Austrian far right’s moment

The far right in Austria has a chance to win Sunday's election [View in browser]( [Bloomberg]( Welcome to the [Year of the Elections]( Bloomberg’s newsletter on the votes that matter to markets, business, and policy amid the most fragmented geo-economic landscape in decades. For five years, Austria’s political elite has been trying to beat the hangover from a booze-infused night in Ibiza. It’s been a long bout of collective soul-searching since a woman posing as a Russian oligarch’s niece caught the far-right Freedom Party’s vice chancellor [trading government contracts for campaign funds]( on camera, leading to his ouster and snap elections. But in a society where political intrigue is an integral part of Vienna’s centuries-old coffee house culture, the Freedom Party seems to have put the scandal behind it better than its competitors who’ve been drawn into a wide-ranging probe. After [the resignation of two chancellors]( multiple [criminal investigations]( two lengthy parliamentary committees, a theater play, at least three books and as many films, the Freedom Party is set to win the most votes in Sunday’s federal elections after coming close to challenging the top parties twice before. At the heart of the revival is Herbert Kickl, the 55-year-old party chairman. He’s mostly been able to turn the page on the incident and avoid the gaffes of his predecessors, the late Jörg Haider and Heinz-Christian Strache. Kickl’s rise fits a Europe-wide trend of advances for radical forces. But Kickl has had the benefit of leading a party, that, unlike its German and French peers, has been a mainstay of Austrian politics since it regained independence in 1955. Its climb to the top is mostly a consequence of graft investigations that toppled conservative whiz-kid Sebastian Kurz in 2021. Kickl has brought the term remigration — seen as a euphemism for mass deportation of non-white people — into the political mainstream, and capitalized on discontent over some of the euro area’s fastest inflation rates and opposition to a short-lived [coronavirus vaccine mandate](. Yet what’s been a two-year-long campaign to maintain a strong lead in public opinion polls may ultimately fall short of winning Kickl the chancellorship. He remains a toxic presence for all other political forces, and Chancellor Karl Nehammer of the conservative People’s Party has vowed not to form a government with him — though hasn’t ruled out an alliance with his party. That heralds a messy round of coalition talks, likely including the conservatives, who haven’t been out of government since 1987. A centrist government would probably need backing from the People’s Party, the Social Democrats and a smaller third group — the liberal NEOS or the Greens. Finding common ground for a coalition program will be an arduous task, even in a nation long used to consensual rule between its two historical parties. Should a late boost for Nehammer — helped by his management of [recent flooding across Austria]( — propel him to an unlikely victory, he may ultimately pick the Freedom Party as a coalition partner, with a diminished role for Kickl. Whatever the outcome, the next years are set to be volatile. For a nation that’s in dire need of confronting major challenges — bolstering a weak industrial base as well as redefining relations with Russia and an emerging eastern Europe — that’s unlikely to be the best political footing. — [Marton Eder]( Kickl kicks off his campaign in Graz on Sept. 7. Photographer: Alex Halada/AFP/Getty Images Austrian Economy Q&A  [Jonathan Tirone](bbg://people/profile/6595242), a Bloomberg energy and nuclear-diplomacy reporter in Vienna, discusses Austria’s difficult ties with Russia. How has Austria’s economy been impacted by Russia’s invasion of Ukraine? Access to cheap Russian fuel has been an article of faith and a building block for Austrian industry since the Soviets connected their first pipeline in 1968. A long-term contract with Gazprom runs until 2040 and the economy continues to run predominantly on Russian fuel. But that’s about to change when a [transit agreement between Moscow and Kyiv]( ends in December. State-owned energy company OMV says it can do without the Russian imports, but the threat of even earlier supply disruptions has jolted European gas markets, showing a transition to alternative sources won’t be a smooth ride. What other parts of Austria’s economy have been affected by the conflict? The economic damage hasn’t been limited to energy consumers. OMV wrote down the value of Russian assets by billions of euros and remains tied up in legal disputes. Ditto Raiffeisen Bank International, Austria’s second-biggest listed lender, which has billions more trapped in its Moscow-based subsidiary that’s [in the crosshairs]( of Western and Russian regulators. Other Austrian companies, from commodity trader Agrana to builder Strabag, remain entangled with Russian markets and investors. What’s the economic prognosis for the new government? Production of goods and services is expected to shrink again in 2024, extending a contractionary phase to eight quarters, or the longest since World War II, according to the Wifo research institute. Higher-priced energy and a downturn in business with Germany — by far Austria’s biggest trade partner, representing almost a third of total flows — are major challenges for the nation’s manufacturers. Heading into the election, economists at Wifo described a “weak industrial economy” on the cusp of “renewed deterioration.” The Markets Take [Marton Eder](bbg://people/profile/18104578), Bloomberg’s Vienna bureau chief, writes about the financial cost of Austria’s geopolitics. Russian President Vladimir Putin’s war in Ukraine will have cost Austrian taxpayers hundreds of millions of euros via higher funding rates. The yield premium the Treasury has to pay to issue debt, compared to Germany, has risen to 57 basis points on average since the war started, more than double the 23 basis points in the prior five years. Even if it’s not unique to Austria in the euro area, that’s a hefty surcharge when projected on €287 billion ($320 billion) of federal government debt. While the premium is likely a consequence of Austria’s geographic proximity and economic ties to the conflict, there are home-grown factors that may be weighing on debt costs. The Fiscal Council has warned Austria may breach European Union guidelines for a budget deficit of below 3% of economic output already in 2024, making corrective fiscal measures a priority for the next government. Austria is still among the safest issuers in Europe, and its Treasury has expertly [tapped niche corners of the debt market]( to reduce borrowing costs. S&P Global Ratings said in August efforts to cut reliance on Russian gas may help Austria regain a coveted AAA top rating it lost in 2012. Corporate Stakes [Libby Cherry](bbg://people/profile/21835439), a Bloomberg distressed-debt reporter in Frankfurt, describes a peculiar time for corporate governance. Nothing has quite captured the public imagination in Austria as the [scandalous collapse of real-estate empire Signa](. Founder Rene Benko used his political connections and personal charm — and billions of euros in debt — to accumulate stakes in New York’s Chrysler Building, London department store Selfridges and a clutch of luxury properties across the German-speaking world. The self-made tycoon’s glittering empire collapsed at the end of last year, with Signa ranking as Austria’s largest insolvency with more than €20 billion of creditor claims filed across the group. Benko is [under investigation]( in Germany, Austria and Liechtenstein for suspected crimes including fraud and embezzlement, which he denies. Rene Benko. Photographer: Franziska Krug/Getty Images Politicians have been quick to distance themselves from Benko and his lavish lifestyle — his home near Innsbruck has a replica of Capri’s blue grotto. But the businessman’s rise was helped by the revolving door of politics and high finance: The chairman of his supervisory board was former Socialist Chancellor Alfred Gusenbauer, and Kurz helped secure financing by taking him on official trips. With the list of creditors ranging from some of Europe’s richest families to Middle East sovereign funds and German insurers, Austria’s reputation as a business destination has been dented, and a new government will need to ensure an insolvency process secures justice. Wolfgang Peschorn, a former Interior Minister who acts as the government’s legal representative in civil proceedings, is already [challenging a restructuring plan]( he claims lacks necessary transparency and financial support. More from Bloomberg - [Balance of Power]( for the latest political news and analysis from around the globe - [Washington Edition]( for exclusive coverage on how the worlds of money and politics intersect in the US capital - Check out our [Bloomberg Investigates]( film series about untold stories and unraveled mysteries - [Next Africa]( a twice-weekly newsletter on where the continent stands now — and where it’s headed - Explore all Bloomberg newsletters at [Bloomberg.com](. Follow Us Stay updated by saving our new email address Our email address is changing, which means you’ll be receiving this newsletter from noreply@news.bloomberg.com. Here’s how to update your contacts to ensure you continue receiving it: - Gmail: Open an email from Bloomberg, click the three dots in the top right corner, select “Mark as important.” - Outlook: Right-click on Bloomberg’s email address and select “Add to Outlook Contacts.” - Apple Mail: Open the email, click on Bloomberg’s email address, and select “Add to Contacts” or “Add to VIPs.” - Yahoo Mail: Open an email from Bloomberg, hover over the email address, click “Add to Contacts.” Like getting this newsletter? [Subscribe to Bloomberg.com]( for unlimited access to trusted, data-driven journalism and subscriber-only insights. Want to sponsor this newsletter? [Get in touch here](. You received this message because you are subscribed to Bloomberg's The Year of Elections newsletter. If a friend forwarded you this message, [sign up here]( to get it in your inbox. [Unsubscribe]( [Bloomberg.com]( [Contact Us]( Bloomberg L.P. 731 Lexington Avenue, New York, NY 10022 [Ads Powered By Liveintent]( [Ad Choices](