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VIENNA — Europe should chill: There are no signs that an Austrian government under the leadership of the far-right Freedom Party (FPÖ) would be economically reckless, the country’s central bank chief told POLITICO.
“It remains to be seen which policies the new government will implement,” Robert Holzmann said, stressing that he hasn’t seen anything that he would characterize as extreme or worrisome. “As far as issues relevant for central banking or financial stability are concerned, so far I don’t see anything which worries me and I do not expect it.”
He specifically noted that budget proposal agreed by the FPÖ and center-right Austrian People’s Party (ÖVP) on Monday, that foresees spending cuts of up to €6.3 billion and that aims to bring the deficit below the European Union’s 3 percent limit already this year, is “not extreme.”
The EU appeared to endorse that view on Friday, Commission spokesman Balazs Ujvari telling reporters that it won’t open a so-called “excessive deficit procedure” for the country in respect of last year’s fiscal slippage.
The FPÖ emerged as the largest party in parliament after an election in late September and is now on the brink of power. After its rivals’ efforts to shut it out of government collapsed, its leader Herbert Kickl began talks with the ÖVP. This has sent shockwaves through Brussels where officials are worried an FPÖ-led government could undermine EU policy, most notably by following its Central European neighbors Hungary and Slovakia by cozying up to the Kremlin.
The two parties have ruled Austria together twice before, from 2000-2002 and from December 2017 to May 2019, but with the FPÖ as a junior partner on both occasions.
It was during the second ÖVP-FPÖ coalition that Holzmann, with the FPÖ’s backing, was nominated central bank chief. However, he has never been a member of any political party.
In an interview in Vienna, Holzmann said more broadly that there was no real reason to fear that Austria would turn its back on Europe if the FPÖ — as seems likely — becomes the first far-right party to head the government since World War II.
“The FPÖ is not anti-European, but critical of how Europe is being managed today,” Holzmann said, arguing that it is important to distinguish between the two.
Holzmann recalled that, back in the 1960s, the FPÖ was the first party to back Austrian membership of the European Economic Community, which evolved into the EU. In this respect, frequent comparisons to the Alternative for Germany (AfD) party, which started out as a Euroskeptic party and turned into political home for right-wing extremists, may be misguided, Holzmann argued.
However, the FPÖ used much the same rhetoric and ideas as the AfD in last year’s election, calling for the “remigration” of immigrants and the restriction of social benefits to Austrians citizens. It also campaigned on a platform of stopping “EU warmongering,” by ending aid and weapons deliveries to Ukraine.
Austria, of course, is far from alone in Europe in having messy domestic politics. Holzmann bemoaned a “lack of leadership at European and national level” and identified “ideological fragmentation” as a key risk for the continent, undermining unity at a time when it is most needed. European interests are not a priority of incoming United States President Donald Trump, he noted.
Inflation still not dead
In such an environment, he said, it’s even more important that monetary policy remain credible and not to rush into more interest cuts before it is clear that the battle against inflation has been won.
With the economy struggling and inflation well down from its 2022 peak, the European Central Bank is widely expected to cut interest rates by a quarter-point at its January meeting, in what would be the fifth reduction since June 2024.
Holzmann, however, reminded that the ECB’s decisions are data-driven and the latest data showed inflation rising to “well above” 2 percent in December and will likely show the same for January. “Cutting interest rates when inflation rises faster than anticipated, even temporarily, risks hurting credibility,” he warned.
“I will enter the discussion [about a January cut] with an open mind,” Holzmann said. “A cut is not a foregone conclusion for me at all.”
More broadly, Holzmann disagreed with comments from several of his colleagues, including ECB Vice President Luis de Guindos and French central bank chief François Villeroy de Galhau, who argued that the battle against inflation is essentially over.
If anything, the policy hawk said, he is now “a bit more skeptical than I was at the beginning of the year” that inflation will settle around the bank’s 2 percent target by year-end.
“Since our December policy decision, we have seen changes we could not anticipate, with gas reserves running down much faster than expected due to colder weather, effective closure of the Ukraine gas transit and the risks of energy prices remaining elevated,” Holzmann said.
Similarly, Holzmann also said the euro’s falling euro exchange rate is a mixed blessing that may cushion the blow of possible U.S. tariffs, but which boosts import prices, including those for energy. Crude oil prices have also risen since the start of the year and hit their highest level since August on Wednesday.
As a result, Holzmann disagreed with what has become a consensus expectation of steady, regular cuts from the ECB in the first half of this year. “If you say we have a situation in which nothing is a threat to the disinflation path you may say so,” he explained. “But if you take account of lingering inflation concerns, the answer is different.”
This article has been updated with news of the EU’s decision not to open an excessive deficit procedure.
