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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

4 University of Applied Sciences bfi Vienna


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


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


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


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


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


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


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


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.


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


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.


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.


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.


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


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


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


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.


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.


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


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.


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


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


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.


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.


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


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


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


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


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


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


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


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


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


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


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


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.


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


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


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


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


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


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.


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


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.


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


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


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.


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


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


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.


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


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-


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.


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.


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.


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.


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.


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


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


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.


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.


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


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


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.


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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


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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