. The position of the Czech middle class in
Prague improved as important light and engineering industries were developing there. In 1890 Czech
commercial banks held less than 2 per cent of the capital in the Czech lands, Sudeten-German banks
8 per cent and Viennese banks the rest. By 1913 the Czech banks’ share was over 20 per cent and
the Sudeten-German banks’ share had remained stable. In 1890 the net profits of Zivnobanka in the
Czech lands were less than a third of those of Creditanstalt Prague’s branch, whereas in 1913
Zivnobanka’s net profits exceeded Creditanstalt Prague’s profits five times. Raising its equity five
times from 1905 to 1911, it held 35 per cent of Czech capital in 1913. Also other important Czech
banks had appeared on the scene, like the Czech Industrial Bank (1898), the Prague Credit Bank
(1899) and the savings bank Sporobanka (1903). These four banks, headed by Zivnobanka, which
also invested in other Slav areas, were now taken seriously in Viennese financial circles. Zivnobanka,
for instance, fought together with the Creditanstalt to prevent a Viennese cartel control over sections
of the Bohemian metallurgical industry and cooperated with Viennese banks on other economic issues
as well.
The other non-German community in the Austrian half of the empire that succeeded to industrialise to
some degree were the Slovenes. They provided the empire’s vital link to the Adriatic Sea at Trieste in
a traditional iron-mining, yet predominantly agricultural region. They had living standards closer to
those of the Austro-German Alpine neighbours than the Dalmatians or Galicians. Ljubljana grew after
1867, but local capital, initially Austrian-German, lost out to the financial centres of the empire, Vienna
and Budapest. Nevertheless alongside big capital from outside, a network of local savings and
agrarian societies developed. In 1900 the Ljubljana Credit Bank was founded with the organisational
help and a stake of 48 per cent of the Vienna branch of Zivnobanka. It was the city’s first independent
commercial bank in Slovene hands.
Austro-German economic strength was not able to dominate the huge empire, a dialogue with the
different nationalities was necessary, but most of all, the huge gap between the urban, industrialised
and the largely rural, traditional areas in the Austro-Hungarian Monarchy had to be bridged.
22 University of Applied Sciences bfi Vienna
5. The Development of the Austro-Hungarian Banking System5
Abb. 2: International Banking 1870-1914, OUP 1991, 320 Source: Cameron, Rondo / Bovykin, V.I. (eds.),
5.1. Types of Banks
The components of the banking system had already been established when the above mentioned
Gründerzeit took place. Different components were formed in different periods and new types of
institutions were created after the crash of 1873 because the system itself was very dynamic.
The oldest element was the bank of issue in Vienna (1816). The Austrian National Bank opened its
first branch in Prague in 1847 and its second one in Pest in 1851. By 1875 it had 24 branches in
addition to its headquarters in Vienna. On local markets these branch offices played an important role
in the distribution of Treasury notes, government paper money that had been issued again since 1866,
and in the supply of bank notes. In the beginning of the 19th century savings banks were established.
The Erste Österreichische Sparcasse was established in 1819 with philanthropic aims and it served as
an example in other parts of the empire. Due to the crises of 1857 and 1873 a great number of private
bankers, who were considered the main financiers before, disappeared from the financial scene or
their business was transformed. They either specialised in certain fields or joined larger banks
established at that time. The Rothschild house in Vienna was the only one to keep its former position.
The first real banks to grant short-term commercial credit were established in the 1840s and 1850s in
the most important trade centres: the Hungarian Commercial Bank of Pest (Pest Magyar
Kereskedelmi Bank) (1841), Niederösterreichische Escompte-Gesellschaft in Vienna (1853), Banca
Commerciale Triestina (1859). They were commercial banks in the narrow sense, mainly discounting
bills. At first they had no part in promotions, but by 1900 they became universal banks.
Working Paper Series No. 31 23
The first mortgage banks granting long-term agricultural credit were founded in 1841 following the
Prussian model: the Galizische Landständische Credit-Anstalt. From 1856 on the Austrian National
Bank also granted mortgage loans, unprecedented in Europe. The Hungarian Landcredit Bank
(Magyar Földhitelintézet), which was founded in 1863, met the financial needs of the big Hungarian
landowners. Mortgage loans were of special importance for mortgage banks as well as for savings
banks. In the 1860s the model of the French corporate “immobile” bank was introduced in the Austro-
Hungarian Empire. The first of these was the Allgemeine Österreichische Boden-Credit-Anstalt (1863),
followed by the Hungarian Mortgage Credit Bank (Magyar Jelzáloghitelbank) (1869). The Boden-
Credit-Anstalt did not deal in mortgage transactions alone, but also issued securities and later took
part in current business transactions. The original mortgage banks were the provincial banks
(Landesbanken) in the empire. The first one was founded in 1865 in Prague, the Hypothekenbank des
Königreichs Böhmen, and fourteen more followed. They had no proper capital, but the government of
the province guaranteed their loans.
The mobilier banks revolutionised banking in the 19th century. They followed the model of the French
Crédit Mobilier of the Pereire brothers. Their main business was issuing securities and they absorbed
long- and short-term financial credits from different resources. The first mobilier bank in the empire
was the K.K. private Österreichische Credit-Anstalt für Handel und Gewerbe, founded in 1855. Before
1867 it had five branches in Pest, Prague, Lvov, Brno and Trieste. In 1867 it founded the General
Hungarian Credit Bank (Magyar Altalános Hitelbank) and later incorporated the Pest branch of the
parent company. A number of banks were founded in the following years, such as the Anglo-Austrian
bank in 1863 with its first branch in Lvov. It helped to establish the Anglo-Hungarian bank, which did
not survive the crash of 1873, but then the parent company opened branches in Budapest and Prague
in 1880. The Zivnostenská Banka (1868) acted as a middle man between the central bank and the
savings banks and it issued securities like a mobilier bank. In 1869 the Vseobecná Ceská Banka was
established, which was more independent and more effective in issuing securities. In 1869 the Boden-
Credit-Anstalt created the Wiener Bankverein, a mobilier bank, and in 1870 the Unionbank was
founded in Vienna and in 1880 the Österreichische Länderbank.
The great banks of Vienna had been founded as universal banks and their efforts to extend their
influence over the whole Austro-Hungarian Empire via branches and contractual obligations became
apparent soon. The Bohemian and Hungarian banks followed the same path and tried to integrate the
neighbouring provinces as independent units into the multinational capital market of the empire. Yet
there was still one big difference before World War I, the starting capital of the Viennese banks was
much higher than that of the Hungarian or Bohemian banks.
Another type of bank that was established in the empire was the credit cooperative. Two types
became wide-spread in the second half of the 19th century and both had their origins in Germany. The
Schultz-Delitsche type of cooperative served the needs of urban craftsmen, accepted deposits,
engaged in discount business and promised high dividends to the members. The second type, the
Raiffeisen cooperatives, served the needs of the rural communities. They did not pay dividends, but
24 University of Applied Sciences bfi Vienna
created social and cultural funds and supplied longer-term loans against bonds. Due to the depression
in agriculture, a lot of Raiffeisen cooperatives were founded from 1885 onwards.
After the crash of 1873 the growth of joint-stock banks ceased and the boom of the Gründerzeit was
only reached in the 1890s again. The savings banks were less affected by the crisis and so they could
play an important role in lending. They just lost this importance in the Second Gründerzeit (1904-
1912). In the 1880s the mortgage banks and the credit cooperatives gained in importance as they
played a decisive role in financing agriculture, home building, and the local infrastructure. After 1867
the general public and the banks did not want to take on the risk of industrial investment, so those
credit sectors that were organised on a local basis were doing fine, as funds were usually allocated
within a certain region. The financial institutions as such were organised on a national basis within the
multinational framework of the monarchy, as can be seen in chapter 4. The banks were trying to get
closer to the depositors and the concentration of banking capital went along with the decentralisation
of the institutions. Whereas in 1896 the ten large banks of Vienna had 34 branches in the monarchy,
by 1905 they had 92. Consequently the competition between the banks of the different nationalities
and the commercial and the savings banks increased. For example in 1913 the Bohemian
Sporobanka had branches in Vienna, Lvov, Krakow, Czernovitz, Budapest and Brno.
International influence on the Austro-Hungarian banking system can be found in the area of joint-stock
banks as well as savings banks and private banking houses. Even before 1848 Vienna emerged as
one of the international financial centres in Europe and the Vienna Stock Exchange, established in
1771, became a site for the lending activities of the cosmopolitan dynasties of bankers. Vienna was
considered to be an international centre of the money market, but a secondary one. The Hungarian
and the Bohemian banks and with them Budapest and Prague had high ambitions in the same
directions, but they could not gain more than local significance as their direct relations to the
international financial markets were small and went via Vienna or Berlin.
Working Paper Series No. 31 25
Abb. 3: International Banking 1870-1914, OUP 1991, 325
Source: Cameron, Rondo / Bovykin, V.I. (eds.),
5.2. International Financial Relations
To sum up, it can be said that the Austro-Hungarian credit institutions were established along French
and German lines either as direct imitations (Prussian mortgage banks, credit cooperatives) or as
combinations of German, English or French patterns (savings banks). At the same time very special
types were developed in the monarchy, such as the Landesbanken or the dualistic organisation of the
bi-national Austro-Hungarian Bank. They illustrate the special financial climate in the empire. The
adjustment to this special climate can also be seen in the participation of the ownership in the banks
and the management of the banks. For example, in their application to the ministry the founders of
Credit-Anstalt guaranteed the subscription of the capital in the following way: 40 per cent was taken by
the Rothschild houses in Vienna, Frankfurt and Paris, 50 per cent by Austrian and Bohemian
aristocrats and 10 per cent by a private Prague banker. According to the founders’ statement of
intention, it could only undertake Austrian transactions and a representative of the state had a seat in
the governing body. Representatives of the Hungarian aristocracy also had seats in the first committee
26 University of Applied Sciences bfi Vienna
of the management. In this way the Credit-Anstalt wished to be a financial institution representing the
multinational character of the monarchy. In the final distribution of shares the Credit-Anstalt revealed
its “national” character according to the monarchy’s state philosophy: neither the dynasty itself, nor the
aristocracy nor the Viennese Jews were excluded.
A true imitation of the French prototype of Crédit Foncier can be found in the Boden-Credit-Anstalt,
which was founded by big Austrian landowners and financiers from Paris. The proportion of shares
held abroad was still 45 per cent at the beginning of the 20th century. This French prototype itself bore
strong traces of state intervention, which seemed to fit the monarchy’s financial climate.
Usually English foreign banks followed the model of English deposit banks with little share capital at
the foundation, which set them apart from the French models with a high starting capital of their own.
The Anglo-Austrian bank had to adapt itself to the environment of the empire from the beginning and
organised itself along the lines of a mobilier bank. At the beginning it was directed towards current
business. From the start it had a separate office in London, but from 1873 on the Anglo-Austrian Bank
was transformed more and more into an Austrian institution.
The patterns of acclimatization had a decisive effect on the international financial relations of the
Austro-Hungarian banking system. Upon establishment, all the mobilier banks of the monarchy
followed the statutes of the Credit-Anstalt and the Hungarian General Credit Bank, established by the
Credit-Anstalt, because the Ministry of Finance considered it the standard. In order to enlarge their
sphere of influence the banks founded further institutions, often in cooperation with former rivals. For
instance, the foundation of the Austro-Ägyptische Bank (1869) was a cooperation of Anglo-Austrian
and Credit-Anstalt. In the years of the Gründerzeit a great number of quasi-international banks were
established, some with a purely speculative aim in mind: the Erlanger house of Frankfurt founded two
institutions in 1869, the Franco-Österreichische Bank in Vienna and the Franco-Hungarian Bank in
Budapest, but the banks had practically nothing to do with France. These “Franco” banks further
expanded into the Balkans; also in 1869 the Franco-Hungarian bank founded the First Serbian Bank in
Belgrade in cooperation with Belgrade merchants. A common feature of these institutions was that
they issued bonds of railway and industrial companies, but they all went bankrupt during the crash of
1873.
After the depression of the 1870s the next boom came in the 1880s. The most significant novelty then
was the establishment of the French Union Générale. As before, the financial power balance could not
be changed substantially in the monarchy without the approval of the state, it needed the support of
the Minister of Finance. The Bankruptcy of the Union Générale in 1882 brought about a severe crisis
in the monarchy’s financial markets, the Hungarian Länderbank went bankrupt, too, but the Austrian
Länderbank survived and even emerged as an international institution. That was obviously due to the
fact that up till 1889 its capital had to be paid in gold or in French francs. The conversion into Austrian
value occurred later. The Länderbank founded a branch in Paris in 1890 and one in London in 1903. It
was one of the institutions pursuing effective financial policies in the Balkans. In 1881 it opened the
Banque de Crédit Serbe in cooperation with a Paris bank and later the Prague Zivnobank. In 1888 the
Working Paper Series No. 31 27
Länderbank founded together with French and local interests the Banque de Salonique. During the
Balkan wars it gradually withdrew its capital from the region. In 1904 it transformed its commandite in
Bucharest into a corporation, the Banque Roumaine de Crédit. One of the reasons for the
internationality of the Länderbank was the fact that 31.4 per cent of its capital was in foreign hands
even as late as 1914.
Also the Hungarian Commercial Bank of Pest turned its attention to the Balkans in the 1880s. It took a
share in the Banque Andrejevic et Cie in Belgrade in 1880 and in 1890 in Marmorosch, Blnk et Cie in
Bucharest. In Bulgaria the Commercial Bank founded the first corporation in 1898, which was
transformed later into the Banque Générale de Bulgarie. In the influx of capital to the Balkans French
and German banks cooperated with the Commercial Bank. Branches of Austrian and Hungarian banks
predominated on the territory of the Turkish Empire, but the Balkan states, as soon as they gained
independence, preferred to have separate banks founded with foreign participation. This was also
preferred by the banks whose primary functions were financing state loans and foreign trade.
5.3. International Investment
The Austro-Hungarian Monarchy generally had an export surplus of securities, which means it was a
net importer of long-term capital, except during the period 1903-1908. While in 1868 the majority of
loans was taken by Amsterdam, Brussels, Frankfurt and Paris, in 1914 Berlin was the most important
foreign creditor. Government securities and railway priority bonds constituted the largest categories. In
terms of state debts, the Austro-Hungarian Empire was a debtor towards Western and Central Europe
and a creditor towards the Balkans together with Germany. Yet compared to Germany and France,
the Austrian banks in Serbia and Romania were insignificant, only in Bulgaria were they of importance.
After 1878, most of the debts of the Balkan states financed railway construction. While lending for the
infrastructural development of backward countries, the empire constructed its own railway network
with the help of foreign capital. After 1855, when the railways were sold to private enterprise and the
system of guaranteed interest was introduced, foreign capital penetrated the empire’s economy. The
mobilier banks provided the needed capital for the railway construction. In Hungary 85 per cent of the
railway system was owned and run by the state by 1891, while in the Austrian half of the empire only
55 per cent was run by the state and it owned only 43 per cent in 1897. More than 70 per cent of the
railway priority bonds were still in the possession of foreign investors at the beginning of the 20th
century.
Direct foreign investment in the industry of the Austro-Hungarian Empire was small; only 12 per cent
of industrial shares and only 0.5 per cent of all Austrian securities at the beginning of the 20th century.
In the Austro-Bohemian industry family businesses were still prominent. Austrian capital investments
in industrial branches in Hungary were gradually withdrawn from the beginning of the 20th century on.
They played a decisive role only in industries such as machinery and chemicals with a high demand
for capital. The empire’s capital exports to the Balkans were not really significant either.
28 University of Applied Sciences bfi Vienna
The cooperation of the banks promoting the international movement of capital brought about the
establishment of international banking groups. Legally these groups were consortia of independent
banks and the holding of one bank in the stock of the others was of minor importance. Banking
coalitions showed a surprising stability in the Austro-Hungarian Empire. Here the battle in the field of
government debt was to break the monopoly of the Rothschild- Credit-Anstalt consortium. Yet the
monopolistic position of the Rothschild-Credit-Anstalt consortium could not be broken by just depriving
them of privileges. In 1903 five Viennese banks under the leadership of the Wiener Bankverein and its
French and German partners joined the consortium. These steps can be considered as the outer signs
of a rearrangement of banking groups in the empire. This was due to the fact that the banks of
Prague, Budapest and Vienna established independent “national” banking groups by establishing
branches and contractual relationships and it was further due to the increase of capital. The increased
capital and possession of securities of domestic banking institutions made it possible to place the
majority of state loans within the empire. The Rothschild-Credit-Anstalt group, though flexible when
cosmopolitan dynasties of bankers were transformed into international banking groups earlier in the
19th century, could not react effectively to the new challenge. But not only the role of the Rothschild-
Credit-Anstalt consortium had changed in the state loan transactions of the empire, also the
importance of state loans shifted in the areas of business in the Austro-Hungarian banks. The banks
left out of the loans of the dual governments of Vienna and Budapest after 1873, when the trends of
the market were favourable, turned towards the Balkans. For instance the Länderbank cooperated in
the issue of the Serbian and the Bulgarian state loan in 1884 and 1889. After the turn of the century
the Balkans became a battlefield for the foreign policies of the big powers and the international
banking groups were drawn into this conflict. In the German-French rivalry the Austrian banks could
seldom intervene or only with English assistance, as with the Bulgarian state loan. Mostly, they had to
be satisfied as subcontractors of smaller shares. Yet the Austrian banks were somewhat compensated
with the incomes from their industrial investments, which increased from 1900 on. The banking groups
of the Austro-Hungarian Empire not only founded industrial companies of their own, they also
established the Österreichische Kontrollbank für Industrie und Handel as a joint undertaking of ten
Cisleithanian banks in 1914. This was the beginning of a new era, as the objectives of this bank were
the management of syndicates and the control of cartels and trusts.
5.4. International Industrial Finance
The importance of the Austro-Hungarian banks in providing short-and long-term credit to industries
has to be emphasised in contrast to the registrations of the stock exchange in the empire. In 1912 the
share of foreign bonds in total registered securities was 48 per cent on the London Stock Exchange,
55 per cent in Paris, 5.6 per cent in Berlin and 0.7 per cent in Vienna. In Vienna the share of foreign
bonds had not changed much since the 1890s. But after 1909 the Austro-Hungarian Empire was not
only a capital importer, but owing to the leading banking groups it could also cover the deficit partly by
re-exporting foreign bonds.
Working Paper Series No. 31 29
In the case of a country of such agricultural importance as the Austro-Hungarian Empire the turnover
of mortgage bonds is of greatest importance. Neither bank loans nor the foreign placement of
mortgage bonds took a dominant role in providing especially the Hungarian agriculture with credit. By
the turn of the century the supply of agriculture with long-term credits seemed to have settled.
Yet in the fields of transport and industrial finance, especially railways and modern energy producers
of electricity and petroleum, new forms were developed. The first international holding companies
cropped up in Central Europe. One of the first was established in 1890 when the Deutsche Bank and
the Wiener Bankverein obtained the majority of bonds in a company that operated the railways in the
European part of Turkey. In the same year they founded the Bank für Orientalische Eisenbahnen, only
for the purpose of owning and controlling bonds of Balkan and Anatolian railways. It was a bank in
name only, as it did not operate as a bank since it did not have any creditors or debtors. The Wiener
Bankverein was also one of the pioneers in promoting Romanian petroleum on the world market by
establishing a finance company in Budapest in 1890 and by taking an interest in a Romanian
petroleum company in 1892. So the financing of the exploitation of the oil fields worked through
multiple transfers.
A mostly unknown fact is that the Austro-Hungarian Monarchy was the third largest oil producer in the
world in 1909 after the USA and Russia producing 5 per cent of the world production. But since 1910
the amount of oil extracted sank continuously, nevertheless it was still the fifth largest oil producer
before the beginning of World War I. The oil production was concentrated in Austrian Galicia, the
biggest but also poorest province of the empire with the highest illiteracy rates and a mixed population
of Poles; Ruthenes, Jews and other ethnic groups. The region was lacking an efficient infrastructure.
The empire counted on private entrepreneurship in developing the oil industry, but most of the Polish
big landowners were not interested. Theoretically every small farmer could start drilling for oil in his
backyard. That’s why it took some time till the Austrian oil industry started to flourish in the 1880s. The
world financial markets had already become aware of this opportunity and some Austrian banks, but
mostly French banks invested in new refineries around Boryslaw. But there were too many small
companies that did not coordinate output and prices and did not succeed in establishing a cartel, so in
the first decade of the 20th century they produced too much crude oil and the prices plunged. Since
1910 the production decreased, just at the time when combustion engines became more widespread
in the empire. Before, the oil produced there was mainly used for lamps. Austrian Galicia was too far
from and not well-connected to the important marine ports of the empire, Trieste and Pula, where the
oil would have been needed urgently. The planned direct train connection across the Carpathian
Mountains was not realised before the outbreak of the First World War. Too late, the Austrian
politicians and financiers became aware of the political and commercial importance of oil resources
and their exploitation.
Banking groups joined to finance the electrical industry from the beginning. This field of business was
characterised by the penetration of German capital. 70 per cent of the bonds of the Austrian Siemens-
Schuckert Werke were in foreign hands. But the Wiener Bankverein brought about the foundation of
30 University of Applied Sciences bfi Vienna
the Internationale Elektrizitäts-Gesellschaft in Vienna in 1889, one of the earliest financing companies
on the continent, although its scope was limited to the Austro-Hungarian Monarchy only. In the
following years new financing companies were founded to promote electricity and build electric works.
Finally it can be said that the Austro-Hungarian banking system was multinational, just as the
monarchy itself. Due to the Compromise with Hungary in 1867 the dualistic state system produced a
bi-national central bank in 1878 and for similar reasons bi-national companies were founded. The
international practices of banks must be viewed from these multinational and bi-national aspects. So
foreign banks were either founded as quasi-international banks or they had to adapt to the special
conditions of the empire. In the 1890s, after stabilising the government debts placed abroad and at
home, the Viennese banks began transactions on their own with German or French backing or
through the mediation of Budapest to finance international industrial and transport businesses in the
Balkans. Hungarian and Bohemian banks followed suit. In these transactions the international
mediator role of the empire’s banks was characteristic. Yet before World War I they lost their ability to
finance the Balkans government loans. Throughout the whole period of the Austro-Hungarian Empire
since 1867 the share of international finance of the banks was relatively low when compared to the
business procured inside the borders of the empire. It became effectively international only after the
empire had fallen apart in 1918.
To sum up, the big Viennese banks played a crucial role in establishing Vienna as a significant
international financial centre and in promoting modern economic progress in the region. The leading
Viennese banks not only mobilised capital, they also turned a substantial part of this capital into direct
participating investment in industry, commerce and insurance and also acted as holding companies of
conglomerates. Austro-Hungarian legislation on incorporation and taxation promoted this role of banks
as it inhibited the formation of joint-stock companies and other businesses with limited liability. That’s
why banks tended to replace the capital market by promoting limited-liability businesses and
converting firms into joint-stock companies. They issued shares, provided long-term loans and also
renewable credit on current account for companies in their own group. When in need of funds, joint-
stock companies and banks alike preferred to draw on their own resources or to take up short-term
credit from banks rather than get involved on the stock exchange. Capital was also procured through
the intermediary of banks, which issued new shares on behalf of their client companies. Banks further
secured their credits by acquiring decisive shareholdings as collateral in the largest and soundest
undertakings and by cementing their supervision of them by directorships. In Central and Eastern
Europe the Viennese banks accumulated and mobilised capital just as other banks did elsewhere, but
they played a much more active role in utilising this capital than banks in Western European countries.
Due to their controlling influence in the firms, which they had converted into large joint-stock
companies, the banks promoted oligopolistic business organisations since 1900. They initiated or
organised mergers and encouraged cartelisation. The banks even took over marketing functions for
the businesses in their sphere of interest by establishing sales departments and they also acted as
cartel bureaux for whole sectors of industry, such as sugar, coal and wood. Company law and tax
legislation helped shape the special Central and Eastern European business organisation that linked
Working Paper Series No. 31 31
the banking system and industrial and commercial enterprise. There large commercial banks not only
substituted the money market but also limited competition by internalising functions of the market. In
1914 eight big Viennese banks held two thirds of the capital of all financial institutions of the empire
and they had strategic stakes in almost all sectors of the industry. Countless industrial and commercial
businesses clustered around the big banks and were tied to them either by direct participating
investments or by credits over virtually every field of production and trade in all territories of the
Austro-Hungarian Empire and the Balkans.
6. Financial Institutions in Central & Eastern Europe during the Interwar Years6
As a result of the First World War the persistent shortage of domestic and foreign capital for
investment in the economies of Central and Eastern Europe, as mentioned above, worsened. At the
same time due to the devastation of the war the demand for capital rose dramatically. After the
collapse of the Austro-Hungarian Empire in 1918 new stock exchanges were established in the
successor states of the former empire. The scene had been dominated by the Vienna Stock Exchange
and to a much lesser degree the Prague Stock Exchange, founded in 1871. In the 1920s new stock
exchanges opened up in Belgrade, Bratislava, Brno, Ljubljana, Warsaw and Zagreb, which competed
with Vienna. Their main business was in dealing in securities, bills and foreign currencies and not
shares. The same was true for the Vienna Stock Exchange during the interwar years. Only in the
years 1926/27 the currency situation stabilised after the hyper-inflation in the successor states of the
Habsburg Empire after the First World War and central banks had been established in all new states.
The finances of Austria, Hungary, Poland and Bulgaria were under international supervision and the
new central banks had to be independent from the state, but they had to act as lenders of last resort
together with the respective governments. Especially in Austria the “Franc Speculation” further
destabilised the financial scene.
Vienna was still the commercial and financial centre of Central, Eastern and South-Eastern Europe
with international connections and the main Viennese banks were still among the most important on
the continent. It was the time of young speculators who bought and sold shares in enterprises and
foreign currencies for speculative purposes void of any national or political inclinations. Camillo
Castiglioni was one of them. He was born in Trieste and had moved to Vienna before the First World
War. In 1924 he owned high stakes in eight Austrian banking institutions, the majority of shares in 34
industrial companies and controlled five Viennese papers. He had invested in such prestigious
enterprises as Austro-Daimler-Werke, Fiat Österreich and the steel works Schoeller-Bleckmann. The
basis for his financial success was his investment in banking institutions that guaranteed liquidity for
further investments in industrial enterprises and then in companies in related business fields. He
owned, for instance, a high amount of shares in the metallurgical industry and then invested into the
automotive industry and other metal-processing industries. His far-reaching international connections
helped him to overcome his financial breakdown in Vienna and then to move to Berlin, the USA and
32 University of Applied Sciences bfi Vienna
finally back to Italy. Another of the “famous” speculators of the 1920s in Vienna was Siegmund Bosel.
He had grown up in a rather poor family and founded his first textile business at the age of 20 with a
partner. His spectacular rise began during the First World War when he supplied the Viennese police
with urgently needed goods. He smuggled textiles and raw materials from all parts of the crumbling
Austro-Hungarian Empire. Then he started speculation in foreign currencies and founded his own
bank He was successful in the fight with Castiglioni over the control of the Unionbank in Vienna and
he competed with the German speculator Hugo Stinnes for control over the huge Silesian coal mines.
Both speculators went spectacularly bankrupt together with many others in the “Franc Speculation”.
They had speculated on a further dramatic drop of the value of the French franc and tried to bring this
fall about when the decline was suddenly stopped and they lost their fortunes.
The Vienna Stock Exchange never really recovered from this disastrous wave of speculation in the
interwar period. Nevertheless many Czech, Hungarian, Yugoslav and Polish securities were still
traded there and that’s why the new stock exchanges in the successor countries of the Austro-
Hungarian Empire kept close business ties with Vienna, which was still an international financial
centre. Already in 1927/28 the Vienna Stock Exchange tried to coordinate rules and regulations and
conditions of membership and by that improve the cooperation between the capital markets in Central,
Eastern and South-Eastern Europe. A process that is underway at present again, as described in the
introduction. In the interwar years, however, the financial crisis of 1931 ended these attempts abruptly.
As the examples of Castiglioni and Bosel showed, the stock exchanges were frequently shaken by
speculation, scandals and even bribery of the press – Castiglioni controlled five newspapers in
Vienna. Yet state controls and legislation that should have effectively supervised stock exchange
activities were often ignored in Vienna and even more so in Eastern and South-Eastern Europe. Only
Czechoslovakia kept a tight state control over stock exchange activities in this region. That is one
reason why the stock exchanges, whose economic impact in the region was never significant, further
dramatically decreased in importance in the 1930s. Despite its ups and downs the Vienna Stock
Exchange remained the only one in the region that has been continually trading until today with the
exception of the Second World War. Vienna had been an international financial centre for a long time
and it still was. It derived its significance as a capital market from its operations in Central, Eastern
and South-Eastern Europe. When the League of Nations examined the bankrupt Austrian financial
system after World War I, the Layton-Rist Report of 1925 described the function of the Viennese
banks before the war: “Viennese banks led the penetration of Eastern and Southeast Europe with
Austrian capital.” (Teichova, Alice, Banking and Industry in Central-East Europe, in: Rathkolb, Oliver /
Venus, Theodor / Zimmerl, Ulrike (eds.), Bank Austria Creditanstalt. 150 Jahre österreichische
Bankengeschichte im Zentrum Europas, Zsolnay 2005, 151)
The Credit-Anstalt was the most important of the Viennese banks. After a period of fusions from 1925
– 1930, it ranked on the first place of Viennese banks, far ahead of all the others. Its balance reached
55 per cent of the combined balances of the remaining six Viennese banks in 1930 and it serviced 60
per cent of their total debtors and 74 per cent of their total securities. In the Hungarian part of the
Working Paper Series No. 31 33
former empire 57 per cent of the total capital was concentrated in the six most important Budapest
banks in 1918, but only the Hungarian General Credit Bank, which itself was linked to the Credit-
Anstalt, could be compared to it. Together with the second largest Budapest bank, the Hungarian
Commercial Bank, the Hungarian General Credit Bank controlled more than one third of the capital of
the entire credit system in the new borders of Hungary. In the concentration process in the 1920s,
which took place in Hungary as well, the two banks headed most of the important industrial combines.
In the industrially more advanced Czech lands, Bohemia, Moravia and Silesia, the most important
bank was the Zvinostenská Banka in Prague. It had spread its influence among Czech industrial firms
as well as among businesses in the Slav areas of South-Eastern Europe. It reached the peak of its
development during the First Czechoslovak Republic from 1918 until 1938. The Austrian, Hungarian
and Czech commercial banks intervened on the stock exchanges and influenced the exchange value
of securities. They were able to satisfy demand if there was a shortage or to withdraw securities from
the market if there was a lack of buyers.
6.1. International Capital Flow to Central & South-Eastern Europe
Central and South-Eastern Europe became one of the most important world markets for capital
exports after the First World War. Foreign investors not only invested in the defeated countries, such
as Germany, Austria, Hungary and Bulgaria, but also in Poland and Czechoslovakia. From 1919 till
1923 international capital from Britain, France, the USA, Belgium, the Netherlands, Italy and
Switzerland acquired substantial shares in the main Viennese banks. The Länderbank and the Anglo-
Austrian Bank were turned into totally foreign-owned banks, based in Paris and London. A similar
development of Western European capital participation took place in all the joint-stock banks of the
successor states of the Austro-Hungarian Empire with the exception of the Zivnobanka in Prague. This
bank increased its investment in South-Eastern Europe, often together with Western European
financial groups. As the governments of the successor states were in urgent need of foreign
investment, they promoted the internationalisation of the banking systems there. So the governments
paved the way for the access of international capital to industrial enterprises via the participation in the
equity of the big commercial banks. This followed the traditional investment pattern of the region and
through the internationalisation of the banks the whole area moved closer to international markets.
The economic circumstances in Austria were disastrous after the war, yet the banks tried to continue
doing business and credit-financed not only their Austrian clients but also the clients from the former
Habsburg Empire. In this way they hoped to recover their leading financial role in the region. They
were able to operate in this way as long as they could procure international finance either via foreign
direct participation in their own equity or via large hard currency accounts, which Western banks held
at their banks, or via taking up and mediating foreign loans. During the severe inflation in the early
1920s the banks met the industrial demand for credit, but that plunged the Austrian financial sector
further into debt. The banks financed these industrial credits by borrowing from Western Europe and
the United States, so their indebtedness rose three times between 1924 and 1930. Industry became
34 University of Applied Sciences bfi Vienna
much more dependent on bank loans as sources of funds and the banks increased their share
ownership in dependent client companies. This Viennese banking policy was also wide-spread all over
Central and South-Eastern Europe. Financing industry was characterised by borrowing short and then
re-lending on a long-term basis. In order to maintain their own credit worthiness the banks had to see
to the liquidity of their industrial debtors. Hiding industrial losses and paying dividends even in these
situations became common in Austria. Especially the management of the big Viennese banks had
been expecting an economic recovery, which then did not come about. So Vienna was unable to
regain its financial leadership role in Central, Eastern and South-Eastern Europe.
6.2. Banks and Industrial Enterprises
At the end of the Austro-Hungarian Empire the important Viennese banks were heading multinational
diversified enterprises. In the 1920s many of these industrial and commercial businesses cut their
connections to the Viennese banks. On the one hand the headquarters of several companies were
moved from Vienna to the successor states of the monarchy, on the other hand the Viennese banks
lost control over their branches in these countries; the ten largest Viennese banks had 143 branches
outside Austria proper in 1918 and in 1924 they had 9. Furthermore the Viennese banks had to part
with a large number of their subsidiary industrial firms, which were situated in the successor states
after World War I; many of them very profitable ones in Czechoslovakia. Substantial assets and some
of their most important business clients were shifted to Czech banks, most to Zivnobanka.
The relationship between banks and industry in the region was nevertheless characterised by the
conditions created in the Austro-Hungarian Monarchy. The universal banks of Vienna, Budapest and
Prague, but also of the other capitals in the new states remained the main source of funds for
businesses. Financing industrial enterprises remained a major task of the banking policy in the region.
Actually, the development of the relationship between banks and industry showed the same pattern in
Austria, Czechoslovakia, Hungary, Italy, Poland, Romania and Yugoslavia after the end of the Austro-
Hungarian Empire. While Viennese banks still headed large diversified multinational enterprises and
still performed mediating functions, international investors started to participate in the equity of the
leading banks, not only in Austria, but also in the other new states, such as the Hungarian General
Credit Bank in Budapest, the Bank Handlowy in Warsaw, the Banca Marmorosch, Blank & Co. in
Bucharest and the Bulgarian General Credit Bank in Sofia. In this way Western European capital
penetrated the relationship between banks and industrial enterprises in Central, Eastern and South-
Eastern Europe.
The Credit-Anstalt’s involvement in industry can illustrate this issue. At the end of 1929, before the big
mergers of the Viennese universal banks with the Credit-Anstalt, 163 Austrian joint-stock companies
with a total nominal share capital of AS 1.1 billion were held to be dependent on the Credit-Anstalt; the
total number of joint-stock companies in Austria was 871 then with a total share capital of AS 1.7
billion. They represented 18.6 per cent of the total number of companies, but 68.75 per cent of the
Working Paper Series No. 31 35
total capital of Austrian joint stock companies. There was substantial involvement of the Credit-Anstalt
in the ten most important fields of industry in Austria like mining and metallurgy, engineering and
metal-working, textiles, wood, beer-brewing, building, chemical industry, electrical industry, leather
and shoes and paper. Most of the businesses in connection with Credit-Anstalt were well-known
enterprises; many of them were founded during the time of the monarchy and still exist today. The
Credit-Anstalt as the only remaining big universal bank after the crash of the 1930s played an
important part in the survival of these companies, especially after 1932 when the bank enforced
radical reorganisations, closures and mergers. The Credit-Anstalt decided which of these companies
would be rescued and which would be liquidated.
Abb. 4: Bank Austria Creditanstalt. 150 Jahre österreichische Bankengeschichte im Zentrum
Europas, Zsolnay 2005,155 Source: Teichova, Alice, Banking and Industry in Central-East Europe, in: Rathkolb, Oliver / Venus,
Theodor / Zimmerl, Ulrike (eds.),
Despite big losses after 1918, the big Viennese banks could still meet the demand for capital by many
industrial companies, not only from Austria but also from the new states in the region in the interwar
period because the domestic banks in Central, Eastern and South-Eastern Europe lacked the
capacities to finance all industrial enterprises. Disastrous economic conditions after World War I and
36 University of Applied Sciences bfi Vienna
the world economic crisis of the 1930s greatly weakened the traditional system of mixed banking in
the region, which had been in place since the 1880s. Nevertheless, the majority of assets of the most
important commercial banks still consisted of industrial equity, yet its value decreased over the years
and as domestic deposits were insufficient many banks in the new states became illiquid. The banks
defaulted on their enormous debts during the Great Depression. The governments of the new states
tried to intervene to tackle the wide-spread indebtedness by taking up foreign loans and encouraging
foreign investment. By 1937 75 per cent of the equity of commercial banks in Romania and
Yugoslavia, 40 per cent in Hungary and Austria and around 30 per cent in Poland and Bulgaria had
been transferred into foreign hands. In contrast, in Czechoslovakia only 15 per cent of the total equity
of joint-stock banks was foreign-owned. In Austria universal banking survived all changes, but without
“a lender of last resort” the biggest Viennese banks could not cope with the crisis of the Great
Depression. The state had to intervene by taking over fully or partially the shares of the big credit
banks and their large industrial clients. During this period the banks’ involvement with industrial
multinational enterprises was reduced. Despite all these negative developments in the interwar years,
Vienna remained the gateway to Central, Eastern and South-Eastern Europe. Vienna’s financial links,
especially those of its universal banks in the region of the former Austro-Hungarian Empire and
beyond, were seen as a springboard for further economic expansion. After the “Anschluß” in March
1938 and the Munich Agreement of September 1938, the big German banks began their direct
infiltration of the network of banks and industry in Austria and Czechoslovakia. This served the Nazis’
purpose of incorporating the systems of banks and industries in Central, Eastern and South-Eastern
Europe into the German banking system.
7. The Great Depression: The Credit-Anstalt Crisis 19317
The Credit-Anstalt crisis played a crucial role in the dramatic economic developments of the 1930s in
Europe as the collapse of the Credit-Anstalt affected the largest bank of Austria and at that time also
the largest bank east of Germany. The collapse of the Credit-Anstalt in Vienna started the spread of
the crisis in Europe and forced most countries off the Gold Standard within a few months. A feeling of
financial distrust and insecurity spread from Vienna and led to runs on other banks in Hungary,
Czechoslovakia, Romania, Poland and Germany. The collapse in May 1931 set off a chain reaction
that led from the run on German banks to withdrawals in London and the devaluation of the pound to
large-scale withdrawals from New York and another series of bank failures in the United States. So in
brief the news of the crisis of the Credit-Anstalt, the most important bank in Central Europe, shook the
whole economic structure of Europe and sent shock waves through the rest of the world.
On 8 May 1931 the Credit-Anstalt informed the Austrian government and the national bank that its
balance sheet of 1930 showed a loss of AS 140 million, 85 per cent of its equity. By that time the
Austrian government had become used to crises, but the shocking announcement was followed by
secret top-level meetings to avoid public panic. The Austrian government had witnessed several bank
Working Paper Series No. 31 37
failures since the collapse of the stock exchange boom and the bear speculation against the French
franc in 1924. This had started a series of bank failures, eliminating most of the financial institutions
that had been established during the stock exchange boom following the end of hyperinflation after the
war and the stabilisation of the Austrian shilling. Finally in October 1929, after having absorbed
several small-and medium sized banks, the Österreichische Boden-Credit-Anstalt, around 50 per cent
of whose shares were in foreign hands, had serious liquidity problems. This bank had extensive
industrial holdings and a considerable part of the Austrian industry depended on this bank for day-to-
day financing. That’s why liquidation could not be considered, but a strong partner had to be found. As
it was the second largest bank in Austria, only the Credit-Anstalt was considered strong enough to
absorb it. Within only two days the deal was sealed and a huge bank was created, larger than all other
Austrian joint-stock banks together. In May 1931 then this big bank was in serious trouble and had to
ask the government and the national bank for help. It is still considered one of the biggest bank
failures ever.
Despite its laissez-faire economic policies, the Austrian government decided to step in to save the
bank. A reconstruction plan, drawn up within three days, arranged for covering of the losses by the
Austrian state, the reserves, the shareholders, the Rothschilds, and the national bank. Yet the share
capital was to be devalued by only 25 per cent instead of more than 80 per cent, which would have
been justified by the volume of the losses, and the state was to contribute AS 100 million. Why did the
government try to rescue the bank and become a large shareholder? Credit-Anstalt was not only the
largest bank in Austria with a balance sheet in 1930 of the size of the state’s expenditures, it
accounted for around 53 per cent of the balance sheet totals of all 25 joint-stock banks. 69 per cent of
all Austrian limited liability enterprises did their business with Credit-Anstalt and about 14 per cent
were deeply in debt to this bank. But most of all it had an excellent international reputation, especially
since a member of the Rothschild family - Louis Rothschild – was its president, and it enjoyed better
conditions in the world financial centres than any other bank in Germany, Central or Eastern Europe.
Its stocks were quoted on twelve foreign stock exchanges. In 1927 it was the first continental
European bank to be introduced on the New York Stock Exchange. More than 50 per cent of its stock
was in foreign hands and several well-known foreign bankers and businessmen sat on its board of
directors. Its business interests extended into eleven banks and forty industrial enterprises in the
states of the former Austro-Hungarian Empire and among its creditors were 130 of the most important
foreign banks, mainly in Britain and the USA. So it had first-class financial standing in the world with
respect to the number and importance of its foreign relationships.
On 11 May the problems of the bank and the reconstruction plan were published. Foreign reactions
were favourable to the reconstruction plan, but the public was not convinced. Not only the Credit-
Anstalt, but also other Viennese banks experienced a run on their reserves. These large-scale
withdrawals would have rendered the bank illiquid, but the national bank stepped in. As it turned out
that the true losses would be much bigger than the reported ones, the withdrawals did not stop. The
Austrian government had no funds at its disposal to finance the rescue plan, so it approached first the
Bank of England, but was rejected, and then the Bank for International Settlements in Basel to arrange
38 University of Applied Sciences bfi Vienna
bridge financing. Austrians and foreigners started to convert their shilling holdings into foreign
exchange, which lead to large-scale reductions in the reserve holdings of the Austrian National Bank.
It was expected that the Austrian authorities would not be able to stick to the Gold Standard. When the
loan from Basel finally arrived it was not only too small, but also too late. In less than a week the
money was withdrawn by the public. In order to avoid foreign repercussions the Bank of England
decided to give an emergency short-term credit to the Austrian National Bank. The 130 foreign creditor
banks only agreed to a standstill agreement that provided for the prolongation of the foreign credits for
two years if the government guaranteed all foreign liabilities of the bank for those two years. The belief
of the Austrian authorities that this generous guarantee would induce foreigners to place additional
funds at the disposal of the Credit-Anstalt proved to be wrong. The Austrian state with a budget of
around AS 1.8 billion guaranteed AS 1.2 billion of bank liabilities, but the withdrawals continued. As
the government was unable to raise any long-term loans abroad, the foreign reserves kept on
declining. The Austrian currency became increasingly backed by financial bills of the illiquid Credit-
Anstalt instead of gold or foreign exchange reserves. Finally on 9 October 1931, after the national
bank had lost around AS 700 million in foreign reserves, the government introduced exchange
controls.
Only in January 1933 a settlement was reached with the foreign creditors and the reconstruction of the
Credit-Anstalt could finally be started. The main points of the reconstruction were that the bank’s old
capital was reduced from AS 177.5 million to 1 million and the Austrian state became the main
shareholder with 51 per cent in exchange for taking on the responsibility for most of the liabilities. The
foreign creditors received 49 per cent of the preferred ordinary stock and shares and bonds of a newly
created holding company in Monaco, Société Continentale de Géstion, which took over half of the
foreign assets of Credit-Anstalt, and a governmental promise to pay annuities in exchange for the AS
210 million in live claims. The losses of Credit-Anstalt were more than AS 1 billion in the end, more
than 7 times the originally announced amount. The Austrian state and national bank took over around
70 per cent of the losses. The largest part of the losses was bad debts. In spring 1934 the
reorganisation of the Austrian banking system was completed with the fusion of the Credit-Anstalt with
the last two remaining large banks Wiener-Bank-Verein and Niederösterreichische Escompte-
Gesellschaft. The devaluation of the Austrian shilling by 28 per cent was officially announced.
The crisis of the Credit-Anstalt is an interesting case study of a financial crisis with repercussions
going far beyond the borders of a small country. The collapse of this bank opened the acute phase of
the depression, which shook the foundations of the world economy. The financial problems of the
Credit-Anstalt started the financial crisis in Austria with a run on the banks and a subsequent attack on
the Austrian shilling. The initial problem of the bank was insolvency and that led to the problem of
illiquidity, as the public revised its expectations concerning the bank and became unwilling to hold its
liabilities. The causes that were directly responsible for the failure of the bank were the effects of the
business depression and serious management errors and they resulted in the crisis because the bank
and the Austrian banking system were fundamentally unstable at that time. The main origins of the
instability were the effects of the break-up of the Austro-Hungarian Empire, the following hyperinflation
Working Paper Series No. 31 39
and its consequences, the “Franc Speculation” of 1924, and the maturity mismatch between the
bank’s assets and liabilities. The collapse of the Credit-Anstalt was the climax of a difficult
development of adjustment in the Austrian banking sector after 1918. The perceived similarities
between the Viennese banks caused the public’s large-scale withdrawals from all Viennese financial
institutions when the most prestigious and the largest of them experienced financial failure. The
depositors as well as the creditors of the Credit-Anstalt had to face the question whether the failure
was bank-specific or represented a shift in the risk of the whole banking system in Austria. In reality,
the causes were largely bank-specific. The attack on the Austrian currency was a rather rational
response to the perceived inconsistencies in economic policy. The domestic credit growth to alleviate
the liquidity problems of the Credit-Anstalt was regarded as inconsistent with the adherence to the
Gold Standard and therefore the public rushed for the Austrian National Bank’s foreign exchange
reserves. It recognised the potential of capital gains in hoarding foreign currency instead of holding
Austrian shillings, which were expected to be devalued. The refusal of Austrian authorities to stop
these inconsistencies led to a chronic shortage of foreign exchange and reduced allocations of foreign
exchange to the emergence of black markets in foreign currencies and finally to exchange controls.
This attack on the foreign exchange reserves was caused by the public’s fear that the huge increases
in government debt, due to the government guarantees for the liabilities of the Credit-Anstalt, would
eventually be monetised because the prospects of alternative methods of financing the debt were not
in sight until 1932 when Austria was supplied with a new internationally guaranteed loan in the
Lausanne Protocols.
The investigations of the efficiency of the market in predicting the crisis of the Credit-Anstalt and the
Austrian shilling were mixed. As the bank had intervened heavily in the market for its stocks, no prior
discounting of the bank’s collapse could be detected. On the other hand evidence was found in the
bond market that with the announcement of the crisis of the bank the market’s evaluation of the
Austrian shilling deteriorated. The crisis and the inefficient handling of it had disastrous effects on the
Austrian economy and employment, unemployment rates surpassed 25 per cent, and it deepened and
lengthened the depression. The money supply shock exerted a strong downward pressure and
resulted in rates of economic decline of more than 20 per cent. The crisis in Vienna had serious
consequences for the rest of Europe, especially on Germany, Hungary and the other countries and
Central and Eastern Europe. But the shock waves were also felt in Paris, London and New York. Yet
soon after the crisis in Austria, the problems in Germany caught the attention of the public and the
Austrian problems were of secondary importance. Yet the dramatic slumps in Germany and Great
Britain would have occurred anyway, irrespective of the break-down of the Credit-Anstalt.
8. The Consequences of the Credit-Anstalt Crisis for Central & Eastern Europe8
The Great Depression hit Hungary hard, stopping the slow recovery and leading to a dramatic decline.
The crisis hit Hungary first through the collapse of the international agricultural market with a 60-70 per
40 University of Applied Sciences bfi Vienna
cent decline in agrarian prices. But the most severe blow was dealt by the break-down of the Credit-
Anstalt and was followed by the international financial and banking crisis. Hungary was heavily
indebted, but new credits stopped arriving and substantial portions of the short-term credits were
withdrawn from Hungary. The Hungarian National Bank lost most of its gold and foreign exchange
reserves and the banking system reached the edge of the abyss in 1931. Between 1931 and 1933 70
banks collapsed. By 1938 the number of banks had been reduced by more than 300 that had been
operating in 1929. The shrinking banking sector is also expressed by the decrease in its share of
industry. Strict government measures were introduced after the financial collapse and the repayment
crisis in 1931, the gold Standard was abolished and foreign exchange controls were introduced. After
the trade agreement with Nazi Germany in February 1934 barter trade became dominant and a
clearing system was introduced to replace hard currency payments in foreign trade. State
interventions, economic nationalism, high protection and the policy of self-sufficiency became
stronger. Hungary was isolated from the world market and became integrated into the German Nazi
economic system.
In 1928 the Wiener Bank-Verein took over an important part in the establishment of the Allgemeiner
Jugoslavischer Bankverein AG in the Kingdom of Serbs, Croats and Slovenes. In 1929 King
Aleksandar dissolved Parliament, forbid political parties, abolished the constitution and proclaimed the
hereditary Kingdom of Yugoslavia. While the financial institutions were trying to adapt to the new
political and economic developments, the European banking crisis hit Yugoslavia. When the Austrian
government became the new shareholder of the Credit-Anstalt, it decided to withdraw most of its
investments abroad, also in Yugoslavia, where it owned a number of banking and industrial affiliates.
A chain reaction set in and created a difficult situation for the largest privately owned Yugoslav banks
of that time, such as the First Croatian Savings Bank and the Yugoslav United Bank. This was the
result of the connections between financial, industrial and commercial capital and had similar effects
on the activities of the Wiener Bank-Verein, among other banks. When the Wiener Bank-Verein was
merged with the Credit-Anstalt, the Allgemeiner Jugoslavischer Bankverein became majority-owned
by the Credit-Anstalt (50.3 per cent of shares).The rest of the shares were owned by Belgian, Swiss
and Czech banks. Due to the huge financial difficulties the Viennese and Budapest Banks were facing,
their role as financial intermediaries in Yugoslavia and in the Balkans as a whole weakened
substantially. Foreign capital was not prepared to continue financing the old Austrian arrangements
and supporting the method of co-operation with certain domestic economic and political
representatives because they only produced losses. The traditional Austro-Hungarian type of bank,
the universal bank, that financed industry and accepted deposits, was abandoned. The Allgemeiner
Jugoslawischer Bankverein was more or less the only monetary institution from which foreign capital
was not withdrawn. On the contrary, it provided Yugoslav institutions with necessary funds. The
significance of this bank was due only to the reputation of the European bankers on its board and the
business and political connections that had been established in the decades before. It was the main
bank in Yugoslavia because it could maintain the confidence of both the domestic depositors and the
foreign creditors and became the main financial hub for foreign capital investment in the Yugoslav
economy.
Working Paper Series No. 31 41
Also on the Polish capital market the Credit-Anstalt achieved the strongest position among the
Austrian banks. It created a consortium of banks including Akcyjny Bank Hipoteczny S.A., Bank
Dyskontowy Warszawski S.A. and Slaski Zaklad Kredytowy S.A. The Credit-Anstalt owned 33 per cent
of the shares of those banks. Further informal co-operations were established with Bank Zachodni
S.A. When the Credit-Anstalt merged with the Boden-Credit-Anstalt, Bank Malopolski S.A. was
acquired as well as part of the Boden-Credit-Anstalt in 1930. With the Viennese superbank merger of
Credit-Anstalt and Wiener Bank-Verein the Viennese bank also gained influence in the Powszechny
Banku Zwiazkowy w Polsce. The expansion of the consortium contributed to the extensive flow of
Austrian capital into the Polish industry. The failure of Credit-Anstalt had a negative effect on the
situation of Polish banks controlled by the consortium. Deposits fell rapidly, but the Polish banks did
not seek the assistance of the Polish government or the Polish National Bank in this financial crisis.
The ties with Austrian capital weakened and after 1938 German capital took over as the Creditanstalt-
Bankverein was subordinated to the Deutsche Bank.
The Viennese banks, Credit-Anstalt, Boden-Credit-Anstalt and Niederösterreichische Escompte-
Gesellschaft, continued to hold large shares of industrial capital in Czechoslovakia after 1918.These
banks also operated in co-operation with Zivnobanka in Czechoslovakia, as two of them owned shares
in Zivnobanka and the Zivnobanka board had close personal connections to Vienna. Yet the position
of Viennese banks weakened gradually, especially after the failure of the Boden Credit-Anstalt and the
Credit-Anstalt. Zivnobanka and other Czech banks took over some of their shares. By that, the
Austrian influence in Czech banking declined dramatically, yet strong personal connections to Vienna
persevered. So, Austrian capital still exerted an influence on Czech industry, but a much reduced one.
The share of Austrian direct investment in Czechoslovakia was 13.1 per cent in the interwar years,
compared to 30.8 per cent British, 21.4 per cent French direct investments. The Great Depression hit
the Czech banking system as severely as it hit the Austrian banking system in 1931. Several banks
had to get state assistance to cope with the crisis, such as Anglo-Pragobanka, Ceská prumislová
banka, Moravská banka, Böhmische Union-Bank, Agrární banka. None of the banks went bankrupt,
but all suffered severe losses. After the crisis of 1931 many Austrian financial groups sold their capital
shares in Czechoslovakia, the most important were shares in Ceská eskomptní banka and sugar
refineries and distilleries. In the 1930s the flight of Jewish capital that was closely connected to the
Viennese banks took effect due to the anti -Semitic atmosphere in Czechoslovakia. To sum up, the
close ties between Viennese and Bohemian banks in the 1920s weakened continually until 1938 when
the whole banking system was liquidated in the course of the German occupation.
9. The Role of Austrian Banks in Nazi Germany’s Expansion to Central, Eastern & South-Eastern Europe9
The German state-owned VIAG (Vereinigte Industrieunternehmungen) and the Deutsche Bank gained
control of the majority of shares of the Creditanstalt-Bankverein CA from the time of the “Anschluß” of
42 University of Applied Sciences bfi Vienna
Austria to the Nazi German “Third Reich” in 1938 onwards, originally by taking over the shares of the
Austrian state. From the very beginning the German majority shareholders viewed the bank as an
important tool for German penetration into South-Eastern Europe, not only because of the
geographical position of Vienna, but also because the Viennese banks, many of which had merged
with the Credit-Anstalt in the interwar years, had been very active in this area before 1918 and still had
much experience in the region. Contrary to the image the CA wanted to create after 1945, the
leadership of the CA, and especially its most important director, Josef Joham, viewed the German
takeover of Austria as an opportunity to recover the position the CA had held in South-Eastern Europe
before and to turn Vienna into the financial hub of the Nazis’ activities in Central Europe and the
Balkans. In fact, the CA often took the initiative in expanding its banking activities in the German
satellites and occupied territories. It constantly made reference to its historical role in the region and
viewed its acquisitions as restitution and/or compensation for its losses and exclusion by the
successor states after the collapse of the Austro-Hungarian Empire. The German control of Austria
and the CA provided a welcome opportunity to restore the position Viennese banks had enjoyed
during the Austro-Hungarian Empire. The close co-operation between the CA and the Deutsche Bank,
namely between the two directors Josef Joham and Hermann Josef Abs, had already started before
the “Anschluß”. As Joham had supported the old regime in Austria, but anticipated the “Anschluß” of
March 1938, he sought protection for himself and the bank through the alliance with Abt and the
Deutsche Bank. Yet first the German VIAG took over the majority of shares from the Austrian state
and Deutsche Bank got hold of only 25 per cent of the shares of the CA, but in 1942 the Deutsche
Bank finally acquired the majority of shares in the CA.
The first signs of the CA’s ambitions and its use of the historical past to legitimise claims were in the
Czech Sudetenland. When Nazi Germany had annexed the Sudetenland in the autumn of 1938, the
CA cautiously stated its wishes to the German Economics Ministry on 4 October 1938: “[the CA]
appears predestined to take over such branches [in the Sudetenland], since they and the banks
acquired in the period of fusions previously had their own branches in these territories which were
taken over in the post-war period by Czech institutions, so that the re-acquisition of these branches
should be considered as their repatriation.” (Feldman, Gerald D., The Role of the Creditanstalt-
Bankverein in the Expansion of Greater Germany, 1938-1945, in: Rathkolb, Oliver / Venus, Theodor /
Zimmerl, Ulrike (eds.), Bank Austria Creditanstalt. 150 Jahre österreichische Bankengeschichte im
Zentrum Europas, Zsolnay 2005, 318)
Joham and Abt kept in touch over this issue and Abt supported Joham, but the German Economics
Ministry wanted to keep complete control over the developments, so the CA continued to approach the
Economics Ministry to be able to participate in the distribution of the bounty. Yet the CA and the
Deutsche Bank were not successful in reaching all their goals in the Sudetenland because of the
influence of the competitor, Dresdner Bank, which owned the Länderbank Wien, the main competitor
of the CA, and their connections to the Hermann Göring Werke. The basic decisions were determined
not by the CA’s ambition of becoming the financial gateway to the east and south-east, but by the best
way to exploit the industries of the Czech lands and by political lobbyism and wire-pulling in the “Third
Working Paper Series No. 31 43
Reich”. So when the Czech banking sector in the Sudetenland was carved up, the CA only gained
branches in Znaim/Znojmo and Lundenburg/Breclav and its affiliate the Bank für Oberösterreich und
Salzburg branches in Böhmisch Krumau/Czesky Krumlov.
When the German troops marched into Prague in March 1939 and established Slovak “independence”
and the Protectorate of Bohemia and Moravia, the CA’s leadership was already much more outspoken
in its claims. The CA’s desire to play a significant role in Prague was hampered by the struggle
between Deutsche Bank and Dresdner Bank. For the time being the CA had to accept smaller
pickings in the Czech lands. Yet the most important and most complicated CA acquisitions in the
Czech lands involved those in Slovakia. The CA director Ludwig Fritscher wanted to show that Vienna
had both the financial and technical skills to handle the entire import and export trade with Slovakia
and by that challenge the domineering position of Berlin. The CA set up an independent bank by
taking over the branch of the Böhmische Escompte Bank in Bratislava and other former Czech bank
holdings and formed the Union-Bank Preßburg. The CA was, of course, again competing with the
Dresdner Bank and the Länderbank in this field, which had also set up its own bank in Bratislava and
had taken over the Deutsche Industrie-und Handelsbank Pressburg. But there was plenty of business
for both Viennese banks in Slovakia. The Union-Bank Preßburg became part of a larger complex of
banks in Central, Eastern and South-Eastern Europe that were linked to the CA and the Deutsche
Bank.
Hungary was an important part of this complex. Hungary and Slovakia were both satellite states that
had economic interests of their own and a considerable degree of autonomy in operating their
economies that they sought to protect in dealing with the Germans. Slovakia was a new state, having
been part of Hungary in the Austro-Hungarian Empire until 1918 and having joined the Czech lands in
1919 until 1939. Hungary was the larger and more important satellite state with a long history and a
strong national identity. Its link to the German “Third Reich” should provide it with the opportunity to
regain the vast territories it had lost in the Paris Peace Treaties. In Slovakia the CA wanted to regain a
position it had lost during the interwar years, while in Hungary it had maintained a presence during
these years. The Budapest branch received the guidelines from Vienna that it was to devote itself to
the service of German-Hungarian economic relations which included the elimination of Jewish
personnel. The Hungarian government was rather slow in implementing the Nazi’s anti-Semitic
measures, which had been speedily implemented in Austria because they feared the risks to
Hungarian economy and finance where Jews played an important role. Only in 1944 when the
Germans occupied Budapest, they implemented the measures with incredible brutality and finished off
their task of expulsion and extermination of all Jews in this region. Due to Hungarian resistance, the
expansion of the CA Budapest was rather modest and mainly served the ethnic German population
and sometimes it acted as a beneficiary of Hungary’s expansion into the partitioned states of
Czechoslovakia, Yugoslavia and Romania.
Poland and Yugoslavia were destroyed by the Germans as political entities and the CA exercised its
ambitions with great stubbornness in this unstable and war-ridden climate. In the case of Poland the
44 University of Applied Sciences bfi Vienna
German occupiers intended to eliminate Poland as a state and exploit its resources and engage in
large-scale transfers of Poles and Jews to the east to provide space for German settlers. The
expropriation of Jewish and Polish assets was the work of the German authorities. The big banks,
including the CA, tried to establish themselves in the new political surrounding and had great
expectations as the industrial and agricultural activity in Poland required funding. The CA proved to be
strikingly aggressive in its ambitions to gain a prominent role in Poland. German and Austrian banks
had not been very popular during the interwar years and doing business in this region had been very
difficult for them. The Länderbank had been in the process of liquidating its Kommerzialbank in
Krakow when the war broke out. The Deutsche Bank had high hopes of establishing itself in Krakow
and other parts of Poland where suddenly the CA wanted to become its competitor. In the same way
as in the other Central and Eastern European countries, the CA made its claims in Poland on the
grounds of seeking “compensation for past losses”, a strategy that usually worked well in Berlin. They
could prove that the Austrians had had a considerable presence in Polish territories before World War
I where the Viennese banks had 20 branches and interests in Polish banks and enterprises. In fact,
the CA had been forced to give up participations in four banks in former Austrian Galicia and
participations in some industrial enterprises, but it had retained interests in five Polish banks and a
dozen oil and heavy industrial enterprises, which it only lost because of its bankruptcy in 1931. But the
CA was not only trying to regain a position it had held in the former Austro-Hungarian Empire, it
wanted to establish its own banking network in Central Europe and become the dominant bank in
South-Eastern Europe within Nazi Germany’s banking system. At that time it was still trying to make
progress in Slovakia and Moravia, but without success. The CA leadership had high-flown plans of
establishing a banking network of its own from the borders of the USSR through Galicia and Silesia to
Slovakia and Moravia, but that of course was not in the interest of Deutsche Bank. Finally the CA
managed to establish itself as the major bank in the Krakow region, but it had to make do with much
less than its ambitions in the rest of Poland. The CA branches in Poland engaged in considerable
business financing wheat harvests in shipments to the “Third Reich”. It also dealt in dirty business like
the handling of accounts for Polish workers in concentration camps, accounts for the SS and credits to
firms employing forced labour.
While in Poland the effort of the CA to take advantage of German conquests to re-establish a position
it had lost in the interwar years failed, in Yugoslavia the CA tried to maintain and strengthen a position
that already existed when the Germans took over and that attempt failed as well. The CA and the
Deutsche Bank tried to use the majority interest of the CA in the Allgemeine Jugoslawische
Bankverein Belgrad-Zagreb to pursue their strategy in South-Eastern Europe after the “Anschluß”. As
the Germans had shown a great interest in the penetration of Yugoslavia and the establishment of a
banking network there already before 1938 because they wanted to exploit the minerals resources
and import food, the Deutsche Bank sought to co-operate with the CA in this region on the basis of the
CA’s majority share in the Jugoslawische Bankverein. Also here the substantial number of Jewish
personnel was eliminated immediately and after negotiations with the Belgian shareholders, the bank
was almost completely “Germanised”. The CA, strengthened by the support of Deutsche Bank,
retained its dominant position. In Belgrade the Bankverein became the major instrument for financing
Working Paper Series No. 31 45
the exploitation of the Bor copper mines, which ended in a financial disaster when the Germans left in
1944. Its bank in Croatia was not really profitable and failed to expand into the countryside. In any
case, by the beginning of 1945, the CA’s banking operations in Yugoslavia had ceased to function.
The Austrian banks’ aims with the CA at the helm to re-establish their position in Eastern and South-
Eastern Europe between 1938 and 1945 was a complete failure as it was attempted under the
auspices of a criminal regime. The criminality tainted the entire expansion effort from the
“Aryanisation” of the banks and businesses they acquired shares in to the dismissals of Jewish
directors and employees and the participation in the confiscation of Jewish assets at the banks where
the CA and the Länderbank were shareholders. Ultimately, the expansion of the CA and Länderbank
rested on the bayonets of the German “Wehrmacht” and the backing of the Deutsche Bank,
respectively the Dresdner Bank. Vienna tried to become the hub of the German South-East
programme with some space for independent development, which did not happen. The board of CA
knew that a change could only come about with the end of the war, but the end meant that their
programme was doomed and that their ambitions to regain their pre-1918 position had to be buried.
10. Austrian Banks after 194510
At the end of the Second World War and after the liberation by the Allied forces the main Austrian
banks were nationalised. The assets of Austrian credit institutions including large claims on the Third
Reich, loans to the German armed forces and to various official and semi-official institutions had
become worthless. The losses incurred had eliminated the equity of many credit institutions. So in
1946 the Austrian government nationalised the three largest banks, the Creditanstalt-Bankverein,
Österreichische Länderbank und Österreichisches Credit-Institut AG. The Reconstruction Act of 1955
enabled the banks to draw up balance sheets for the entire period up to the end of the 1954 business
year. The banks had been able to offset the losses incurred on account of war and post-war events
thanks to their own earning power. The Reconstruction Act was nevertheless most important for
formal accounting purposes. It gave the banks the formal basis under trade and company law to make
the provisions necessary for the fulfilment of their economic and socio-political tasks. The Act further
stipulated that the banks should make annual reconstruction contributions to other areas of the
Austrian credit system. Already in 1956/57 the two largest Austrian banks, Creditanstalt-Bankverein
and Länderbank, were partly re-privatised by authorising the Minister of Finance to sell shares up to
40 per cent of their share capital.
In the period after World War II two further types of financial institutions were formed, namely special-
purpose banks like the Österreichische Kontrollbank and new foreign banks like Bank of America. The
remarkable economic upswing of the “Miracle Years” that Austria experienced between 1958 and
1978 with an average real-term economic growth of 4.5 per cent, more than that of the Federal
Republic of Germany, Switzerland and other Western European Countries, gave rise to keen
competition between the individual banks. Historically grown differences and the peculiarity of the
46 University of Applied Sciences bfi Vienna
individual types of credit institutions gradually disappeared and all-purpose universal banks
increasingly gained importance. The above-average real-term growth of the economy was reflected in
the development of the credit system. As enterprises of the service sector, the banks and savings
banks made an above-average contribution to the expansion of the GDP as well as employment in the
1970s and early 1980s.
Since the 1970s the main keywords in Austrian banking were internationalisation, deregulation, and
all-purpose universal banking. The important Austrian banking institutions were involved in almost all
types of banking business from commercial to private to investment banking, further comprising also
insurance and financial advice in various fields. This concept of a universal bank with a whole range of
services on offer was promoted by increased competition. An increased mobility and cost-
consciousness of customers put pressure on banks to extend their securities business to cope with
new trends and reduce their dependence on interest income.
A dramatic change in geographical orientation of Austrian banks had already occurred after World War
II with the closing off of their traditional market sphere in Central, Eastern and South-Eastern Europe
due to the Iron Curtain and the Cold War and the concentration on the Austrian market. In the 1970s a
new change in geographical focus occurred. In the beginning of the Second Austrian Republic
Viennese-based banks had expanded across Austria. This phase was followed by a reversed trend of
regional banks and savings banks invading the Viennese market, which was accomplished by a vast
expansion of mostly domestic retail branch networks. But parallel to that trend, Austrian banking
institutions again expanded abroad increasingly, first in the West in the early 1980s and then in the
late 1980s mostly focusing on Central and Eastern Europe once more. The foreign share of liabilities
expressed as a percentage of the banks’ total asset rose from 7.1 per cent in 1970 to 24 per cent in
1989. In the 1980s the situation of the Austrian banking system worsened due to falling revenues and
fierce competition. The main reason for shrinking margins was the private sector’s ability to fund
growth through its own cash-flow and therefore the competition for good debtors became increasingly
destructive for margins. Moreover costs soared because banks had to invest heavily in new products
and modern technologies. These investments were necessary to make Austrian banks more
competitive on the international markets. The liberalisation of the banking system in 1986, due to the
amendment of the Banking Act of 1979, which abolished all types of controls over interest rates and
the setting up of branches, led to cut-throat competition because Austrian banks opened up new
outlets and moved into new markets. So expanding east, opened up new opportunities for Austrian
banks and most of all higher margins. Austrian banks built on the special historical relationship with
the areas of the former Habsburg Empire and pointed out their experience in this region when dealing
with international clients. The Austrian banks started with a number of joint-ventures, branch offices
and subsidiaries, and became important players in this region in commercial banking as well as
investment banking, for example engaging strongly in the privatisation process in Hungary and the
Czech Republic.
Working Paper Series No. 31 47
In the 1980s Austrian banks’ operations were still concentrated mainly on Western Europe and North
America. But after the coming-down of the Iron Curtain, Austrian enterprises quickly turned their focus
to their historical market areas in the East. By the early 1990s Austria had become the most important
hub for many types of projects between the West and the East. Already then the Austrian banking
system’s relative share in Central and Eastern European business was very large. Though the motives
which prompted Austrian banks to establish themselves in the Central and Eastern European region
might have varied, all Austrian banks involved there took the leading position, called “bank pull”, which
means, they did not follow their clients, as the banks of other countries did, called “client pull”, but they
took the initiative. Before the end of communism in the region, Austrian banks were only entitled to
trade finance and lending to the public sector and companies controlled by the governments there.
After 1989 new financial products, mainly project-related financing models were required in the
developing economies of the East.
But already in the early 1990s the major drawbacks of the expansion to the East became visible,
namely the higher risk and the high degree of exposure to customers who are not creditworthy, for
instance in Russia and Bulgaria in 1991 when high provisions for the failure of some of the clients to
meet their obligations had a negative impact on the balance sheets of Austrian banks: In 1991 the
Creditanstalt-Bankverein provisioned for 50 per cent of its part of Austrian banks’ total ATS 6.9 billion
exposure to Russia and in addition, for 80 per cent of its part of Bulgarian debt, totalling ATS 6 billion
for Austrian banks. So from the beginning it became clear that doing business in the emerging
economies of Central and Eastern Europe was profitable, but also risky.
11. Austrian Banks Have Led the Way in Central & Eastern Europe since 198911
Since the collapse of communism, foreign banks have bought up roughly 80 per cent of all the banking
business in the new Central European member countries of the European Union. The most successful
banks are those that bought early. The markets are still relatively small, but growth rates are high, and
so are profit margins. To many foreign financial experts it was a surprise, who got in first. Germany
was the region’s biggest trading partner, but German banks were busy at home with the shocks and
costs of the unification of Germany. Somehow they left Eastern Europe to their small neighbour,
Austria. Raiffeisen, a co-operative banking group, went into Hungary already before the coming down
of the Iron Curtain in 1987 and was in seven more countries by 1998. Even a little earlier, the banks
making up the Creditanstalt and Bank Austria, which merged in 1997 (BA-CA), first entered the
market. BA-CA was bought by HVB of Germany in 2000, which was in turn bought by UniCredit of
Italy in 2005. In both acquisitions the BA-CA’s business divisions in Central and Eastern Europe were
the big prey the predators were after. The third Austrian bank to join in the rush was Erste Bank with
its purchase of Ceska Sporitelna, a Czech bank, in 2000.
As the Balkan wars subsided, more countries became bankable. Raiffeisen bought into Bosnia in
2000, Serbia in 2001 and Albania in 2004. But by now other foreign banks were in the race, chasing a
48 University of Applied Sciences bfi Vienna
dwindling number of prospects and prices spiralled upwards. In 2005 Raiffeisen paid more than four
times the book value for a bank in the Ukraine, Bank Aval; and Erste Bank paid 5.8 times the book
value for a Romanian savings bank, Banca Comerciala Romania, beating off five other bidders. Asset
growth in these markets is expected by some to be 40 – 50 per cent and that explains why these high
prices are paid at the moment. But others are of the opinion that a price five times the book value is
too high and it may be uncertain whether the extremely high expectations about key criteria like
economic growth, customer growth and profit growth will be realised.
Yet the best-performing ex-communist economies are setting quite a pace: Estonia and Latvia posted
10 per cent growth in 2005, reminiscent of the “Asian tigers”. The question now is whether the “new”
Europeans can keep growing at such rates for some time and catch up with the richer western part of
the continent. There are surprisingly few worries about external shocks, though for instance Hungary
has big current account and budget deficits. But for most countries the basic competitiveness is
paramount. A study by the Vienna Institute for Comparative Economic Studies and Bank Austria
Creditanstalt in 2006 painted an encouraging picture, at least for the eight ex-communist countries that
joined the European Union in 2004. They are commonly termed the EU-8, but sometimes also “lynx
economies”, named after the region’s fierce felines and in reminiscence of the “Asian tigers”. Their
prospects are much brighter than those of the EU candidates of 2007, Romania and Bulgaria. In
particular, the EU-8 are expected to be able to keep their edge against their Asian competitors in the
EU market. The study measured the EU-8’s competitiveness in terms of export performance, both size
and quality, economic structures – a big share of services is a strength, farming and manufacturing
are not – and the friendliness of the business environment, from bureaucracy to infrastructure. In
some areas they have almost caught up with Western Europe. They gained, for instance, 65 per cent
of their gross value-added product from services, only just below the rich EU countries at 69 per cent.
The second-rank “Asian tigers” like Indonesia, Malaysia, the Philippines and Thailand, made only 47
per cent through services. The growth in the EU-8’s exports to rich countries beat that of any Asian
country except China. Those exports were fuelled by sharply rising foreign direct investment. As a
share of EU-8 GDP, it was worth 29 per cent in 2000 and 38.1 per cent in 2004. Even better, the
quality of exports was shifting upwards. The study noted particularly fast growth in what are called
“medium high-tech” industries, which made up the biggest category of exports. Here they were not
only raising the prices they charged but also market share.
Two big weaknesses remain. One is in the quality of public institutions. Yet this is improving slowly.
The second and bigger problem is in research and development. Most ex-communist countries devote
minute amounts of money to these fields, on average 0.8 per cent of GDP, compared with 2 per cent
in Western Europe. The complaint is raised in the EU-8 countries that the foreigners who own most of
the enterprises prefer to shop at home for brainpower that the rich countries subsidise more
generously. But the true problem is that post-communist universities are still largely unreformed,
complacent and introverted. There are several ways how they could boost the efficiency of their
university systems like paying internationally competitive salaries so that the researchers do not
emigrate or teaching partly in English to attract foreigners and to encourage closer links with business.
Working Paper Series No. 31 49
But also Bulgaria and Romania are developing in a positive way in some areas. The changes are an
example of how the EU can wield “soft power”, using the attraction of EU membership to get countries
to change. In Romania GDP is growing at more than 5 per cent per year. The real-estate market,
supported by the growth in the banking sector, is booming, especially around Bucharest. Foreign
investment has overtaken that of Hungary and Bulgaria. According to a study by Bank Austria
Creditanstalt, Romania attracted €15.4 billion in foreign direct investment from 2000 through 2006,
compared with Hungary €13.6 and Bulgaria €9.6 billion. Much of the investment in Romania is in small
and medium-sized businesses, especially from Italian firms. To be sure, many areas still seem
incredibly retarded, poor, rural, and stuck in ancient ways; there are still high illiteracy rates. But
Romania’s development is following the pattern of other Eastern European economies. The Vienna
Institute for International Economic Studies has found that in the beginning, investors buy tangible
assets like former state-run companies or land or they build their own factories. From then on a drop in
the agriculture’s share in the GDP becomes noticeable. Then a real-estate boom is supported by an
expansion in the banking sector. Lending to private consumers and businesses rose by nearly 40 per
cent in Romania in 2005, for instance. After selling off most of the state-owned banks, the Romanian
government now owns less than 10 per cent of the banking-sector assets. Investment in land and
manufacturing, coupled with EU accession will lead to more investment, analysts predict. The
Bucharest exchange, founded in 1882 but discontinued during the communist era, is still less than half
the size of Hungary’s and one-fifth that of Poland’s. Experts note that EU entry will double or triple the
exchange’s market capitalisation. New EU rules requiring listed companies to have more liquidity will
give the exchange a further boost. The key to prosperity in Bulgaria and Romania will be implementing
Western standards of transparency and getting rid of corruption.
In general corruption in ex-communist countries seems to be declining. For these countries, stabilising
economies and introducing market mechanisms has proved to be the easier bit. Remaking public
institutions, and making them clean and efficient, is much harder to do and to measure. A study
published in July 2006 by the World Bank cast an optimistic light. Compared with previous surveys in
1999 and 2002, it suggested that corruption in the region was becoming a little less frequent, costly
and damaging.
Another area where Austrian banks want to play a significant role is Turkey, EU candidate since 2005.
The Turkish banking market is one of South-Eastern Europe’s most attractive at the moment and one
where the Austrian banks already had connections during the time of the Austro-Hungarian Empire. In
2005 the GDP grew by 7 per cent and most of Turkey’s 70 million people are under 40 years of age.
Retail banking is still less developed than in the west and there is great potential for banks to make
profit from mortgages, credit cards and other banking services. Banks in the region have already been
getting pricier, too. As big European banks have little room to grow at home, they have been chasing
opportunities in South-Eastern Europe recently. Almost all of them have looked at Turkey. French and
American banks have bought shares in Turkish banks and most astonishingly, a Greek bank, the
National Bank of Greece, bought the Turkish Finansbank in 2006. Despite the remarkable growth in
the two countries’ bilateral trade in recent years, a financial investment of this size is a breakthrough in
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a troubled political relationship. Also here we may see a touch of historical relationships of the more
distant past: Greek bankers were the main financiers of the Ottoman sultans.
12. The Transformation in Central & Eastern European Banking & Industry after 1989 and a Century ago – a Comparison12
12.1. The Role of Banks in Economic Development
The close ties of banks with the industry of the Austro-Hungarian Empire have already been
mentioned in earlier chapters, yet a leading role of banks in the industrialisation process cannot be
seen. On the contrary, Austrian banks were for years averse to industrial promotion in the 19th century.
The caution which pervaded the banking circles in Austria and the Czech Lands was evident in the
general lack of risk capital, and in the preference for participating in or granting extended credit to only
the booming enterprises. The caution and the lack of entrepreneurial spirit of the banks can be seen
from the fact that in the periods of economic expansion the banks lagged behind with their
investments. So industrial development was not triggered by investments of banks, but was preceded
by private investment or an expansion of government programmes such as railroads. This was not
only true for Austrian and Czech, but also for Hungarian banks. Yet despite the fact that economic
development was not bank-led in the Austro-Hungarian Monarchy, the banks did fulfil the important
role of providing financial intermediation services. The widespread development of banking services,
such as credit on current account, open book advances, and discount of bills, were the main
contribution of banks to industrial development. They were very efficient in mobilising capital.
Here the parallels with the role of banks in the transformation processes of the CEE countries after
1989 are obvious. Also here we can find caution by banks to support new enterprises, and the overall
volume of credit extended to businesses remained small, relative to their deposits. In general the
CEEC banks mobilise savings in excess of what they are willing to lend to domestic borrowers. The
surplus is invested abroad. So in fact, the CEEC banking sector is a net exporter of capital in a group
of capital-importing countries.
12.2. Bank-Based versus Capital Market-Based Financial Systems
Both periods of economic transformation in Central, Eastern and South-Eastern Europe in the 19th and
in the 20th century were characterised by the development of bank-based financial systems versus
capital market-based financial systems. It is generally agreed that market-based systems become a
feature of economies when they have reached the stage of a well-developed financial system. For
economies at an earlier stage of development, and also for planned economies that are being
transformed into market-based economies, banks play the major role in financial intermediation. This
Working Paper Series No. 31 51
was clearly the pattern in the transition economies in CEE countries, despite their attempts to
introduce securities markets early on during the transition process. They were expected to play an
important role in mass privatisation processes, but these attempts turned out to be premature and the
stock markets remained largely illiquid.
The reasons for the early reliance on banks could be the situation, when accounting rules and
regulatory and contractual enforcement institutions are weak, banks are better placed to protect
creditors’ rights. Small investors are deterred from investing in the stock market for fear of being
exploited by unscrupulous stock market manipulators and insider traders. On the corporate side, on
the other hand, most firms are too small and risky at early stages of development to be able to issue
shares or bonds on an organised exchange at a competitive cost of capital. Further more stock
markets tend to develop when there is a culture of equity investment and private pension plans. And
finally, stock markets require well-trained professionals, market makers, traders, fund managers and
financial regulators, but none of those were present in the beginning of the transformation process.
In the experience of CEE countries, it became clear that the development of the financial systems was
closely related to the conditions of the banking system. Banks were at the heart of problematic
features of channelling finance in the early phases of transition, they were at the centre of failures to
resolve corporate governance problems, which ended in banking crises. Yet later they were central to
an overhaul of the financial system in the following years, when banks were restructured and
consolidated. Then strong international financial actors in the form of foreign banks emerged as
dominant players in most of the CEE countries in the late 1990s. So in the 1990s the link between
bank-based development and economic growth was weak. The monetary, fiscal and regulatory
environment under which financial institutions and markets had to operate was more important in
facilitating both financial and economic development. But since the beginning of the 21st century the
financial architecture in the area has converged towards a bank-based system. This is also true for
South-Eastern Europe, where transition and economic development has been lagging behind due to
the Balkans wars of the 1990s. This trend towards a bank-based system happened despite early stock
market experiments in some countries and despite differences in transition paths of the different
economies, such as differences in privatisation methods, differences in timing and resolutions of
banking crises and differences in the regulatory environment. Even substantial differences in allowing
foreign banks to enter the domestic market, such as between Slovenia and the other CEE countries,
did not lead to a deviation of the general pattern of the establishment of bank-based financial systems
in these transition economies.
Nonetheless, stock markets might gain in importance in the future as the new EU members are fully
integrated into the financial markets of the European Union and as they enter the European Monetary
System.
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12.3. The Functioning of the Banking System in the Transformation Processes
Austrian financial and industrial life throughout the Austro-Hungarian economy was characterised by a
relatively slow development of limited liability forms of business organisation, a strong bias against
industrial securities, a generally cautious attitude towards risk capital on the part of the banks, and an
increasing cartelisation of banks and industry. The banks played an important role in business
consolidations, mergers and the creation of cartels, as discussed earlier. The focus on large
enterprises and cartels led to a neglect of new and smaller businesses.
After 1989 the development of the role of banks in the transformation process in Central, Eastern and
South-Eastern Europe can be divided into four stages. First, the banks maintained links with the large
state-owned enterprises and got involved in bad debt. Second, banking crises and bank
consolidations took place. Third, the banks started their restructuring process and foreign banks
penetrated the market. And finally, the countries became members of the European Union or
candidates for membership and prospective European Monetary Union members.
The move from a mono-bank system to a two-tier banking system with a separation of a Central Bank
from the commercial banking system was the first step the former communist countries took. Hungary
had started that transformation already earlier. The creation of a market-oriented banking system,
however, began with serious problems. First, there were substantial amounts of bad loans inherited
from the communist era and the result of a deep recession at the beginning of the transformation
process was the accumulation of a substantial amount of new non-performing loans. Banks continued
to lend to the same customers. The privatisation processes started slowly and left the bulk of the
state-owned enterprises untouched. To avoid defaults and due to existing network relationships, the
banks, which were still owned by the state, kept rolling over the debt with existing customers. When
economic policies were tightened in order to achieve increased monetary stability and to enforce hard
budgets constraints on enterprises and banks, this back-fired by creating huge additional inter-
enterprise arrears and a major credit crunch on businesses. Due to a lack of skills in the banking
sector, a lack of proper bankruptcy procedures and a weak banking sector regulation and supervision,
the banks just muddled on without performing their role of efficient financial intermediator. This first
stage was characterised by a mounting volume of bad debt, weak banks and a lack of corporate
restructuring.
The second stage saw the strongest differentiation across the CEE countries. The corporate
governance problems in the industrial and the finance sector led to a halt in the transformation
process and therefore had to be solved. Various privatisation methods were tried in different countries:
Hungary and Poland attempted sales to strategic investors, the Czech Republic tried voucher
privatisation, Slovakia insider privatisation, Slovenia slowed down the privatisation process. There was
a succession of secondary transformational crises starting with Hungary in the mid-1990s. The
situation in the financial system was strongly affected by mistakes made in macro-economic policies,
such as attempting a premature hard currency policy. The CEE countries had to move towards a
major bank consolidation to solve the huge bad loan problem and to re-capitalise the banks. Also here
Working Paper Series No. 31 53
a diverse number of methods was adopted, namely how much of the bad debt was written off and who
was put in charge of the restructuring of the enterprises.
Following the state-supported bank consolidation processes, most countries moved in the third stage
towards a rapid privatisation of banks to strategic investors, which in most cases meant foreign banks.
Slovenia remained an exception until the early years of the 21st century. By the year 2000, the market
shares, measured in total asset holdings, of foreign banks were larger than 60 per cent in all candidate
countries for EU membership in 2004, except Slovenia. However, problems of financial intermediation
persisted. This can be seen in relatively low ratios of domestic bank claims in GDP, which were less
than 40 per cent in the 10 accession countries compared to more than 120 per cent in the euro-zone.
Lending to the corporate sector was still very low as investments were mostly financed from retained
earnings or through foreign direct investments. There were great difficulties for new start-ups and
small and medium-sized businesses to get access to funds. Foreign banks in their lending operations
restricted themselves to the top-tier customers. The high real-interest rates at home led to a strong
incentive to borrow from abroad. But at the time of joining the European Union in 2004 the financial
systems in the more advanced transition countries had converged. The financial systems shared three
key features: First, the financial sector of the successful transition countries was strongly dominated
by banks, which lent primarily to governments and other financial institutions. Banks provided some
working capital finance to the corporate sector, but had so far played a limited role in financing
investments. Investment finance came almost exclusively from retained earnings, and most external
finance came through foreign direct investment. Second, ownership structures in individual firms and
banks were concentrated, and turnover of shares was low. The best firms showed little interest in
listing on local exchanges and preferred international stock markets in Europe and the United States.
Third, bank spreads- the difference between lending and borrowing rates - had declined significantly in
level and volatility. Nevertheless, they remained high by the standards of developed market
economies.
With the EU membership in the fourth stage a further strengthening of the regulatory framework was
taking place and a further opening up of the financial markets. The conditions of EMU membership
require fiscal consolidation along the lines of the Maastricht criteria and the Growth and Stability Pact.
This speeds up the full integration into European financial markets and this leads to a diversification of
financial instruments on offer and an improved financial intermediation role. Once the CEE countries’
economies are fully integrated into the financial markets and into the monetary system of Western
Europe, a more prominent role for capital market-based instruments and institutions might be
envisaged.
13. Vienna Stock Exchange: A Financial Hub for Central & Eastern Europe?13
Just before and immediately after the fall of the Iron Curtain, Austrian Banks expanded into the
transformation economies in Central and Eastern Europe. Business is booming and profit margins are
54 University of Applied Sciences bfi Vienna
higher than in Western Europe due to a favourable cost structure and higher margins in all business
fields. Moreover, experts predict a much higher demand for credits in this area – twice as high as in
the old EU15 countries. Due to competitive pressure, also the Vienna Stock Exchange has attempted
a closer cooperation with stock exchanges in the region in recent years. They started with a co-
operation with the Frankfurt Stock Exchange: The Vienna and the Frankfurt stock exchanges own 50
per cent each of the New European Exchange NEWEX, an Eastern European bourse, founded in
Vienna as a quality market for shares of Central and Eastern European businesses. NEWEX failed in
2002 and by that illustrated the risks of this Central European strategy. In 2004 the Vienna stock
exchange and Viennese banks bought the Budapest stock exchange. Further the Vienna Stock
Exchange introduced indices for Eastern European shares; since 2002 indices for Czech, Slovak,
Hungarian and Polish shares and a CEEC index are calculated in Vienna. Still a lot of advertising and
marketing and confidence building will be necessary to woo international customers away from other
European stock exchanges. The Vienna Stock Exchange has to be made more attractive for medium-
sized enterprises in Central and Eastern Europe, for instance by reducing the high transfer costs.
Although the introduction of the euro resulted in a higher liquidity in Vienna, it also withdrew customers
from Vienna to bigger stock exchanges in the euro-zone with a higher liquidity. For modern stock
exchange transaction the location is no longer important, but what the stock exchange can offer.
The present positive development of the financial centre Vienna should not be misinterpreted, it is still
primarily a national financial centre and as an international centre of secondary importance. The major
drawbacks are, as in the past, the low level of development of the share market and the stock
exchange business. Even if some of the business would be transferred from Budapest, Prague or
Bratislava to Vienna, this would only increase the regional importance of Vienna as a financial hub, but
not contribute considerably to its international reputation. Should the economies in South-Eastern
Europe grow as fast as predicted, Vienna could gain a little in significance due to the good business
connections and recent acquisitions of Austrian banks in this region.
Working Paper Series No. 31 55
14. The Expansion of the Three Largest Austrian Banks in Central, Eastern & South-Eastern Europe since the Fall of the Iron Curtain14
14.1. Bank Austria Creditanstalt
Abb. 5: BA-CA in Central and Eastern Europe Source: BA-CA 2006
Bank Austria Creditanstalt was created by a merger of several traditional Austrian banks. In 1991
Zentralsparkasse und Kommerzialbank AG, founded in 1907 as a savings bank, and Österreichische
Länderbank AG, set up in 1880 by a Paris-based bank, merged to form Bank Austria. In 1997 Bank
Austria acquired the Republic of Austria’s shares of Creditanstalt (CA) and in 2002 Bank Austria
Creditanstalt (BA-CA) was formed. In 2000 another merger took place with the German Bayerische
Hypo-Vereinsbank AG (HVB), which was seen as a move into new markets, but in fact was not very
successful as the German bank was in deep trouble. But BA-CA could concentrate on expansion in
the East and build a strong market position there. Eventually it became a target for further takeover
plans of predators who wanted to strengthen their position in the Central, Eastern and South-Eastern
areas. So in 2005 the Italian UniCredit group merged with HVB and by that got access to BA-CA’s
extensive business operations in the East.
The first attempts to establish itself in the East reach back to the year 1975 when the CA opened the
first representative office of a Western bank in Budapest under the communist regime, followed by
further representative offices in Prague and Moscow in 1987. In 1988 the Länderbank followed suit
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and opened a representative office in East Berlin in the former German Democratic Republic. So BA-
CA was the first bank in the region, long before the coming down of the Iron Curtain, starting business
activities in the former COMECON countries. But especially since the political and economic changes
in 1989 the bank has pursued a strong expansion strategy in this region. In a market that is
increasingly embattled by many strong competitors the early commitment has paid off for BA-CA, now
the largest Austrian player in the region.
The bank reached this strong market position in Central, Eastern and South-Eastern Europe through a
continuous and persistent strategy of establishing first representative offices, then branches or
subsidiaries in the region and also acquiring stakes in local banks. Already in 1989, the CA founded
together with three Soviet and four Western banks the International Moscow Bank and a year later the
Länderbank opened a representative office in Moscow as well. The CA and the Zentralsparkasse
moved quickly into Slovenia and Hungary. Already in 1991, the Creditanstalt founded subsidiaries in
Prague and Warsaw, the first foreign bank in Poland, and the Länderbank started up a subsidiary in
Ljubljana, the first foreign bank in former Yugoslavia. In 1992 the CA acquired a majority share in the
Slovenian bank Nova Banka. The bank also moved quickly into Slovenia, Slovakia, the Czech
Republic, Poland and Hungary, establishing an extensive leasing business there. In 1997 they saw
new opportunities in more troubled and less economically advanced areas and founded subsidiaries in
Croatia, Romania and Ukraine, Bank Austria Croatia, Bank Austria Creditanstalt Romania S.A. and
Bank Creditanstalt Ukraine. After the merger with HVB the BA-CA could even strengthen its position in
Central and Eastern Europe by taking over the HVB’s business units in Poland, the Czech Republic,
Hungary, Slovakia, Bulgaria and Croatia and by that it became the leading banking network in the
region. Further expansion in former Yugoslavia, Poland and Bulgaria followed.
The BA-CA became the first foreign company whose shares are listed on the Warsaw Stock
Exchange: in 2003 22.5 per cent of the BA-CA shares were listed on the Vienna Stock Exchange and
on the Warsaw Stock Exchange. The net proceeds of the IPO formed a basis for further expansion in
Central and Eastern Europe. In 2004 and 2005 further banking subsidiaries were formed in Poland,
Bank BPH, Bosnia-Herzegovina, HVB Central Profit Banka, and local banks were acquired, such as
Hebros Bank in Bulgaria and in Serbia, Eksimbanka, and mergers were completed in Romania, HVB
Bank Romania with Banca Tiriac, and in Serbia, HVB Bank Serbia with Eksimbanka. In 2006 the
UniCredit group transferred its CEE banking shareholdings, including a bank each in Turkey, Croatia,
Bulgaria, Slovakia, Romania and the Czech Republic, to BA-CA including its Turkey business division,
but excluding Poland. As a consequence BA-CA had to sell its Polish subsidiary, Bank BPH, to
UniCredit.
In 2006 BA-CA together with UniCredit operated one of the largest international banking networks in
Central and Eastern Europe; the BA-CA was responsible for the markets in 24 countries in this region.
The BA-CA together with the UniCredit group maintained offices not only in the traditional and now
already developed transition countries like Hungary, Poland, the Czech Republic, Slovakia, etc. but
also in the Balkans, where development was stalled due to the Balkans wars of the 1990s, in Bosnia-
Working Paper Series No. 31 57
Herzegovina, Croatia, Serbia, Macedonia and in still much riskier regions like Russia, Ukraine, Turkey
and Azerbaijan. BA-CA together with UniCredit group ran in 2006 more than 2,900 offices in CEE
countries with more than 60,000 employees serving around 17 million customers.
14.2. Erste Bank
Abb. 6: Erste Bank in Central and Eastern Europe
Source: Erste Bank 2006
The second big Austrian player in Central, Eastern and South-Eastern Europe, Erste Bank,
maintained a network of 2,700 branches with a customer base of 15.2 million in the region in 2006; a
market position just slightly below that of the BA-CA. The countries covered were the Czech Republic,
Slovakia, Hungary, Croatia, Serbia, Romania and the Ukraine.
Erste Bank moved into the region much later than BA-CA. The bank itself was founded in 1819 in the
economically difficult years after the Napoleonic wars along German and English models as “Union
der Ersten österreichischen Spar-Casse”. It merged in 1997 with GiroCredit and also in 1997 the first
acquisition in the CEE area took place: Erste Bank acquired a majority in the 10th largest Hungarian
bank, Mezöbank. A large step forward on the way to a stronger market position in Central and Eastern
Europe was the acquisition of a majority share in the largest bank of the Czech Republic, measured by
its number of branches, customers and investment capacity, Ceska sporitelna, in 2000. A co-operation
between Erste Bank and Steiermärkische Bank resulted in a merger of three Croatian banks in 2000.
58 University of Applied Sciences bfi Vienna
The new bank was branded “Erste & Steiermärkische Banka d.d.” and each of the two Austrian banks
held 40 per cent of the shares. This constituted another important move forward in the Erste Bank’s
ambitions in the East. After the decision of the Slovak government to sell its 87 per cent share in the
Slovenska sporitelna, the largest Slovak bank, Erste Bank bought this majority share holding in 2001
and became a leading financial services provider in this region. Already a year later Erste Bank moved
into Croatia and acquired 85 per cent of Rijecka banka d.d. This fifth-largest Croatian bank operated
75 branches, mostly on the northern coastline of Croatia. To boost consolidation, the two Croatian
subsidiaries, Erste & Steiermärkische Banka and Rijeka banka were merged in 2003, creating the
third-largest banking group in Croatia with a business concentration in the regions of Istria, Zagreb
and Rijeka. In 2003 Erste Bank strengthened its foothold in Hungary by acquiring Hungary’s
Postabank és Takarékpénztár Rt., which was merged with Erste Bank Hungary a year later. The
newly merged bank was Hungary’s second-largest retail bank and a market leader in investment
banking and leasing. Erste Bank Hungary had been established in 1997 and together with Postabank.
It operated nearly 200 branches serving 900,000 customers, but the strength of its branch network
was reinforced by the Postabank’s strategic partnership with the Hungarian postal service, whose
3,200 post offices amplified the bank’s distribution capacity. In 2005 Slovenska sporitelna became a
wholly-owned subsidiary of Erste Bank and in the same year Erste Bank won the bid for the
privatisation of the Serbian bank, Nrovosadska banka. Only half a year later the bank won another bid
for privatisation, this time in Romania, for 62 per cent of the shares in Banca Comerciala Romana S.A.
(BCR), Romania’s largest bank. The sale marked the completion of a two-stage privatisation process,
in which originally nine European banks competed. So in 2006 Erste Bank launched a capital increase
to finance the acquisition of BCR and to strengthen its capital base. In 2006 the bank penetrated a
new market by acquiring 50.5 per cent of the Ukrainian bank Bank Prestige, a new bank that was
founded in 2005 by a group of Ukrainian entrepreneurs.
Erste Bank concentrates on the retail market and on small and medium-sized enterprises. The product
focus is retail banking, real estate finance, large scale private client banking and services for small and
medium-sized businesses. But it is also moving into higher margin commission-based business,
including asset management, insurance and leasing. Its strategy of expansion to the East is mainly
based on acquisitions, partly via privatisation processes in the region. Their goal is to become a
distribution partner for the insurance industry and international fund managers in the CEE countries
and to further expand their business in an “extended home market” in Central Europe and to maintain
their position as a leading financial retail institution in this market.
Working Paper Series No. 31 59
14.3. Raiffeisen International
Abb. 7: RZB in Central and Eastern Europe Source: RZB 2006
Raiffeisen as such developed from the “Raiffeisen agricultural cooperatives” of the 1880s. Raiffeisen
International Bank-Holding AG (RI) was established in 1991. It is the majority shareholder of banks in
15 markets and acts as a holding company within the Raiffeisen Zentralbank (RZB) group for its
network banks and leasing companies operating in Central and Eastern Europe. RI operates a
network of banks and leasing units in 16 CEE markets. In 2006 RI employed 50,000 people and
served around 11 million customers via 2,700 business outlets. So the size of the branch network was
about the same as that of Erste Bank, but the customer base was a little smaller as, due to its
historical “Raiffeisen cooperative” philosophy, it is also entering smaller, riskier and less developed
markets on a cooperative basis.
The expansion of the banking and leasing network in Central, Eastern and South-Eastern Europe was
founded on a “greenfield strategy” of organic growth from the beginning, combined with strategic
acquisitions later. The bank started early in getting a foothold in the East, but later than the banks
merging into BA-CA: in 1986 Raiffeisen Bank Rt. Hungary was founded, which constituted the first
step of RZB group into the Eastern European market. It continued to expand its retail and corporate
divisions in Hungary and launched in 2004 a branch network expansion, bringing the total number of
outlets to 71.
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Subsequently RZB penetrated the growth markets of the region, but also expanded its local presence
in the areas where it had established subsidiaries. In 1991 it moved into the Polish and Slovakian
markets by establishing subsidiaries there. In Poland RZB started with a joint venture with Centro
Internationale Handelsbank AG and since 2004 Raiffeisen Bank Polska S.A. has been a wholly-owned
subsidiary of RZB. It serves small and medium-sized businesses, the Polish middle class and offers
trade finance transactions. The Tatra banka a.s. was the first privately owned bank in Slovakia,
founded by RZB in 1990, with a strong branch network across the country and was Slovakia’s third
largest bank. In 1993 Raiffeisenbank a.s. was founded in the Czech Republic, the sixth largest bank in
the country by total assets. In the following year subsidiaries were established in Bulgaria and Croatia.
Again RZB acted as a pioneer: Raiffeisenbank Bulgaria EAD was the first wholly owned subsidiary of
a western bank which started operations in Bulgaria. Since its foundation EAD has assisted in
financing the Bulgarian economy via big companies and small and medium-sized enterprises. It
operates 52 branches and has reached the second position as an investment intermediary operating
tender offers on the local stock exchange. Raiffeisen Bank Austria d.d. in Croatia has aimed at
attracting corporate deposits, but has offered a broad range of banking products to international as
well as local companies and private customers since 1994.
Already in 1997 RZB moved into Russia and founded ZAO Raiffeisenbank Austria. After the serious
financial crisis in 1998 RZB started operating again as one of the first Western banks and increased its
subsidiary’s equity. In 2004 it expanded its outlets in Moscow and St. Petersburg. The financial crisis
in Russia did not deter RZB and it continued its expansion in 1998 in Romania and Ukraine. In 1998
The RZB group established a subsidiary in Romania and in 2001 it acquired Banca Agricola from the
Romanian state. Both banks were merged in 2002 to form Raiffeisenbank S.A. Romania, the third
largest bank in the country. It focuses on house building and land purchasing loans as well as on
investments in infrastructure. In the Ukraine RZB had already set up a representative office in 1994
and in 1998 it established a wholly-owned subsidiary JSCB Raiffeisenbank Ukraine. It serves
Ukrainian exporters and is among the biggest foreign-owned banks there.
In 2000 RZB started with a new expansion strategy, namely growth via acquisitions. In quick
succession it acquired banks in Bosnia and Herzegovina, Romania, Slovenia, Kosovo, Belarus and
Albania, but also set up a subsidiary in Serbia and Montenegro in 2001, the first bank established with
100 per cent foreign capital in the country. It is a universal bank, offering the full range of banking
products to all types of customers. It was for instance the first local bank to offer long-term housing
loans. RZB moved into the fast growing Albanian market in 2004 by acquiring the Savings Bank of
Albania, Banka e Kursimeve, renaming it Raiffeisen Bank Sh.a. Albania. There it ran the largest
branch network with a market share of 48 per cent of the banking sector’s assets in 2004. Other high-
risk markets in the Balkans that were penetrated by RZB were Bosnia Herzegovina in 2000 and the
Kosovo in 2002. In 2003 RZB acquired Priorbank JSC in Belarus, another risky growth market, and in
2006 the Russian Impexbank and the Czech eBanka were bought.
Working Paper Series No. 31 61
The RZB group views Central and Eastern Europe as its home market and has tried to enter new
markets early, ahead of competition and consequently to expand locally, building on local know-how
and expertise. Until the acquisition of Market banka in Bosnia Herzegovina in 2000, regional
expansion was pursued organically by founding banks. The advantage of establishing operations from
scratch was that a modern infrastructure and products could be implemented from the beginning with
service-oriented staff, hired and trained, meeting the needs of the new bank. The new banks relied on
local staff and also local board members. The decision to move into acquisitions was prompted by the
wish to accelerate growth. Compatibility with the existing network and a friendly environment for the
new shareholders were the most important criteria for the decisions to purchase. RI’s Network Banks
started with corporate banking in order to service the companies addressing Central and Eastern
European markets as an investment target. But the Network Banks did not only serve international
corporations, but also focused on the local business community. Since 1999 the retail business for
private customers and small and medium-sized enterprises has been in operation.
As can be seen from the brief survey of the development of the three leading Austrian banks in
Central, Eastern and South-Eastern Europe, the three banks applied different strategies and different
timings in penetrating the transformation economies after 1989, but they were all undeniably
successful. BA-CA, respectively the banks that were joined in the merged BA-CA, started long before
the coming down of the Iron Curtain with representative offices and joint ventures and acquired local
banks or shares in local banks in grand style and on a big scale in the whole region, also moving
further east and south earlier than others. They enlarged their sphere of influence further through - for
the BA-CA not necessarily always very beneficial – mergers/takeovers by first a big German and then
a big Italian bank. Both foreign owners left the profitable CEE business more or less in the hands of
the BA-CA as they relied on its expertise to boost the overall profit of the group. Erste Bank entered
the CEE market late, but successfully acquired strategic banks in established growth areas and won
important bids for privatisation. They are not that widespread geographically in the region, but where
they are positioned, they are a big player. Finally, RZB started early, as BA-CA did, yet counted on
organic growth, setting up its own subsidiaries from the outset and expanding from there. Only at the
turn of the century RZB started to acquire banks in strategic markets to boost expansion. They moved
early into high-risk, less developed markets before the competition had arrived.
15. Intercultural Relationships and Communication in Central, Eastern & South-Eastern Europe
The final question to be asked is whether the historical and cultural entity of the Austro-Hungarian
Empire in the Danube basin and special cultural relationships of the past in any way promoted the
expansion of the small - compared to other Western European or American financial institutions –
Austrian banks in Central, Eastern and South Eastern Europe and helped the Austrians to establish
their prominent position in the region today.
62 University of Applied Sciences bfi Vienna
15.1. “K.u.k. Post-Colonial Relationships”? 15
When speaking of the former Habsburg Empire, what is interesting is not “nostalgia”, but the
controversy of cultural forces, the mixture of language, culture, politics and economics, the secret
ranking between the different “peoples” or nationalities of the former empire and the many images of
“the self” and “the others” in this cultural area, the dynamics of particularism and universalism. Ethnic
identity was not based on a clearly defined master-servant / oppressor - oppressed relationship, but
many-layered. The Czechs were not just the manual workers of the German-speaking Austrians, on
the contrary, the most important industry of the empire was situated in Bohemia. In the same way the
Slovaks were not just the unskilled workers for the Hungarians. All these ethnic identities were further
characterised by social hierarchies and class differences, so there was no clear-cut relationship
between oppressors and oppressed, between exploitation and cultural self-assertion. In this tangle of
cultures and relationships, it was important who spoke first, in which language, who sat where, who
represented whom and where and how and on which rung of the secret cultural ranking ladder he or
she was positioned.
Generally, it is astonishing how easily and without any hesitation or shame people claim a position of
pre-eminence over other groups. There is interdependence between power and dominance on the one
hand, and the world of symbolic actions and forms on the other. Political, legal and cultural inequality
in Central Europe was mainly based on the inequality of industrial and technological development, the
west-east gradient mentioned in earlier chapters, the degree of “civilisation”, the difference between
Western Christianity, Protestantism and Catholicism, and Orthodoxy and the difference between
German-speaking and non-German speaking, respectively Hungarian-speaking or non-Hungarian
speaking residents of the empire. This cultural asymmetry was accepted by all peoples of the empire
and was further emphasised by the notion of “progress”: “the others have not experienced progress as
we have” – a concept that is still wide-spread in today’s economies in Central and Eastern Europe.
The “undeveloped” nations are like children, uncivilised, who have to be tamed and educated. Cultural
asymmetry – perversely - thrives on the fact that it is accepted by both sides, albeit with different
accentuation. Not just in the Habsburg Empire, sometimes even today, the move from east to west is
perceived as a process of assimilation to a “higher culture” and the move from the west to the east, a
move rarely taken, offers the chance to be part of a privileged minority. In today’s simple terms: the
workers are moving west, the managers moving east.
In a multicultural region like the Austro-Hungarian Monarchy, the living together of many different
ethnic groups in a restricted area automatically created a secret cultural ranking, a symbolic table of
more or less advanced or civilised ethnic groups. It is astonishing how persistent these rankings are in
the countries that were part of the former Habsburg Empire. How the average Austrian, Hungarian,
Czech or Slovak citizen labels his or her neighbours, is astonishingly consistent with the stereotypes
of the past, with the empire’s pecking order. There is a cultural consensus on cultural asymmetry,
superiority on the one side and claims for emancipation on the other side. For instance, seen from one
point of view, the Austro-Hungarian Monarchy brought the railways, infrastructure, universities and
Working Paper Series No. 31 63
libraries to Bosnia-Herzegovina, viewed from the other perspective, the empire hindered self-
government in the region, emancipation and cultural equality of the Slavs. So cultural asymmetry was
the characteristic of the Habsburg Empire and not the kitschy image of multiculturalism with all the
peoples of the empire assembled around the throne of the emperor Franz Joseph I.
Another example of cultural ranking that has survived the Habsburg Empire is the concept of the
“Balkans”. Although the region can be geographically defined, culturally it is without borders. It is still a
frontier of civilisation, which is defined in different ways by Central European nations, by the Germans,
the Austrians, the Slovenes, the Croats and the Serbs: “There – on the Balkans, civilisation, the rule of
the law ends, underdevelopment becomes visible” – no nation wants to live there. Culturally, there is
no Balkan, nobody wants to live there, everyone is proud NOT to live on the Balkan - it is the others
who do live there. This complicated image of “the self” and “the other” in this region makes the
Austrians the perceived experts for the Balkans region in Europe because Western Europeans believe
that the Austrians see through this maze. This is evident not only in the business world, but also in EU
foreign policy and diplomatic missions. Some forms of tourism can be viewed as post-colonial
relationships, such as the Austrian who goes hunting for bears in Bosnian forests, a few hours south
of Vienna and enjoys his “position of superiority in the wilderness”. On the other hand from the point of
view of many Germans, the Austrian mentality already shows clear signs of “Balkanisation”.
The interesting aspect now is to understand whether these various intricate rankings, asymmetric
master-servant / oppressor-oppressed relationships of the Austro-Hungarian Monarchy still have a
bearing on present-day business in the region of the former empire. Several interviews with bankers,
managers, management consultants and a member of the European Parliament, all doing business in
Central, Eastern and South-Eastern Europe, were conducted in the course of the year 2006 to find out
about their experiences as Austrians dealing with business people in this region and their opinions
why Austrians seem to be exceptionally successful in doing business there.
15.2. Intercultural Business Communication in Central, Eastern & South-Eastern Europe: An Analysis of Austrian Executives’ Personal Impressions 16
Generally speaking the historical events of the past, the fierce nationality struggles within the Austro-
Hungarian Empire, the hate and the resentment that had built up in the last decades of the Habsburg
Monarchy, the final break-up and the following struggle for bits and pieces of the cake between the
various nationalities, the aspect of dominance and oppression from Vienna as seen from the point of
view of the Slavs, does not seem to linger in the minds of the people living in the region today. There
are no resentments to be felt towards Austrian business people. On the contrary, in the Balkan region,
Romania and Bulgaria today, the general attitude towards Austrians is very positive. This welcoming
attitude reaches far into Serbia that was famous for its hostility towards the Austrians in the beginning
of the 20th century. The countries ravaged by the Balkans wars of the 1990s hope and expect support
from Austrian diplomats and business people. They hope Austrians can pave their way to integration
64 University of Applied Sciences bfi Vienna
in the European Union. Interestingly enough, the hints to a common past, to positive developments
and relationships during the Habsburg Empire come from the Bosnians, the Croats, never from the
Austrians and the image of the shared past is a positive one. Today Austria is a small country that
does not wield any imperialist power; it is not seen as a threat to the small Balkans countries’
supremacy. There is no potential of political or economic menace, whatsoever. Many interviewees
have stressed this lack of menace as a reason for the good relationships to Austrians, as they are not
viewed as domineering and overbearing due to the small size of their country and the lack of
international political power. Austrians are seen to be more understanding, emotionally and culturally
closer to the people in South-Eastern Europe than other Western Europeans, they are perceived as a
link to Western Europe. Diplomatically Austrians are viewed as understanding mediators in the region,
who are accepted by all parties, contrary for instance to the French, who built on the traditionally close
ties to Serbia in the past and concentrated their efforts on the Serbs also during the Balkans wars and
by that alienated the other nationality groups in the region, such as the Albanians. Austria is seen as a
friendly nation by all parties concerning foreign policy as well as business relationships. They stress
the understanding of the Austrians for the nations of the Balkans and Danube region, which derives
from a common past. It is appreciated now that during the Austro-Hungarian Monarchy Vienna
granted a high degree of cultural and religious autonomy to the various and diverse regions of the
empire. The Bosnian Muslims were won over by making Islam an official religion in the empire and by
granting them special privileges, such as the possibility of fasting during Ramadan in the army, the
introduction of university training for female doctors for Muslim women. So in general it is felt that the
Austrians are culturally closer to the nations of the Balkans than for instance the Germans, who are
viewed as impolite, gruff and impatient, while the Austrians seem to have a better understanding of
social norms and behaviour in the region. The Austrians’ way of doing business seems to be
somehow closer to their ways. Maybe that’s why many Germans believe that the Balkans region
begins in Vienna.
There is a widespread belief in Germany now that the Austrians are better at dealing with Central,
Eastern and South-Eastern Europeans because they are all birds of a feather. Austrians are more
successful in doing business in the region because they have the same mentality, they are “lazy,
devious, not straight forward and not serious”, enjoy their food and drink and love celebrating. That’s
why in German companies the responsibility for CEE business is very often left to Austrians because
they are just more successful in this field, which also causes envy. Furthermore German managers
tend to hire Austrian management consultants to coach them when they have to deal with CEE
countries because they feel they can tell them the tricks of the trade better than German consultants.
The German conviction persists that Austrians do business in the same way as all other Central and
Eastern Europeans, they dine long, they drink a lot and they only start talking about business when
having dessert, not like the Germans who start talking business when having an aperitif. Austrians
rather accept and understand business done by handshake, which is still widespread in CEE countries
and very often more important and binding than what is written in contracts.
Working Paper Series No. 31 65
When a Europe-wide informal ranking of national preferences in the CEE region was made, the
astonishing outcome from the point of view of the Austrians was that they appreciated the Hungarians
most, then came the Slovenes and the Croats, while the Poles and Turks ranked at the bottom. The
greatest discrepancy could be seen with the Poles because the Poles themselves ranked the
Austrians high up on their scale of preferences. Here connections to the former Habsburg Empire
seem to be of importance again, as diplomatic and business relationships to the southern region of
Poland around Krakow, which was for some time part of the Habsburg Empire, are much better than
to the area around Warsaw. An indication of this aloof attitude between Austrians and Poles might be
the divestment of the Polish division of BA-CA and the transfer to UniCredit headquarters, mentioned
above.
The very amicable relationship between the Austrians and the Hungarians has its historical roots in
the establishment of the Dual Empire in 1867 and the de-facto handing over of the control of a large
part of the empire, Transleithania, to the Hungarians. A unique phenomenon underlines this special
relationship. No widely used derogatory term or abusive word exists for the other nation, neither in the
Austrian German nor in the Hungarian language or dialects. The intercultural relationship between
Hungarians and Austrians might we very warm and welcoming, but doing business in Hungary is very
tough for Austrians, too. Hungarians are very proud and well aware of their top position in the secret
ranking of the monarchy’s peoples. They have a negative track record of suppressing the other
nationalities in their sphere of influence in the empire and the resulting resentments, especially of the
Slovaks, are still widespread and not forgotten. That might also be the reason why Austrian business
relationships to Slovakia are excellent, frictionless and thriving, whereas Slovak relations to Hungary
are less amicable. The Hungarians must never get the impression that they might be dominated by the
Austrians. That’s why the Hungarian division of Siemens is the only CEE division that is not a part of
Siemens Austria, but a part of the Siemens group that reports directly to Germany. The Hungarians
are appreciated for their planning and their technological skill, but feared because of their bureaucratic
red tape. Their corporate structures are viewed as still very hierarchical with little room for individual
responsibility and initiative. This is even discernable in the use of language, where the impersonal
“one” is widely used to distance oneself and to avoid having to make a decision now and take on
responsibility. This attitude might be a remnant of the communist era rather than the imperial one, or
of either. The Hungarians are very good at politely postponing decisions and doing nothing to speed
up procedures when they are not happy with a deal – always polite, but elusive and resistant, which
can be terribly unnerving in business situations, even more for Germans than for Austrians. The
Germans try to break the Hungarian resolve by force with ready-made plans to be implemented on the
spot. When the German “Ruhrgas” took over a Hungarian company they opened an open-plan office
in Budapest with a dozen German managers to execute the integration of the Hungarian company.
The Austrians, on the other hand, rather listen to what the other party’s suggestions are first, then
sketch their own plans, adapt them and continue to negotiate and socialise until they finally seal a deal
that might be to the satisfaction of both parties, a classical win-win. This takes much more time, but
could be the more successful strategy in the long run in this region.
66 University of Applied Sciences bfi Vienna
So generally speaking, the proximity of the Austrian culture to the cultures of Central, Eastern and
South-Eastern Europe and the Austrian ways of doing business have a much stronger bearing on their
success as business people in the region than a common past. The Austrian business people
themselves prefer not to mention historical ties to the Habsburg Monarchy, they rather stick to the
present. Historical facts seem to play a more significant role for the peoples of the CEE countries than
for the Austrians. They are the ones to mention historical ties, not the Austrians. Fortunately national
politics does not seem to play a role in business negotiations and business relationships. Just to give
two examples: First, the Slovenians are very tolerant and discreet when the political strife over
bilingual village signs in Carinthia, where a Slovene minority has been living for centuries, is
mentioned and second, the good relationships to the Turkish finance sector have remained unharmed
by Austria’s lobbying against a Turkish accession to the EU. Business relationships there are
extremely professional und untouched by political strife. Financial institutions are viewed as
“apolitical”, much more than maybe in Austria itself. In CEE countries Austrian business people are
generally perceived as adaptable, flexible and understanding, and are appreciated in the region for
their uncomplicated and pragmatic approaches to business. As Austria is a small country, Austrian
companies are forced to seek out business opportunities elsewhere and penetrate new markets to
expand and boost growth. Austrians have to learn foreign languages, they adapt more easily to foreign
cultures and show more understanding and sensitiveness towards other cultures. These traits they
have in common with successful business people like the Dutch and the Scandinavians, who have
been just as successful in the transition countries after the end of the communist era.
For Austrian companies and financial institutions the 10 new EU members that joined the European
Union in 2004 are no longer the only interesting areas of expansion now, they are looking further east
and south-east. In the financial sector of the new accession countries local managers and local
businesses are taking over in their home markets. The transition from planned state economy to
capitalist free market economy has been achieved and Western rules of the game have been
accepted and put into place surprisingly quickly. The whole business climate has improved
significantly; corruption has been more or less eradicated. The CEE accession countries have made
good progress in boosting their position as a location for business and in positioning themselves in a
mid-field technology sector. Their level of prosperity has risen twice as fast as that of the EU 15. They
have also succeeded in completely reorienting their export flows: 60 per cent of their exports now go
to the EU 15. Furthermore the quality of their exports has improved markedly due to their well-qualified
work force. So the catching-up process has been quite astounding and a great deal has been
accomplished in the last years. That’s why the new growth markets for Austrian financial institutions
and companies are in the CIS countries, Russia, Ukraine, Belarus, Kazakhstan, Azerbaijan, and
South-Eastern Europe including Turkey. RZB has already made allowance for this trend by a new
labelling of their business clusters. Instead of CEEC they differentiate between Central Europe, South-
Eastern Europe and CIS countries.
Not only in Central, Eastern and South-Eastern Europe, but also in the CIS countries Austrians are
welcome, there are no prejudices against foreign or Austrian banks for instance. The Austrians tend to
Working Paper Series No. 31 67
move in early, but slowly and cautiously, not spectacularly, by starting with representative offices and
joint ventures. That’s why the Austrians are not perceived as arrogant, overbearing or domineering.
RZB for instance established itself in Albania and Kosovo, an area which American banks shun at the
moment due to a lack of immediate profit, because of their cooperative mission to help build up the
economy there. They also move into initially unprofitable areas and offer banking services and loans
to private people and small businesses, and they tend to employ local managers.
Austrian businesses generally rely on local expertise and local know-how in combination with the
international experience of the Austrian parent company or partner. It requires more time and patience
to involve local managers and take their opinions into account, but the strategy pays off because the
result is sustainable. Of course, there is sometimes less coordination and not everything is done
according to the rulebook, but the local managers now are usually young and well-trained with
experience in the West and good English language skills. Austrian companies do not appear at the
negotiation table with a ready-made concept, but they build up relationships slowly and take their time
to talk about concepts with the local managers, they mostly use English as a negotiations language,
so that no one is at a disadvantage – all speak a foreign language-, while many Germans still prefer to
negotiate in German with the help of an interpreter.
In some accession countries there are still a few older managers in place, who were trained during the
communist era, and they usually speak via an interpreter only and also adhere to a much more
hierarchical management style, but this management generation is being phased out. Especially in the
new growth areas, Austrian banks have to invest a lot into training and a change of attitude because
banks there do not function in the way they are expected to function in the West and the personnel is
much less customer-oriented, which causes intercultural misunderstandings. As the Austrians are
seen as experts in the region, several Western European companies use the special services of
Austrian financial institutions and consultancies to do business in Central, Eastern and South-Eastern
Europe. Austrians act as intermediaries, they prepare the ground there and link the Western
businesses up with their counterparts in the East. The Austrians seem to be predestined for this
intermediary role, as they are accepted and liked in the region and know about the sensitivities,
minority problems and hostilities between different national groups in the countries. They know when
to be careful and to tread softly, which is definitely not a strength of German business people. And the
secret ranking among the peoples of the Austro-Hungarian Empire does still exist to some extent; the
hostilities between Slovenes and Croats, between Croats and Serbs, between Czechs and Slovaks,
between Slovaks and Hungarians, between Poles and Ukrainians – and the Austrians know about all
these cultural potholes one can stumble in, but many other Western European business people do
not.
When assessing the success of Austrian financial institutions in Central, Eastern and South-Eastern
Europe, one aspect should not be neglected, namely that of speed. The Austrians were there even
before the coming down of the Iron Curtain and that might be related to a historical, not just a
geographical proximity. They did not hesitate to enter a market that was a home market more or less
68 University of Applied Sciences bfi Vienna
until the Second World War, and there were family relationships and friendships. The Austrians were
not only interested, but also curious about the business opportunities in an area that was well-known
until the middle of the 20th century and then completely shut off by the Iron Curtain. That historical and
family connections do play a role becomes clear when we look at the prominent role that for instance
Israeli real estate investors and developers play in the region. Israel is a small country and the
business sector is also not significant, but their proportion in the field of real estate is rather high and
usually connected to historical family relationships. The Germans, on the contrary, realised the
potential of the market too late due to the German unification process, and then they tried to penetrate
the market with aggressive pricing strategies and ready-made concepts and rigid structural plans. The
Germans’ attitude is: “We go there, and then we do business there the way we do business at home.”
The Austrians start doing business in a less ostentatious way and afterwards say “We are here now.”
16. Conclusion
Concluding one can say that relationships from the time of the Austro-Hungarian Monarchy do play a
role in the success story of Austrian companies and financial institutions, but more on a cultural than
on a historical level, except that some imperial nostalgia on the side of the CEE business partners
sometimes significantly lowers the threshold. After half a century of communist rule the old national
resentments seem to have more or less disappeared, although they sometimes crop up again when
Austrians buy up all the nice places on the Croatian Adriatic coastline and drive up the prices. But all
in all, what these transition countries wanted was fast economic growth and sustainable development
and that is what the Austrian businesses offered when they moved in first. And on top of that,
intercultural communication with Austrians runs smoothly, is uncomplicated; Austrians form part of the
transition countries’ culture of communicating and doing business. The Austrians know how to listen,
they take the opinions of local experts into account, they sit down to lunch, they negotiate, they talk
again, they don’t rush and they view their counter part as an equal partner – and all that is appreciated
in CEE countries. Of course there are still difficulties and stumbling blocks hindering intercultural
communication, for instance the ambivalent attitude to hierarchies, especially in traditional
bureaucracies, the lack of initiative and responsibility and the reluctance to speak up and voice
criticism, but the more young managers, who were trained in the West, take over, the sooner these
deficiencies will disappear.
Working Paper Series No. 31 69
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1 Financial Times, special issue: Austria, 25 October 2004 Die Zeit, issue 27 July 2006 2 Judt, Tony, A Grand Illusion? An Essay on Europe, Penguin 1996 3 Good, David F., Economic Transformation in Central Europe. The View from History, Centre for Austrian Studies 1997 4 Cameron, Rondo, A Concise Economic History of the World, OUP 1997, 258-261 Okey, Robin, The Habsburg Monarchy 1765-1918, Palgrave 2002, 228-268 5 Köver, Gyöegy, The Austro-Hungarian Banking System, in: Cameron, Rondo / Bovykin, V.I. (eds.), International Banking 1870-1914, OUP 1991, 322-344 Teichova, Alice, Banking and Industry in Central-East Europe, in: Rathkolb, Oliver / Venus, Theodor / Zimmerl, Ulrike (eds.), Bank Austria Creditanstalt. 150 Jahre österreichische Bankengeschichte im Zentrum Europas, Zsolnay 2005,148-161 Frank, Alison, Oil Empire. Visions of Prosperity in Austrian Galicia. Harvard University Press 2005 6 Teichova, Alice, Banking and Industry in Central-East Europe, in: Rathkolb, Oliver / Venus, Theodor / Zimmerl, Ulrike (eds.), Bank Austria Creditanstalt. 150 Jahre österreichische Bankengeschichte im Zentrum Europas, Zsolnay 2005,148-161 Wahl, Niko, Die Könige der Inflation, in: Riedl, Joachim (ed.),Wien Stadt der Juden, Zsolnay 2004, 238-240 7 Schubert, Aurel, The Creditanstalt Crisis of 1931, CUP 1991 8 Berend, Ivan T.,Banking and the Hungarian Economy in the 20th Century, in: Rathkolb, Oliver / Venus, Theodor / Zimmerl, Ulrike (eds.), Bank Austria Creditanstalt. 150 Jahre österreichische Bankengeschichte im Zentrum Europas, Zsolnay 2005, 212-225 Aleksic, Vesna, The History of the Allgemeiner Jugoslawischer Bankverein AG in Belgrade in the Context of Yugoslav Banking History after 1918, in: Rathkolb, Oliver / Venus, Theodor / Zimmerl, Ulrike (eds.), Bank Austria Creditanstalt. 150 Jahre österreichische Bankengeschichte im Zentrum Europas, Zsolnay 2005, 226-238 Lacina, Vlastislav, Tschechische Banken und ihre Verbindungen zum österreichsichen Bankwesen bis 1945, in: Rathkolb, Oliver / Venus, Theodor / Zimmerl, Ulrike (eds.), Bank Austria Creditanstalt. 150 Jahre österreichische Bankengeschichte im Zentrum Europas, Zsolnay 2005, 239-252 Kalinski, Janusz, Austrian Banks in Poland up to 1948, in: Rathkolb, Oliver / Venus, Theodor / Zimmerl, Ulrike (eds.), Bank Austria Creditanstalt. 150 Jahre österreichische Bankengeschichte im Zentrum Europas, Zsolnay 2005, 253-267 9 Feldman, Gerald D.,The Role of the Creditanstalt-Bankverein in the Expansion of Greater Germany, 1938-1945, in: Rathkolb, Oliver / Venus, Theodor / Zimmerl, Ulrike (eds.), Bank Austria Creditanstalt. 150 Jahre österreichische Bankengeschichte im Zentrum Europas, Zsolnay 2005, 317-334 10 Diwok, Fritz, The Austrian Banking System, CA-BV 1982 Kus, Franz, The Growth, Development and Structure of the Austrian Banking System since World War II, Diplomarbeit WU 1995
72 University of Applied Sciences bfi Vienna
11 The Economist, A Survey of International Banking, issue 20 May 2006 The Economist, issue 15 April 2006 12 Landesmann, Michael A., Globalisation today and 100 years ago: European Banks and the Transformation of Central and Eastern Europe, in: Rathkolb, Oliver / Venus, Theodor / Zimmerl, Ulrike (eds.), Bank Austria Creditanstalt. 150 Jahre österreichische Bankengeschichte im Zentrum Europas, Zsolnay 2005, 456-481 13 Eigner, Peter, Ein Schritt nach vorne, zwei Schritte zurück – Die wechselhafte Geschichte des Finanzplatzes Wien im 20. Jahrhundert, in: Rathkolb, Oliver / Venus, Theodor / Zimmerl, Ulrike (eds.), Bank Austria Creditanstalt. 150 Jahre österreichische Bankengeschichte im Zentrum Europas, Zsolnay 2005, 482-501 14 100 Jahre Sparkassenverband Österreich, Österreichischer Sparkassenverband 2005 Raiffeisen International in CEE, RZB 2005 Presentation of RZB Group, RZB 2005 Der Bankenmarkt in Zentral-und Osteuropa, BACA 2004 Bank Exklusiv, BACA, Jahrgänge 2005 & 2006 www.ri.co.at www.ba-ca.com www.erstebank.com 15 Müller-Funk, Wofgang, Kakanien revisited, in: Müller-Funk, Wolfgang / Plener, Peter / Ruthner, Clemens, Kakanien revisited. Das Eigene und das Fremde (in) der österreichisch-ungarischen Monarchie, A. Francke Verlag Tübingen und Basel 2002, 14-32 16 Based on interviews with: Mag. Brigitte Ederer, CEO of Siemens Austria (25 March 2006) Dr. Johannes Swoboda, Member of the European Parliament, responsible for the Balkans region (25 March 2006) Dipl.-Ing. Wolfgang Regele MBA, corporate finance consulting/ Regele Consulting (31 March 2006) Christian Theuer, Vice President of RZB (24 April 2006) Mag. Christian Schitton, Head of CEE Real Estate Finance BA-CA (24 April 2006) Mag. Leopold Reymaier, CEE Real Estate Finance BA-CA (24 April 2006) Mag. Stefan Marker, CEE Real Estate Finance BA-CA (24 April 2006) Dr. Birgit Mathiaschitz, Head of Multinational Groups RZB (4 May 2006)
Working Papers und Studien der Fachhochschule des bfi Wien 2006 erschienene Titel Working Paper Series No 22 Thomas Wala: Steueroptimale Rechtsform. Didactic Series. Wien Mai 2006 Working Paper Series No 23 Thomas Wala: Planung und Budgetierung. Entwicklungsstand und Perspektiven. Didactic Series. Wien Mai 2006 Working Paper Series No 24 Thomas Wala: Verrechnungspreisproblematik in dezentralisierten Unternehmen. Didactic Series. Wien Mai 2006 Working Paper Series No 25 Felix Butschek: The Role of Women in Industrialization. Wien Mai 2006 Working Paper Series No 26 Thomas Wala: Anmerkungen zum Fachhochschul-Ranking der Zeitschrift INDUSTRIEMAGAZIN. Wien Mai 2006 Working Paper Series No 27 Thomas Wala / Nina Miklavc: Betreuung von Diplomarbeiten an Fachhochschulen. Didactic Series. Wien Juni 2006 Working Paper Series No 28 Grigori Feiguine: Auswirkungen der Globalisierung auf die Entwicklungsperspektiven der russischen Volkswirtschaft. Wien Juni 2006 Working Paper Series No 29 Barbara Cucka: Maßnahmen zur Ratingverbesserung. Empfehlungen von Wirtschaftstreuhändern. Eine ländervergleichende Untersuchung der Fachhochschule des bfi Wien GmbH in Kooperation mit der Fachhochschule beider Basel Nordwestschweiz. Wien Juli 2006 Working Paper Series No 30 Evamaria Schlattau: Wissensbilanzierung an Hochschulen. Ein Instrument des Hochschulmanagements. Wien Oktober 2006 Studien Breinbauer, Andreas / Bech, Gabriele: „Gender Mainstreaming“. Chancen und Perspektiven für die Logistik- und Transportbranche in Österreich und insbesondere in Wien. Study. Vienna March 2006 Johannes Jäger: Kreditvergabe, Bepreisung und neue Geschäftsfelder der österreichischen Banken vor dem Hintergrund von Basel II. Vienna April 2006 Breinbauer, Andreas / Paul, Michael: Marktstudie Ukraine. Zusammenfassung von Forschungsergebnissen sowie Empfehlungen für einen Markteintritt. Study. Vienna July 2006 Breinbauer, Andreas / Kotratschek, Katharina: Markt-, Produkt- und KundInnenanforderungen an Transportlösungen. Abschlussbericht. Ableitung eines Empfehlungskataloges für den Wiener Hafen hinsichtlich der Wahrnehmung des Binnenschiffverkehrs auf der Donau und Definition der Widerstandsfunktion, inklusive Prognosemodellierung bezugnehmend auf die verladende Wirtschaft mit dem Schwerpunkt des Einzugsgebietes des Wiener Hafens. Wien August 2006
2005 erschienene Titel Working Paper Series No. 10 Thomas Wala: Aktuelle Entwicklungen im Fachhochschul-Sektor und die sich ergebenden Herausforderungen für berufsbegleitende Studiengänge. Wien Jänner 2005. Working Paper Series No. 11 Martin Schürz: Monetary Policy’s New Trade-Offs? Wien Jänner 2005. Working Paper Series No. 12 Christian Mandl: 10 Jahre Österreich in der EU. Auswirkungen auf die österreichische Wirtschaft. Wien Februar 2005. Working Paper Series No. 13 Walter Wosner: Corporate Governance im Kontext investorenorientierter Unternehmensbewertung. Mit Beleuchtung Prime Market der Wiener Börse. Wien März 2005. Working Paper Series No. 14 Stephanie Messner: Die Ratingmodelle österreichischer Banken. Eine empirische Untersuchung im Studiengang Bank- und Finanzwirtschaft der Fachhochschule des bfi Wien. Wien April 2005. Working Paper Series No. 15 Christian Cech / Michael Jeckle: Aggregation von Kredit und Marktrisiko. Wien Mai 2005. Working Paper Series No. 16 Thomas Benesch / Ivancsich, Franz: Aktives versus passives Portfoliomanagement. Wien Juni 2005. Working Paper Series No. 17 Franz Krump: Ökonomische Abschreibung als Ansatz zur Preisrechtfertigung in regulierten Märkten. Wien August 2005 Working Paper Series No. 18 Homlong, Nathalie / Springer, Elisabeth: Thermentourismus in der Ziel 1-Region Burgenland und in Westungarn als Mittel für nachhaltige Regionalentwicklung? Wien September 2005. Working Paper Series No. 19 Wala, Thomas / Messner, Stephanie: Die Berücksichtigung von Ungewissheit und Risiko in der Investitionsrechnung. Wien November 2005. Working Paper Series No. 20 Bösch, Daniel / Kobe, Carmen: Structuring the uses of Innovation Performance Measurement Systems. Wien November 2005. Working Paper Series No. 21 Lechner, Julia / Wala, Thomas: Wohnraumförderung und Wohnraumversorgung in Wien. Wien Dezember 2005. Studien Johannes Jäger : Basel II: Perspectives of Austrian Banks and medium sized enterprises. Study. Vienna March 2005. Stephanie Messner / Dora Hunziker: Ratingmodelle österreichischer und schweizerischer Banken. Eine ländervergleichende empirische Untersuchung in Kooperation der Fachhochschule des bfi Wien mit der Fachhochschule beider Basel. Study. Vienna June 2005. Jeckle, Michael / Haas, Patrick / Palmosi, Christian: Regional Banking Study. Ertragskraft-Untersuchungen 2005. Study. Vienna November 2005.
2004 erschienene Titel Working Paper Series No. 1 Christian Cech: Die IRB-Formel zur Berechnung der Mindesteigenmittel für Kreditrisiko. Laut Drittem Konsultationspapier und laut „Jänner-Formel“ des Baseler Ausschusses. Wien März 2004. Working Paper Series No. 2 Johannes Jäger: Finanzsystemstabilität und Basel II - Generelle Perspektiven. Wien März 2004. Working Paper Series No. 3 Robert Schwarz: Kreditrisikomodelle mit Kalibrierung der Input-Parameter. Wien Juni 2004. Working Paper Series No. 4 Markus Marterbauer: Wohin und zurück? Die Steuerreform 2005 und ihre Kritik. Wien Juli 2004. Working Paper Series No. 5 Thomas Wala / Leonhard Knoll / Stephanie Messner / Stefan Szauer: Europäischer Steuerwettbewerb, Basel II und IAS/IFRS. Wien August 2004. Working Paper Series No. 6 Thomas Wala / Leonhard Knoll / Stephanie Messner: Temporäre Stilllegungsentscheidung mittels stufenweiser Grenzkostenrechnung. Wien Oktober 2004. Working Paper Series No. 7 Johannes Jäger / Rainer Tomassovits: Wirtschaftliche Entwicklung, Steuerwettbewerb und politics of scale. Wien Oktober 2004. Working Paper Series No. 8 Thomas Wala / Leonhard Knoll: Finanzanalyse - empirische Befunde als Brennglas oder Zerrspiegel für das Bild eines Berufstandes? Wien Oktober 2004. Working Paper Series No. 9 Josef Mugler / Clemens Fath: Added Values durch Business Angels. Wien November 2004. Studien Andreas Breinbauer / Rudolf Andexlinger (Hg.): Logistik und Transportwirtschaft in Rumänien. Marktstudie durchgeführt von StudentInnen des ersten Jahrgangs des FH-Studiengangs „Logistik und Transportmanagement“ in Kooperation mit Schenker & Co AG. Wien Frühjahr 2004. Christian Cech / Michael Jeckle: Integrierte Risikomessung für den österreichischen Bankensektor aus Analystenperspektive. Studie in Kooperation mit Walter Schwaiger (TU Wien). Wien November 2004. Robert Schwarz / Michael Jeckle: Gemeinsame Ausfallswahrscheinlichkeiten von österreichischen Klein- und Mittelunternehmen. Studie in Kooperation mit dem „Österreichischen Kreditschutzverband von 1870“. Wien November 2004.
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