The transformation of Mitteleuropa

In the decade following the fall of the Wall, Vienna went from Cold War staging post to modern European capital and change swept the entire region.

Couples waltz during the 1994 Vienna Opera Ball
Couples waltz during the 1994 Vienna Opera Ball, an annual event held at the Vienna State Opera in Vienna, Austria. Credit: Reuter Raymond/Sygma via Getty Images

The 1990s was a fast-moving decade for central Europe. After decades of frontiers being seemingly frozen in aspic, the map of Mitteleuropa showed it could tolerate further modification. Two countries created by the victorious allies at the Treaty of Versailles in 1919 disintegrated. One, Czechoslovakia, peacefully; the other, Yugoslavia, bloodily, amid the worst violence seen on the European mainland since the Second World War. At the same time, the withdrawal of Russian power from Moscow’s defensive ‘glacis’ in the region left a vacuum which not even prosperous Germany, preoccupied with the effort and expense of digesting former communist East Germany, could do much to fill.

For Austria, the ‘Elysium’ of the region in the words of chancellor Bruno Kreisky in 1970, these dramatic political developments did much to restore the country’s capital, Vienna, to its pre-1918 geographical pre-eminence.

By the mid-1990s, it was already vividly clear that the opening of long sealed frontiers would transform sleepy Vienna into the area’s commercial centre. Austrian banks (especially Credit-Anstalt) began to dominate the region. The first Saturday of Advent (an initially experimental day of full Saturday opening hours for Viennese shops) saw tens of thousands of Slovenes, Croats, Slovaks, Czechs and Hungarians suddenly descend on Vienna, causing chaotic jams, a traffic police emergency and a veritable storming of department stores along the Mariahilfestrasse by consumer hordes long starved of the West’s bright lights.

Even before the Schengen agreement was signed in 1995, minimal frontier formalities allowed the successor states of the Habsburg monarchy considerable travel freedom. Plans for motorways across territory in eastern Europe, previously given over to Warsaw Pact training facilities, aimed to halve travel times to and from Vienna. New rail routes were drawn up which would bring cities isolated by many hours if not days of travel – one thinks of Vienna to Cracow or Vienna to Warsaw in the 1980s – back to manageable access. In this ‘Neue Mitte,’ Vienna’s population, in decline since the collapse of the Habsburg monarchy in 1918, began to show a significant uptick. Reconnected with its hinterland, the city’s wealth grew.

Vienna began to attract immigrants from beyond her immediate neighbours. At one end of this immigration spectrum were Turks and refugees from the Balkan wars. At the other end were Russian oligarchs who combined a practical appreciation of Austria’s ‘light touch’ security apparatus with a sentimental affection for a city whose traditions offered the chance to bring Act II of Die Fledermaus to life. One did not need to be Der Champagner Fürst, Prince Orlovsky, to be able give decadent parties on the fringes of the Vienna woods. The Russians had money to burn and as the 90s progressed they began buying up real estate in the fashionable suburbs of Sievering. Eventually even Vladimir Putin would ‘own’ property in Austria, although he preferred the Salzkammergut for his escapes. As a neutral state during the Cold War, Austria had been one of the few countries a Soviet spymaster could visit with little fear of attracting western intelligence agencies’ attention. As his well-publicised waltz with Austrian foreign minister Karin Kneissl quaintly reminded us in 2018, Austria was always a place where Putin mixed business with pleasure.

Russia, (along with Britain, France, and America) is, by the terms of the Austrian State Treaty signed in 1955, one of the four guarantor powers of Austria’s neutrality, sovereignty and independence. The ‘liberators of Vienna’, erected as a tribute to Soviet arms during the Cold war, was unveiled in 1945. A vast complex of Stalinist design disfiguring the baroque Schwarzenberg palace behind it, it remained a much-despised reminder of the Red Army’s ongoing proximity to Vienna. With the Soviet empire prostrate in the early 90s, there were many who demanded the monument be removed. This would have been a provocative move but one Moscow could have done little to oppose. Fortunately, wiser counsels prevailed and the Viennese authorities decided not only to preserve the monument but gild it with much gold-leaf. It was a typical Austrian compromise. Two hundred years earlier, there had been a similar clamour to remove the eagles Napoleon had placed on the gates of Schönbrunn, the Habsburgs’ summer palace. They, too, were a symbol of a foreign and unpopular occupation, but the Emperor Francis had insisted they remain because, as he sagely observed, ‘they too belong to our history.’

Under the terms of the State Treaty, Austria is forbidden to join any military bloc (for example NATO) or have any foreign troops stationed on her territory. As the 1990s progressed these clauses began to take on a new significance. Given NATO’s extravagant push into former Soviet controlled territory, including even the Baltic states, Austria’s non-NATO membership began to take on a new importance. It only enhanced Austria’s strategic value for Russia. The recent Wirecard scandal (a German company exploited by an overwhelmingly Austrian management as a front for Russian military intelligence activities) is but the latest example of Moscow’s sustained influence in the country.

Meanwhile, American attitudes towards Austria in the 90s appeared still locked in a Cold War ambivalence and suspicion. The Austrians promised much but delivered little. Courtesy of Wikileaks, we now know that throughout the late 90s, successive US ambassadors to Vienna complained that their influence in the small republic was nugatory owing to the fact that, in the words of one frustrated ambassador, ‘there is nothing Austria needs from the US.’ While US envoys in the successor states of the former Soviet empire during the late 90s became feted as quasi-viceregal figures, they made little impact on Austrian governmental decisions. Ongoing restitution claims arising from Jewish property and art artefacts stolen by the Nazis after the ‘Anschluss’ of 1938 also sustained ongoing frictions between the US and Vienna, although nothing comparable to the deep freeze the election of Kurt Waldheim as Austrian president provoked in 1986.

In stark contrast, US influence grew apace elsewhere in the region, especially as the Yugoslav crisis unfolded and the new ‘Europe’  failed spectacularly to rise to the challenge. If students of geo-politics needed a more vivid example of why a ‘Common European Foreign Policy’ was in the 90s a utopian fantasy they needed to go no further than examine the attitudes of Austria and Germany on the one hand, and Britain and France on the other, to the Yugoslav conflict. British diplomats might wryly observe that the mooted deployment of a ‘Franco-German’ brigade in Bosnia, then a much vaunted icon of European military integration, might prove ‘problematic.’

Elsewhere the diplomatists were less diplomatic. In early 90s Belgrade, a British ambassador surprised his dinner guests by suddenly denouncing the activities of ‘Austrian intelligence’ in Slovenia. In Bosnia, Italian observers were shocked and bewildered by the openly pro-Serb partisanship of senior British military personnel. Without committed US engagement and the negotiating skills of Richard Holbrooke in 1995 at Dayton it is conceivable that the conflict might even have continued to this day. Holbrooke cut through centuries of European imperial rivalries in the Balkans to impose a solution. The 90s may well come to be seen as the last decade in which US diplomacy proved capable of achieving tangible and lasting results in central Europe.

During the 1990s capitalism made pioneering inroads into former command economies. Unfortunately, privatisation was often accompanied by corruption and other distortions which, while providing much work for Anglo-Saxon consultants and bankers, spectacularly failed to create either enduring regulatory frameworks or a transparent system of accountability. In Czechoslovakia, ‘turbo-capitalism’ failed to bring about any meaningful change in the mentality of a workforce long grown accustomed to working in environments which made few demands on its employees. The ‘velvet divorce’ of 1 January 1993, which split Slovakia from the new Czech Republic, was a masterpiece of amicable political separation but for the rest of the decade, neither many Czechs nor most Slovaks would come to grips with Keynesian economics.

They would, however, along with Hungarians and Poles, be given a tough lesson in the economist  Joseph Schumpeter’s theory of ‘creative destruction.’ By 1995, it was clear to those working in the financial sector in the region that Poles and Hungarians were likely to prove the most adept at embracing capitalist ideas. Warsaw and Budapest had highly educated and motivated younger generations eager to study and learn the latest creeds of western business schools. By the end of the 90s both Hungary and Poland were set to become developed economies with large infrastructure projects funded by the European Bank for Reconstruction and Development.  A flourishing equities market boasted several companies of European significance. By then the City of London had caught up with developments and Warburg was advising the central banks of most Mitteleuropean states on the rescheduling of their external debt, an important first step along the route of putting their financial houses in order.

When the newly elected Polish president Lech Walesa arrived in London for a state visit in 1991, one of the ‘gifts’ he received was the help of Warburg’s brightest brains to solve Poland’s external debt crisis. To spare the Poles the burden of costs, the bankers’ fees were to be paid out of a ‘know-how’ fund set up by the British government. In Prague, development was rather more uneven. It did not help that the Czech finance minister, Vaclav Klaus, arrogantly assumed he needed no western advice to initiate a successful privatisation scheme. The project with its complicated voucher system was disastrous. After an initial flurry of commercial energy, local lethargy and corruption on a widespread but petty scale began to impact townscapes in a negative way.

The magic of late Gorbachevian Prague: unrestored palaces, empty streets, private restaurants and a largely resigned but friendly population with time to reflect, was replaced by demolition, brutalist developments, traffic jams, and increasing poverty. Buildings such as the Hotel Alcron, whose Art Deco interiors had survived the German Nazi occupation, the 1968 Warsaw Pact invasion, and decades of economic austerity, were swept away by ‘restoration’ in a matter of weeks. A network of small local mafias took control of many parts of the commercial life of the old town. This was capitalism of a kind but it was not designed to enrich the majority or even a sizeable minority. It left many Czechs thinking that communism, for all its faults, had been a system which had worked in its own dysfunctional way. After all, the weekend was sacred in anti-Catholic communist Czechoslovakia, and suddenly here was McKinsey telling everyone to work on Sundays.

Fortunately, Vaclav Havel, the playwright president whose family had had long connexions with the Austrian aristocracy, quickly realized that salvation lay in the form of German investment. In March 1990, he welcomed the German president, Richard Weizsäcker, to Prague castle and in a moving speech reminded the world that Germans and Czechs shared a common heritage in Bohemia. After decades of violently anti-German rhetoric in Prague, this was an historical moment and from the early 1990s, German companies such as Siemens and Volkswagen became the engines of Czech provincial prosperity, establishing factories in hitherto forgotten towns such as Trutnov (Trautenau) not too far from the German frontier. In 1994, Škoda’s automobile division became a full subsidiary of Volkswagen A.G.

This German return to the historic crown lands of the Holy Roman Empire was not universally greeted with enthusiasm. Restitution claims by Austrian aristocrats, eager to claw back estates confiscated from them under the so-called Benesch Decrees of 1946, legalising the mass and often violent expulsion of three and a half million ‘Germans’ resident in Czechoslovakia, were resisted by successive Czech governments throughout the 90s. Many claims only succeeded after dozens of court cases and considerable investment on the part of the applicants. A particular anomaly was the case of the ruling princely Liechtenstein family whose estates in Moravia compared favourably in extent with the scale of an Irish county. The stand-off in their restitution claims meant that throughout the 90s, Prague had no diplomatic relations with the principality. Even when relations were later restored there remained lingering tensions and ongoing legal battles. This pattern was repeated in Slovakia, and initially in Slovenia and Croatia, but even by the late 1990s, all of these countries were keen to join the European Union and that eventuality altered the debate on restitution. Property rights had to be respected if these countries wished to join the European club, but as the running sore of the Liechtenstein claims show, it was clear, even in the 90s that there were limits to the ‘breaking of nations.’

The 90s were a brief period when the two forces that traditionally jockeyed in the region for primacy: namely Russia and Germany, were both largely hobbled by their own internal challenges. For Germany the distraction and cost of absorbing East Germany took priority during most of the 90s. For Russia, the recovery from the implosion of the Soviet Union made it, under Boris Yeltsin, a weak and compliant state for most of this time. With the two main actors of the eternal central European drama thus distracted there was a brief moment of respite for the smaller states. Only the Slovenes, Bosnians and Croats had to put up with a last gasp of twentieth century imperial ambition in the strenuous, and for a time highly effective, diplomatic efforts London deployed to support her ‘gallant little ally’ Serbia. The 90s would prove the last time that London might entertain the illusion that the Balkans was somehow a ‘traditionally British area of expertise.’

As the 90s progressed so did the reality of that decade’s unipolar world. Constructive pressure in the Balkans, if it came anywhere, came eventually, from America. Putin’s arrival in the Kremlin in 1999 at a stroke heralded the imminent end of that reality. At the same time by the end of the 90s, Germany had at least financially digested much of the costs of unification, but socially and culturally, there were still vast barriers to be surmounted. As one German diplomat candidly admitted in 1998: ‘We will just have to wait for that generation of Ossis to die out and then we can move on.’ ‘Moving on’ will certainly bring more direct political German influence into central Europe.

Those familiar with the history of the region will recall that it was the Czech historian, Frantiśek Palacký who observed back in the nineteenth century that without the Habsburg Empire the central European region could only lapse into the uncertainties of a competitive playground between Germany and Russia. His dictum still holds true. The Visegrád agreement of 1991 between Czechoslovakia, Hungary and Poland (later Czech Republic, Slovakia, Hungary and Poland) was one attempt to build a structure of some critical mass that might stand up to the two giant neighbours. The fact that all the Visegrád states are members of the EU has not removed the sense of uncertainty which lay beneath the foundation of this grouping. It remains to be seen whether later decades reinforce this insecurity or dispel it.


Richard Bassett