Austria backs towards closer Europe in debt crisis

VIENNA Tue Jun 26, 2012 1:55am EDT

VIENNA (Reuters) - Under fire from right-wing nationalists for helping out euro zone laggards, Austrian Finance Minister Maria Fekter stood before parliament this month to say why Europeans had to stick together.

"Europe is our guarantor of peace. Europe is our greater homeland and our common destiny. We don't want to have nationalism get out of hand. We had this once before and we know we have to avoid this," she said, in a reference to the rise of Austria's far-right before its annexation by Nazi Germany.

"Thus it is about creating this Europe together. And now we have a lot to create."

You don't often hear politicians in Europe talk in those terms nowadays because peace is taken for granted on this comfortably-off continent a lifetime after World War Two.

Public opinion at the "Stammtisch", the regulars' table in every Austrian pub, is driven more by economic anxiety and fear of losing national or regional identity.

As leaders of the 17-nation euro zone grope for closer integration to shore up the single currency and fend off Eurosceptics, Austria's grand coalition may offer a model.

How to achieve to a unified, prosperous and financially sound Europe is a challenge for a governing alliance of centre-left Social Democrats and the conservative People's Party that spans Europe's broad left-right and north-south divides.

Leaders of both mainstream parties have found compromises that focus first on getting countries' finances in order while seeking ways to promote economic growth and jobs.

They lend broad support to the idea of fiscal and banking union but are short on details of what the new European order should look like, suggesting a convention should consider amending the EU treaties. They are now ready to consider changes sweeping enough to require a rare Austrian referendum.

With elections due next year, they face catcalls from a resurgent Eurosceptical far right, led by Heinz-Christian Strache's Austria-first Freedom Party, which opposes bailouts of weaklings like Greece and wants to break up the euro zone.

"There has been a lot of learning," one government official acknowledged. "Things we loudly didn't accept a couple of months ago seem less objectionable now in view of the alternatives.

"Take for example euro bonds or any kind of debt sharing at European level - something to which we always said 'no way, over our dead body'. We continue to say this is not our first option but in the long run this is something we would look at."

That meant Austria was using a "backwards kind of decision making", he said, adapting its positions where needed to ensure the euro's survival and strengthen European integration.

The brassy Fekter, whose unvarnished language outshines that of conservative leader Michael Spindelegger and has irked many euro zone colleagues, says Europe needs fiscal union as members grow closer together by exercising iron budget discipline.

With powerful neighbor Germany, she shares a vision of corralling spendthrift countries in a tight European corset that would leave upright members like Austria alone. "I don't want to pay for my neighbors' loans," she has declared.

Spindelegger, who is vice-chancellor and foreign minister, said ordinary Austrians were worried about the future of the euro and saw a need for tougher enforcement of EU budget rules with sanctions to preserve the currency.

"It has percolated down to a low level - to the Stammtisch - that things cannot go on functioning this way in a currency union. Everyone feels this," he told a small group of reporters.

"Lots of people in Austria are worried: what will happen with my money? Is it safe? Do I have to worry? Should I have real estate or gold? Should I hide money under the bed? We are having this discussion here as well."

ROSES AT MIDNIGHT

Chancellor Werner Faymann, inspired by fellow Social Democrat Francois Hollande's ascent in France, is flying the pro-growth banner more boldly while stressing there is no way around belt-tightening to ensure Vienna controls its own fate.

He supports the idea of joint euro zone borrowing once conditions permit, but baulks at letting Brussels set binding rules on social policies like the retirement age.

It took Faymann a while, but he has come around to describing himself as an ardent European in a neutral country with a stubborn minority that is wary of foreign entanglements.

A Karmasin poll for Profil magazine this month showed just over a third of respondents thought adopting the euro was a mistake, while 57 percent were glad they had the currency.

Fifty-eight percent said the EU should do more to promote growth, double those who said austerity alone sufficed.

Yet the public appetite for more solidarity seems limited.

"I find it hard to imagine that Austrian savers want be liable for deposits in Greece," Raiffeisen Zentralbank boss Walter Rothensteiner told reporters when asked about prospects for a banking union in Europe.

The Austrian National Bank has run newspaper ads praising the euro as "a stable currency in difficult times", noting since its introduction exports' share of economic output has risen by half to nearly 60 percent, securing half a million jobs.

But letters that readers send to Krone, Austria's most read daily, routinely rant against support for euro zone stragglers.

"How long are our elected politicians going to send our money to Greece and also maybe Spain?" asked Alfred Schreiner of Graz. "Do our politicians really believe we will get back one cent, or do they want to make us go bust? It won't be long."

Wolfgang Schuessel, conservative chancellor from 2000 to 2007, said the mood had changed from the heady midnight in 2002 when he and European Commission President Romano Prodi became the first to get brand new euro notes from a bank machine in Vienna and used the money to buy roses for their wives.

Leaders should not kowtow to the far right but instead forge ahead with their vision of a united Europe, he said.

"In politics it is important to give people the feeling that you stand for something. Perhaps not everyone loves it but it is respected," Schuessel, who was shunned for months as the first leader to form a coalition with the Freedom Party, told Reuters.

"My impression is that the governing parties stand for Europe and there is no reason to worry."

EUROPEAN AUSTRIANS

Despite grumbling from some Social Democrats, the government has launched spending curbs and tax hikes aiming to balance the budget by 2016. Still, Austrians have yet to really feel the impact of the debt crisis that has gripped much of the bloc.

The economy grew 3 percent last year and is still expanding, unemployment at just 3.9 percent in April was the lowest in the EU, and Austria was able to sell a 10-year bond this month at the lowest yield since it began keeping records in 1949.

That tends to reduce Austrians' sense of urgency about the need for dramatic action. "They are good Europeans by nature as long as they are convinced it is also especially good for them as Austrians," former Chancellor Franz Vranitzky, an architect of Austria's EU entry in 1995, told Reuters.

The Social Democrat chancellor from 1986 to 1997 said governments in Austria and elsewhere had done too little to defend the European project, leaving the field open for anti-Europe politicians like Strache or Marine Le Pen in France.

Leaders needed the courage to state that relinquishing sovereignty to Europe involves not a loss, but a gain, he said, adding that Austria's leaders were starting to get this across, countering the perception that Germany was calling the shots.

Despite the far right's strong poll showing, Guenter Geyer, former chief executive of Vienna Insurance Group, played down any concern that Austria could waver in its European fervor.

"If the government is able to better present the positive side - this is certainly a pre-condition - it will be able to find very clear approval to continue on this path. I am convinced of this," he said.

"Of course you have to understand people's fears, but be able to defuse them with factual arguments."

(Editing by Paul Taylor)

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