Home > Free Essays > Economics > Macroeconomics > Austrian Economics and European Union Membership

Austrian Economics and European Union Membership Research Paper

Exclusively available on IvyPanda Available only on IvyPanda
Updated: Jun 24th, 2020


Indicators of socio-economic and political success in a country include an annual GDP growth, capitalism, and improving living conditions. Austria is a small country with a population of close to 8.6 million, which is one of the smallest populations in the world. Some cities in China have the same or even larger populations in comparison to Austria. The country shares good foreign relations with other states bordering it like Czech Republic, Germany, Slovakia, and Hungary. Situated in the Middle of Europe, the landlocked country acquires economic stability from a steady GDP growth of between 1.7% and 5% annually (Dolan 198). In 1995, the country became a member state of the European Union, a peace charter that seeks to maintain stability within countries by ensuring that the nations remain economically and politically stable. According to the EU, conflicts emerge because resources are naturally scarce in the society. Through good leadership and establishment of excellent structures to manage the available resources, countries are capable of exploring different frontiers of economic growth. Austria began developing its economy since inception in the 19th century following the conclusion of the WWII. Ever since Austria joined the EU 19 years ago, its economic growth has been tremendous, but this did not come without a fair share of challenges (Neal 317).


Background of economic stability

Countries measured economic power before and after the two great world wars through the military and economic stabilities in the respective countries. After becoming a federal state in 1804, Austria participated in the Napoleonic wars making it one of the greatest states of the period. Known as Austria-Hungary, it defeated Prussia, which later assumed control over the Germans. During the formation of the German Empire in the late 18th century, Austria-Hungary could not form part of the Great German Army because Austria predisposed Germany to Austro-Prussian defeat. The level of animosity led to the WWI, leading to the creation of a sovereign state of Austria in 1919 (Karner 103). Any country that adhered to the principles of the Treaty of Saint-Germain-en-Laye became a member state of Germany. Markedly, Austria avoided the move ardently, making it gain independence in the same year. The independence provided Austria with the capability of managing its resources without external interference from Germany, Prussia, or Hungary.

After WWII, Austria did not have to spend many financial resources on reparations as Germany did following its extensive involvement in the war. The level of destruction that Germany caused many countries led to the reparations it paid to France and Belgium among other European states. For instance, the Treaty of Versailles ensured that Germany paid reparations to France while ensuring that the Nazi victims got the requisite justice. By 1945, Austria strived at ensuring economic stability with a small population whose growth was steady (Cihak and Fonteyne 3). The US and Austria took similar measures in dealing with war and economic restoration. Both countries maintained neutrality to any war later, and both of them struggled to rebuild their economies through unions. The US joined the UN peace building charter because without peace the country could not achieve its economic end. On the other hand, Austria joined the EU to achieve a similar purpose.

Austria today is a country with federal states, and it adopts democratic principles of governance in which the rule of the majority applies. Accountability and openness in resource management make Austria an affluent state. Vienna its Capital City holds a population of about 1.69 million people with a relatively high-income level. By 2012, the country had an approximated GDP of about $46,341 (Cihak and Fonteyne 13). Austria joined the EU 40 years after joining the United Nations. When people talk about OECD countries, they only discuss the states that are at relatively high propensity for economic growth. Such states that initially had flourishing economies, but failed to maintain the same are struggling to regain economic strength. Some of the countries were originally poor, but they indicate a high human development index. Austria established the OECD states in an attempt to help other countries experience economic growth through their individual efforts without expecting foreign aid (Neal 325). Ukraine is a beneficiary of the project since its economic growth is currently steady. Austria believes that for economic growth to occur, countries should invest in democratic practices of governance. In addition, peace should prevail to avoid constant distractions, such as spending resources on conflict management.

Austria’s economy today

When Germany stopped associating with Austria, the country began showing interest in economic growth by avoiding war that would create distractions. In the 1960s, the country experienced tremendous economic growth after avoiding war, and involving in peace building efforts under the UN. By 1995, the country’s GDP grew by 1.7%, but then it experienced a slight reduction in 1997 as indicated in the graphical representation (Neal 328). Today, the country’s economy keeps improving, but its soaring relations with the EU in the recent past caused a major economical slow down.

(Neck 223)
(Neck 223)

In Europe, Austria performs exceptionally well, but the problem arises with its landlocked nature. The challenge makes it difficult for other countries to access Australia, thus affecting its foreign relations. The European Union enables easy trade; membership to the union gives credibility to the different members while providing an excellent opportunity for foreign relations. Its landlocked nature gives Austria access to individual markets within the EU, but it denies the country access to other nations across the world. Austria also joined EMU (Economic and Monetary Union), which is a subsidiary of the EU that promotes economic growth between countries of Europe and other foreign states (Neck 225). Joining the EU enabled Austria to participate in free trade activities in order to promote its economic growth.

Further, the EU gives some level of economic independence to member states. For a prolonged period, Austria lacked a unit currency that would differentiate it from Hungary, Germany, and other European states. One year after joining the EU, and after the end of Bretton Woods’ era, the country launched its Euro currency in an attempt to display autonomy from the rest of Europe, especially Germany (Neal 317). Economic statisticians always mention that the economic strength of a state lie in the power of the currency in comparison to the standard mode of foreign exchange in the world. In order to measure this, countries should display an extensive use and circulation of coins because it means that even the minutest mode of exchange is very significant for economic stability. Austria introduced coins as modes of resource exchange in the same year it launched the Euro currency.

Vienna stands out as one of the cities in which people have a relatively high living standard in the world. The evidence lies in the number of tourists who visit the city annually, buildings in the country, income levels, and the GDP of the city in comparison to the rest of the country. Most people compare the living standards in Vienna to that of the UK. For example, tourists flock the city during festive seasons to enjoy recreational facilities, the city’s art, and the traditional infrastructure (Neck 218).

Other cities like Innsbruck, Salzburg, and Linz among others also attract a similar level of attention even though the rest of the world is yet to take interest in them. Besides association with the EU, Austria also gets economic stability from a youthful population, and small population of children and the aged. Besides, the country has a small immigration index, meaning that it generates resources internally and provides jobs to the population within the country instead of outsourcing. However, statistics indicate that countries have many things to gain from immigrants. Good immigration policies create excellent foreign and investor relations. Immigrants in Austria do not exceed 1.6 million, implying that it means that the country lacks diversity in human resource management, which remains very critical for economic growth (Kates 321).

The costs and benefits of EU membership to Austria

Economic growth through free trade

The best thing that can happen to any country is its ability to grow the economy while being in control of its population. Austria is in the list of world’s most affluent states, taking position 4. Its membership in the EU provides the country with an opportunity to invest through capitalization. When Austria became a sovereign state, most of the companies and industries became communal. Communist countries do not have open economies, meaning that the furthest they can invest is the regional level. Initially, Austria traded with its neighbors such as Hungary and Germany. Following its involvement with the EU, Austria has met other countries that strive to improve their economies through privatization and promotion of capitalism (Parker and Saal 111).

Austria supports labor unions that fight for the rights of workers while ensuring that employers adhere to the set ethical and legal policies. EU supports capitalism because the principles of capitalism are likely to support economic growth in comparison to communism in which resources belong to the public, but under constant government controls (Reifner and Schroder 139). Currently, capitalism assists Austria in procurement, human resource management, and marketing within and outside Europe. The EU has a global outreach and Austria can trade with all member-states depending on the interest that the involved countries have during the trading process. Collaborations between states do not only help in propelling national GDP growth, but also create a sustainable economic environment for different countries.

Foreign and investor relations

Countries always have foreign policies that govern how they relate globally. Without involvement with any global institution, it becomes difficult to come up with a foreign policy, which supports excellent foreign relations. In 1919, Germany refused to associate with Austria in any way because the country made Germany vulnerable to the Prussian attack and defeat. Operating alone in the competitive environment was not easy. Switzerland shares a similar account following its prolonged efforts to withdraw from the EU. According to the Swiss government, imports and exports belonging to the EU member states would cause pollution to the country. Besides degrading the environment, Switzerland would later lose investors to countries whose natural environment are very clean. The inability to belong to a particular union within Europe and the rest of the world made it difficult for Austria to come up with a foreign policy on investor relations.

Today, the country still seeks to come up with a good immigration policy because of prolonged distance it maintained from countries that initially embraced the culture. Though countries enjoy the sovereignty of not belonging to a union, they lose a lot in terms of fiscal growth and foreign relations. After actively participating in EU and EFTA activities, Austria gained economic stability, thus reducing its dependence on Germany. The principles of resource management learnt through membership at the EU were very important for Austria’s economic stability. By 2006, the GDP growth of Austria reached 3.33% because the country learnt good ways of dealing with investors through development of good foreign relation policies. By 2004, the country had a GDP of about €28,000. The immigration policy will help Austria in achieving diversity in human resource management if well executed (Reifner and Schroder 141).

EU’s role in supporting agriculture and labor unionism in Austria

The indicators of monetary success in different countries differ depending on the priorities such countries have in relation to the measured variables. The EU uses economic stability, the ability to sustain the natural resources industry, healthcare, clean water, and political stability among other themes when coming up with the GDP index. Statistically, Austria prefers investing in its agricultural sector in preference to tourism. However, tourism is a major income earner for the country as many tourists take interest in infrastructural development and convectional architectural display in Vienna among other cities. After the Soviet Union lost its superpower status, most countries like Ukraine and Switzerland withdrew from the USSR membership.

In order to protect its resources from USSR ‘sacquisition after WWII, Austria nationalized the buildings, and parks among other things. The USSR reparations affected member states because Russia had to adhere to the principles of the Versailles Treaty. With the collapse of the USSR, the US became the only superpower, making Switzerland desire to relate only with the US instead of other European states (Perquel 103). Austria also had to find means of sustaining its economy without depending on Germany or Russia. The transition affected Austria’s banking industry, formal sector, and infrastructural development. EU opened up the economy to assist the Austrians in embracing the significance of labor unions in propelling growth in capitalist economies.

The number of people that belonged to labor unions in the country rivaled the population in Vienna because they were about 1.5 million by 2006. The number keeps increasing with the Austrian expansion of the economy. The OGB (Austrian Trade Union Federation) is 49 years old, and the membership keeps increasing. The national government recognizes and appreciates the OGB and its activities. Since its launch, Austria has been able to address labor conflicts through industrial courts in order to avoid strikes and lockouts that always slow economic progress. The union also acts as an oversight for the government besides other civil societies that intend to promote economic growth in the country without discrimination. Democratic countries support the development of labor unions (Karner 103). This explains why the EU remains very significant to Austria while it does not regret leaving the USSR.

The EU supports Austria’s efforts towards food security by promoting its agricultural sector even though it remains the most costly economic venture the country seeks to support. According to the EU, some economies are naturally difficult to sustain without agriculture. When the Schilling reduced in value, the Deutsche Mark became a good mode of monetary exchange in the 1950s. Austria gained the prominence because Germany mostly depended on technology for economic stability while Austria took an interest in agriculture. The Common Agricultural Policy of the EU recognizes agriculture as an important revenue earner for the member states. Besides feeding the country, export of exotic foods to other countries earns foreign exchange to Austria, which contributes towards the GDP. Luxemburg, Netherlands, Hungary, and Ireland among other countries in the EU deal in industrial production, meaning that when Austria trades in agriculture it will acquire a competitive advantage in the region (Neal 319).

Dealing with recession

The Eurozone has the intention of dealing with inflation before it has become a global problem. Bound by the policies of the socio-economic environment, the countries have to ensure that citizens of respective countries do not lose jobs in case of economic recession. Through the European Union, Austria has become an economic link between Europe and East Asia. Other conservative economies around the Eurozone avoid trading with China, Singapore, and Malaysia even though the countries are excellent for generating income from tourism. Austria collects 19.7% of its total revenue from tourism annually. Learning from the East complements the traditional concept of tourism adopted by the country; it helps the country deal with financial insecurities like recession in future. A global financial recession of 2009 to 2011 affected many economies including the Eurozone countries. The EU provides many options to help countries deal with recession, which includes investment in natural resources.

Austria acquires technological expertise and oil from East Asia and the Middle East respectively. As such, tourism and agriculture remain very significant for economic development even in case of recession. Thirteen years ago, Austria took the tenth position among tourist destinations in the world with the highest tourist turnover. Inflation is a global problem, but countries can manage the crisis by investing in in resources that assisted Austria in achieving financial freedom in the first place. For instance, Austria had its natural tourist destination sites and architectural sites since its inception. The originality of the artifacts and the aesthetics of the buildings attract many tourists to Vienna and other parts of Austria.

Through the EU, Austria gets tourists from different parts of the world. The EU couples up as a marketing agency following the global population it commands, and any country that dissociates from such a recognized body loses its popularity. Tourism is an income earner in Austria, and it explains why the country protected the sites to avoid reparations after the collapse of the Soviet Union. It means that tourism is a major source of income and economic stability in the country. Ignoring its proceeds might possibly lead to the fiscal collapse of Austria (Kates 315). For instance, Nigeria and some countries ignored industries such as farming and tourism after discovering oil, and this led to additional conflicts resulting from the inability to share the new resources democratically. The same could happen to Austria if it embraces chemical and industrial production while ignoring its primary source of income.

Financial crisis

GDP reduction

The IMF and EU provides financial assistance to member states, and any time the bodies experience fiscal crises, the member states always face a similar calamity. In late 2008, the Austrian GDP hit an all-time low of 0.6% four years after the recession. For the first time in history, the economy of the country could not sustain high rates of unemployment, labor force management, and the living standards of the populations. Austria had a difficult time in exporting its agricultural products; this includes the ability to sustain the tourism industry in 2012. The financial tribulations of Austria began in 2010 when the country experienced a reduction in GDP from 3.8% to 2% in one year (Neal 323). The entire euro zone experienced the adverse effects of the recession as cases of unemployment increased in Germany and Hungary. GDP fell during the global financial crisis because most banks could not sustain the growing rates of borrowing. Additionally, the country experienced a problem with the central bank’s inability to manage resources for its subsidiaries in the country.

The exchange rate worldwide and within the euro zone increased because the EU and other unions are in control of the socio-economic procedures. Among the member states of EU, Austria did not experience a national debt even though the country demanded the reform of the tax policy. The intention was to reduce the taxation rate from 4.6% to 0.5% in the four years. The EU played a role in the process because it controls the business environment of the euro zone and the member states. In 2009, Austria began nationalizing its industries as it did in the 19th century when reparation of Soviet Union member states began. The strategy contradicted EU’s ways of managing economics because the union supports capitalism. Political and economic issues within Europe and the West affected the economics of Austria following the country’s involvement with the EU.


Other countries within the euro zone experienced the worst effects of the 2008 to 2011 recession, but Austria was capable of managing its labor sector enabling the country to reduce the rates of unemployment. The EU failed to provide a clear platform for immigration to Austria. It experienced underemployment instead of unemployment during this period since most Austrians preferred self-employment in order to sustain the rapidly changing economic conditions. In an attempt to reduce the shift from the formal to the private sector, employers had to reduce the employees’ working hours (Parker and Saal 112). It helped the society by increasing interest in the formal work sector, which was very significant for increasing the rate of employment in the country. With continued interests in central and Western Europe, the debt crisis within the euro zone would automatically have a similar effect on Austria.

Instead of saving resources for economic development, EU member states, regulated by the IMF had to settle the national debt that Cyprus owed the International Reserve. The debt crisis was not the only problem because it became difficult for the Euro zone to handle human resource (Lin et al.13). East Asia had a difficult time in stabilizing the real estate sector, and the prices of commodities and prices hiked too. In most cases, Austria faced rivalry from Switzerland whose GDP in 2004 was US$ 251.9 million in comparison to Austria’s US $ 255.9 million. Geographically, Austria is almost twice the size of Switzerland even though Austria’s population only has an excess of about 1 million citizens in comparison to Switzerland. It cannot compare with the population of Netherlands that doubles the Austrian population with a geographic size almost equivalent to Switzerland. It means that Austria was at a good position of handling economic crises because it has sufficient space and a population, which is easy to control (Neal 326).

Conclusion and Recommendations

Netherlands has a huge population, which mostly consists of the immigrant population. Immigration helps many countries when they experience fiscal crises because the outsourced human resources provide new techniques of managing the business environment. Austria also displays limited use of alternative energy sources in various industries, which promote environmental safety within the euro zone, which remains a concern for most member states (Carden 219).

In review, all countries would like to enjoy the economic success that Austria has since its inception. When the whole world faced a financial crisis, the population had assurances for employment, and the government worried that it could lose human resources to self-employment. Austria enjoyed laxity because of economic stability from 1919 to 2008 in which it experienced a steady GDP growth. Countries compare resources and stability using different parameters, but Austria enjoys an all-round approach to resource ownership. However, it should review its foreign policy in order to reduce overdependence on the EU given that when such unions fail, the member states face a similar fate. Switzerland could not succeed alone even after threatening to leave the EU and Netherlands has a huge population whose suffering affects the rest of the euro zone. Collective approach to an issue in a union means that organizations have to share losses and gains, and this explains why Austria experienced a GDP drop in 2009 following the global fiscal crisis in 2008.

Work Cited

Carden, Art. “What Should Austrian Economists Do? On Dolan on the Austrian Paradigm in Environmental Economics.” Quarterly Journal of Austrian Economics 17.2 (2014): 218-223. Print.

Cihak, Martin, and Wim Fonteyne. Five Years After. Washington: International Monetary Fund, 2009. Print.

Dolan, Edwin. “The Austrian Paradigm in Environmental Economics: Theory and Practice.” Quarterly Journal of Austrian Economics 17.2 (2014): 197-217. Business Source Complete. Web.

Karner, Christian. Negotiating National Identities: Between Globalization, the Past, and ‘the Other’. Farnham, Surrey, U.K: Ashgate, 2011. Print.

Kates, Steven. “Why Keynesian Concepts Cannot Be Used To Explain Pre-Keynesian Economic Thought: A Reader’s Guide To Classical Economic Theory.” Quarterly Journal of Austrian Economics 17.3 (2014): 313-326. Business Source Complete. Web.

Lin, Carol Yeh-Yun, Leif Edvinsson, Jeffrey Chen, and Tord Beding. National Intellectual Capital and the Financial Crisis in Austria, Belgium, the Netherlands, and Switzerland. London: Springer, 2013. Print.

Neal, Larry. The Economics of Europe and the European Union. Cambridge: Cambridge University Press, 2007. Print.

Neck, Reinhard. “On Austrian Economics and the Economics of Carl Menger.” Atlantic Economic Journal 42.3 (2014): 217-227. Business Source Complete. Web.

Parker, David, and David Saal. International Handbook on Privatization. Cheltenham, U.K: Edward Elgar, Pub, 2003. Print.

Perquel, Francois-Eric. Financial Markets of Eastern Europe and the Former Soviet Union. London: Routledge, 1998. Print.

Reifner, Udo, and Michael Schroder. Usury Laws: A Legal and Economic Evaluation of Interest Rate Restrictions in the European Union. Norderstedt: Books on Demand, 2012. Print.

This research paper on Austrian Economics and European Union Membership was written and submitted by your fellow student. You are free to use it for research and reference purposes in order to write your own paper; however, you must cite it accordingly.
Removal Request
If you are the copyright owner of this paper and no longer wish to have your work published on IvyPanda.
Request the removal

Need a custom Research Paper sample written from scratch by
professional specifically for you?

Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar

certified writers online

Cite This paper

Select a referencing style:


IvyPanda. (2020, June 24). Austrian Economics and European Union Membership. Retrieved from https://ivypanda.com/essays/austrian-economics-and-european-union-membership/

Work Cited

"Austrian Economics and European Union Membership." IvyPanda, 24 June 2020, ivypanda.com/essays/austrian-economics-and-european-union-membership/.

1. IvyPanda. "Austrian Economics and European Union Membership." June 24, 2020. https://ivypanda.com/essays/austrian-economics-and-european-union-membership/.


IvyPanda. "Austrian Economics and European Union Membership." June 24, 2020. https://ivypanda.com/essays/austrian-economics-and-european-union-membership/.


IvyPanda. 2020. "Austrian Economics and European Union Membership." June 24, 2020. https://ivypanda.com/essays/austrian-economics-and-european-union-membership/.


IvyPanda. (2020) 'Austrian Economics and European Union Membership'. 24 June.

More related papers
Psst... Stuck with your
assignment? 😱
Psst... Stuck with your assignment? 😱
Do you need an essay to be done?
What type of assignment 📝 do you need?
How many pages (words) do you need? Let's see if we can help you!