FINANCE AND ECONOMY IN CEE – Page 3 – Central European Economic and Social History

AUSTRIAN FINANCIAL INSTITUTIONS IN CEE DURING THE INTERWAR YEARS

07/02/2017Susanne WurmFINANCE AND ECONOMY IN CEE, THE DANUBE REGION: ECONOMIC AND SOCIAL DEVELOPMENTSCamillo Castiglioni, First World War, Franc Speculation, Hugo Stinnes, Schoeller-Bleckmann, Siegmund Bosel, Silesia, Trieste, Vienna Stock exchange

Österreichische Postsparkasse, Vienna, founded 1883 “k.k. Österreichisches Postsparkassenamt”, architect: Otto Wagner (built 1904-1912)

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 did the currency situation stabilise 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.…

INDUSTRIAL FINANCE

07/02/2017Susanne WurmFINANCE AND ECONOMY IN CEE, THE DANUBE REGION: ECONOMIC AND SOCIAL DEVELOPMENTSagriculture, Balkans, Deutsche Bank, First World War, Galicia, railways, Romanian petroleum, Siemens-Schuckert, Wiener Bankverein

Former Austrian Lloyd building (on the right in front), shipping company founded 1833 in Trieste by seven insurance companies, among them “Assicurazioni Generali”, Austrian Generali insurance, founded by Joseph Morpurgo 1831 in Trieste (on the left in the back). Piazza Unità d’Italia, Trieste (Italy)

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.…

INTERNATIONAL INVESTMENT

07/02/2017Susanne WurmFINANCE AND ECONOMY IN CEE, THE DANUBE REGION: ECONOMIC AND SOCIAL DEVELOPMENTSAustrian Kontrollbank, Austro-Hungarian Empire, Balkans, Credit-Anstalt, Länderbank, Rothschild, Wiener Bankverein

Palais Ephrussi, family of Austrian bankers (Vienna – the bank opposite the Palais was destroyed in the 2^nd World war), architect Theophil Hansen

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 20^th century.…

INTERNATIONAL FINANCIAL RELATIONS OF THE HABSBURG EMPIRE

07/02/2017Susanne WurmFINANCE AND ECONOMY IN CEE, THE DANUBE REGION: ECONOMIC AND SOCIAL DEVELOPMENTSAnglo-Austrian Bank, Austro-Hungarian, Balkans, Boden-Credit-Anstalt, Credit-Anstalt, Franco-Österreichische Bank, Gründerzeit, Rothschild, Turkish Empire

Former Länderbank (Vienna), founded 1880, architect Otto Wagner (built 1882-1884)

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.…

TYPES OF BANKS IN THE HABSBURG EMPIRE

06/02/2017Susanne WurmFINANCE AND ECONOMY IN CEE, THE DANUBE REGION: ECONOMIC AND SOCIAL DEVELOPMENTSAustrian National Bank, Austro-Hungarian, bank of issue, Boden-Credit-Anstalt, credit cooperative, Erste Österreichische Sparcasse, Gründerzeit, mobilier banks, Rothschild, Second Gründerzeit, Vienna Stock exchange

Former Österreichische Creditanstalt building (today the Park Hyatt Vienna hotel), founded 1855 “k.k.privilegierte Österreichische Credit-Anstalt für Handel und Gewerbe”, architect Franz Fröhlich (built 1858-60)

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 19^th 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.…

FINANCE AND INDUSTRIAL INVESTMENT IN THE HABSBURG EMPIRE

06/02/2017Susanne WurmFINANCE AND ECONOMY IN CEE, THE DANUBE REGION: ECONOMIC AND SOCIAL DEVELOPMENTSAustro-Hungarian, big crash 1873, Bohemia, charcoal, Emil Skoda, Gründerzeit, Hungary Budapest, Kontollbank, Niederösterreichische Escompte-Gesellschaft, Prague Iron Company, railways, Rothschild, Zsigmond Kornfeld

Sparkasse Karlsbad, Bohemia

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 the 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.…

ECONOMIC DEVELOPMENT IN CENTRAL EUROPE

06/02/2017Susanne WurmFINANCE AND ECONOMY IN CEE, THE DANUBE REGION: ECONOMIC AND SOCIAL DEVELOPMENTSEast Bloc, Habsburg, miracle years, Russian Empire, Soviet Union, World War II

Prague, Train Station

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 19^th century and its successor, the Soviet Union, in the 20^th 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.…

INDUSTRIALISATION IN THE HABSBURG EMPIRE

06/02/2017Susanne WurmFINANCE AND ECONOMY IN CEE, THE DANUBE REGION: ECONOMIC AND SOCIAL DEVELOPMENTSagricultural products, Austro-Hungarian Empire, charcoal, Cisleithania, Czech lands, Hungary, iron, locomotives, machinery, milling centre, railways, serfdom, Silesia, Transleithania, Zollverein

Budapest, one of the iron bridges

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 19^th 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 18^th 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.…

Central European Economic and Social History

Glimpses of Life in Central Europe Past and Present

Category: FINANCE AND ECONOMY IN CEE