The concept of “tu felix Austria” or “happy Austria” was coined by Emperor Maximilian I during his 16th century reign when he expanded the Habsburg territories through marriages, rather than war. In modern times, Austria has often been praised as one of Europe’s most economically advanced countries. It is admired for its high standard of living, societal equality, including incomes, and world-class public services. The country boasts an excellent social system, affordable and punctual public transport, and a rich cultural heritage that makes it a top destination for international tourists. Vienna, the impressive capital city, regularly ranks highly as one the best places to live in the world.

Yet, despite the country’s many advantages, the concept of “tu felix Austria” is being challenged. There is a growing sense of dissatisfaction is sweeping through the Austrian population, potentially leading to seismic shift in the political landscape.

As the 29 September Nationalratswahlen (National Council elections) approach, Austria finds itself on the brink of a significant political transformation. The right-wing populist Freedom Party (FPÖ) is poised to emerge as the leading party, followed by the conservative People’s Party (ÖVP) and the Social Democrats (SPÖ) locked in a tight race, each hovering around 20 percent of the vote.

The Greens, who govern in coalition with the ÖVP, are likely to fall below 10 percent and could be overtaken by the liberal party, NEOS. The Beer Party, a satirical project, and the communist party KPÖ could enter parliament too. However, the election campaigns have only just started and past polling scandals have cast doubt on these projections, so the outcome is still uncertain.

But one thing that is certain is the potentially profound consequences of this election. If the FPÖ becomes the leading party for the first time, Austria could see the rise of a right-wing, Eurosceptic government, with the added complication of a fragmented political landscape that could require a three-party coalition to govern effectively. But what has led Austria, a nation that seems to have it all, to this precarious point?

1. Stagnation in economic development

Austria’s economy, while superficially robust, is facing significant challenges that have fuelled public discontent. The COVID-19 pandemic hit Austria harder than the EU average, particularly affecting its important tourism sector.

The economic decline was followed by a smaller, slower recovery with a negative GDP growth in 2023. This performance was worse than Germany’s situation, with whom Austria’s economy is deeply intertwined, and that of Italy, Austria’s second most important trading partner.

The government responded to COVID-19 by stabilising demand and supply, even though only supply was affected by the economic shock of the pandemic. Support measures were massive in volume and created a proliferation of zombie firms – unproductive businesses that rely on government aid to survive. This is evidenced by the low exit rate of firms, a figure that is now on the rise with the withdrawal of state assistance.

Ill-targeted policy measures came at a cost for the people, as Austria is now confronted with high levels of inflation. This problem is more severe in Austria than in Germany and Italy, remaining persistently higher than the EU average and substantially higher than neighbouring Switzerland. Additionally, poorly designed price subsidy measures, such as the Stromkostenbremse, a contentious electricity price cap, are not considered as effective countermeasures, even though frustrations are rising with the cost of living.

But economic stagnation in Austria predated the pandemic. With growth rates near or below the EU average and inflation stubbornly above the EU average, the Austrian economy stagnated – and so did people’s incomes. Adjusted for purchasing power, the Slovakian capital, Bratislava, just 55km from Vienna, now outpaces the Austrian capital.

The roots of this stagnation lie in an ageing society, declining productivity, a lack of venture capital, shortages of STEM graduates who are crucial for the green and digital transition, rising perception of corruption, as well as inefficient policies in innovation, education and the labour market.

Furthermore, Austria’s economy is regionally fragmented. The tourism-dependent western regions face different challenges to the industrial core in Upper and Lower Austria. Labour shortages are more acute in rural, tourism-heavy areas, exacerbated by inadequate public infrastructure, such as childcare services. This regional disparity, coupled with a lack of coherent strategies, has deepened public frustration in the hinterland.

2. A complex relationship with Russia

Austria has long maintained close ties with Russia, positioning itself as a gateway between East and West. This relationship proved lucrative, with Vienna becoming the European headquarters for Russian companies, such as Sberbank, Lukoil and Gazprom. Austria has attracted wealthy Russian oligarchs, drawn by the country’s high quality of life and banking secrecy. Vienna, known as a hub for Russian espionage, further solidified these ties.

Austrian companies have invested heavily in Russia too. For example, Raiffeisen Bank remains the largest foreign bank operating in Russia, with about half of its profits generated there in past years. Similarly, OMV, Austria’s largest partially state-owned company, is a significant player in Russia’s energy sector, and companies, such as Egger, play a significant role in the timber industry.

The Russian invasion of Ukraine has complicated this relationship. Austria is obligated to adhere to the EU’s sanctions against Russia, yet many Austrian firms still operate there, hoping for a return to business as usual. The cost of sanctions against Russia is considered too high.

This reluctance to sever ties with Russia reflects broader political sentiments, particularly as past leaders maintained close relationships with Russian interests. For example, ex-chancellor Christian Kern had a stint on the Russian Railways board of directors, and former foreign minister Karin Kneissl welcomed Vladimir Putin at her 2018 wedding.

This melange makes politicians and people hopeful for a return to the old world order, dreaming of a better yesterday. The severity of this widespread thinking is underpinned by Austria’s heavy dependency on Russian energy.

In 2018, ex-chancellor Sebastian Kurz signed a contract with Gazprom for Russian gas until 2040 without disclosing the full details. Today, Austrian imports of Russian gas continue to grow. It is unclear how this critical dependency can be resolved – or how Austria can comply with EU’s RePowerEU goal to phase out Russian gas completely by 2027.

3. Decarbonisation efforts falling short

Austria’s reliance on Russian gas underscores another critical issue – the country’s lagging decarbonisation efforts. Despite its vast potential for renewable energy, particularly hydropower, Austria has made little progress in transitioning to a climate-neutral economy. The EU’s FitFor55 package, an interim step for the Green Deal, aims to reduce CO2 emissions to 55 percent of 1990 levels. This is unlikely to be achieved in Austria, where emissions fluctuate around 1990s levels today.

The transport sector presents the greatest decarbonisation challenge, offsetting gains made in other areas, such as industry and agriculture. Austria’s position as a transit country, meaning that emissions from traffic passing through are partially attributed to the country, is unfortunate, but not the major root cause of persistently high emissions, as often claimed.

Political inertia, as demonstrated by Austria’s delayed submission of its 2030 climate plan, is hampering progress towards becoming climate-neutral. Some efforts have been made, such as an attractive public transport ticket that covers the whole country, and CO2 pricing coupled with a per-capita reimbursement scheme.

But it seems there is no full consensus on how to implement the green transition, as demonstrated in June 2024 when Austrian environment minister Leonore Gewessler risked blowing up the coalition to approve the EU’s nature restoration law, despite opposition from Chancellor Karl Nehammer. This situation creates mixed signals about how seriously the government takes decarbonisation, leading to limited public acceptance. In this sense, Austria is not fit for 55.

4. Mixed feelings about the EU

Since joining the bloc in 1995, the Austrian relationship with the EU has always been ambivalent. While the country has benefited strongly from EU membership – with economic welfare gains of €1,583 per capita ranking Austria among the top beneficiaries of the Single Market – many Austrians remain sceptical. Structural changes in agriculture and the fall of non-competitive, state-owned industries have taken place in parallel to EU integration, contributing to a sense of unease.

The Spring 2024 Standard Eurobarometer 101 survey shows that only 38 percent of Austrians view the EU positively, compared to an EU-27 average of 44 percent. Scepticism is particularly pronounced regarding EU enlargement, despite parts of the political spectrum supporting Western Balkan countries joining the union.

Fears of increased labour migration and severe concerns about military neutrality are driving negative perceptions. Austrians see themselves as a stronghold against military cooperation with the EU and the NATO, which is regularly underscored by the lowest approval for military and security cooperation – even after the Russian invasion of Ukraine.

Politicians across the spectrum have capitalised on this scepticism, often using the EU as a scapegoat for unpopular policies, while selectively endorsing EU measures that benefit Austria. This strategy has eroded trust in the EU and the Austrian government, contributing to a broader sense of disillusionment.

5. Populist policy-making with high media concentration

Austria’s political landscape has been shaped by a tradition of populist policymaking, often driven by short-term considerations, rather than long-term solutions. The country’s highly concentrated media landscape exacerbates these issues. ORF, the public broadcaster, is perceived as politicised, while Kronen Zeitung, Austria’s most popular tabloid is read by around half of the population, giving it significant influence over public opinion.

This environment has led to populist policies that fail to address Austria’s underlying challenges. The lack of evidence-based policymaking, despite the presence of respected research institutes, has left many of Austria’s most pressing issues unresolved.

Instead, multiple political scandals – such as Ibiza-gate, the Kurz corruption probe, the cash for influence scandal, the Telekom Austria affair, the Hypo Alpe Adria bank failure, the BUWOG affair and the BAWAG fraud to name just a few – have dominated public debate.

From ex-chancellor Sebastian Kurz’s “message control” strategy to the SPÖ paying for advertising in exchange for favourable media coverage and the FPÖ undermining the credibility of media, Austrian politics has often prioritised image over substance, leading to growing frustration among people.

Outlook: A political earthquake in the making

Could “tu felix Austria” be replaced by “infelix Austria”? As the September election looms, Austria seems poised for a political earthquake. If the FPÖ wins, Austria could see a shift towards autocratic tendencies, similar to developments in neighbouring Hungary and Slovakia. The formation of a new government may prove challenging, with potential coalitions complicated by deep-seated rivalries and the need for a three-party alliance.

An FPÖ-led government under Herbert Kickl could threaten the rule of law, with potential efforts to undermine the justice system, cut social transfers, and control the media. One has to hope that the corporative and federal system is strong enough to defend democracy.

For the EU, instability will be a challenge as Euroscepticism has grown with the FPÖ in the government further. The outgoing coalition demonstrated difficulties in participating in and implementing of EU policies, such as the Green Deal, management of relations with Russia and deeper European integration in general.

An FPÖ government will likely intensify cooperation with Mr. Orban’s FIDESZ to undermine European efforts to decarbonise and avoid facing new geopolitical realities, while expanding national-focused policymaking with anti-migration and anti-liberal elements.

Regardless of the election outcome, Austria’s underlying problems will not disappear. Ignoring these issues, particularly in areas such as climate change mitigation, will only increase the costs and efforts required in the future. Addressing these challenges with better policymaking could not only provide political solutions, but revitalise Austria’s economy, ensuring that the country’s prosperity is sustained long-term because – and not despite – politics.

About the author

Thomas Schwab, Senior Expert for European economics at the Bertelsmann Stiftung’s “Europe’s Future” programme, specialises in analysing economic policy, with a particular emphasis on territorial inequalities.

Read more about the many elections this year on our 2024 Elections page.

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