Austria tightens its belt to meet EMU deadline

Date: 04/07/1996

By Thomas Klau

THE Austrian government has reaffirmed its decision to make participation in monetary union in 1999 its absolute financial and economic priority.

The convergence programme to be presented at next week's meeting of EU finance ministers underlines its determination to bring the country's finances in line with the Maastricht criteria in time for the deadline.

The programme, which has already been submitted to the European Commission and the monetary committee, is expected to be approved by finance ministers at their meeting on Monday (8 July).

The document spells out a series of draconian measures to bring Austria's high public deficit of nearly 6&percent; of GDP in 1995 down to the Maastricht target of 3&percent; by the end of next year.

In a deficit-cutting pact concluded in February, regional states and the communes pledged to support the effort and limit their own debt to 0.3&percent; of GDP, leaving the government with the arduous task of bringing the financing gap in the federal budget down to 2.7&percent;.

Confirming decisions taken within the framework of the new government's coalition accord in February, Finance Minister Viktor Klima will tell his Union colleagues that the government plans to achieve two-thirds of the deficit-slashing exercise through wide-ranging spending cuts, with the remaining third to be implemented through raising consumption and capital gains taxes, and ending a number of tax exemptions.

Conscious of the danger of sending the economy into a recession with such drastic austerity measures, the government also plans a number of measures to boost investment, growth and payrolls. But “the financial leeway is very limited”, acknowledged one official.

Reflecting the latest forecasts, the finance ministry has based its deficit forecast on the assumption of a GDP growth of 1&percent;.

Officials point out that the ambitious convergence programme highlights Vienna's determination to make participation in monetary union in 1999 its key priority.

However, one delicate EMU-related issue which Vienna still has to tackle is its volume of public debt, which exceeds the Maastricht target of 60&percent; by more than ten percentage points and which will grow between now and 1998 unless counter-measures are adopted.

While no target figure has yet been established, the government plans to reduce its debt-load by privatising some of its many industrial and service-industry holdings.

Meanwhile, Austria's new Finance Minister Johann Farnleitner has pledged to put deregulation of the country's tightly controlled economy at the top of his agenda, together with making preparations for the EU's enlargement to Central and Eastern Europe.