Kurt Bayer: Fighting for Economic Fairness

The former director of the World Bank hopes to bring Austria in line with Europe’s laws on banking transparency

“[Banking Secrecy] is an issue that gives Austria a very bad name,” says Bayer | Photo: Stephan Rebernik

Economist Kurt Bayer: "Tax havens take a huge toll on developing countries" | Photo: Stephan Rebernik

Economist Kurt Bayer: "Tax havens take a huge toll on developing countries" | Photos: Stephan Rebernik

Economist Kurt Bayer: “Tax havens take a huge toll on developing countries” | Photos: Stephan Rebernik

Economist Kurt Bayer is theoretically retired. A former senior economist with the Austrian Economics Research Institute (WIFO), head of economic policy for the Austrian Ministry of Finance and a director of the World Bank, he now has time to meet at Café Engländer on a weekday and talk about his work with Transparency International (TI), where he is a member of the working group on Financial Markets and Economic Policy.

But being retired doesn’t mean he is less engaged. 

“I’ve always been a social activist,” Bayer said, as we each ordered a Melange and settled into a comfortable corner bench at one of Vienna’s pleasantest Kaffeehäuser.

Engländer is an intellectual’s café, a favourite of media types and think-tankers, design gurus from the MAK and scholars from the Academy of Sciences around the corner.


The last holdout

Bayer’s role at TI is complicated for an Austrian economist, as Austria (with Luxembourg) is the last holdout for banking secrecy in the European Union, defying the 2005 EU directive committing member countries to an automatic exchange of financial and tax information.

So far, the Austrians have dug in their heels. Based on a 1978 statute, the identity of banking clients is protected by law, and Austrian leaders have resisted pressure to intervene to change it.

“It’s actually a criminal offense in Austria for a bank to give out any information on their customers,” Bayer said.  “So that means that there is probably quite a bit of dodging – money in Austria from dubious sources – and also, of course, Austrians evading Austria’s own tax law by going abroad. Because banks really can’t give out any information on what transfers they do for their costumers.”

The waiter arrived with the coffee, which smelled particularly wonderful that morning. Maybe it was because it was Monday; it was also my birthday.

European officials have been extremely frustrated with the Austrians. But perhaps not as frustrated as Austrian officials have been with each other, particularly Social Democrat Chancellor Werner Faymann, who announced he was ready to negotiate, and Conservative Finance Minister Maria Fekter, who was prepared to defend banking secrecy no matter what.

“The Finance Minister said Austrians would just stop saving money if they give it up, but the Chancellor said no, we are going to join the EU consensus,” Bayer remembered. In the end, they settled for a compromise, keeping banking secrecy for Austrians, but lifting it for foreigners, thus at least in part, responding to the EU – a classic Austrian solution.

“But then again, they haven’t really taken any steps to implement it,” Bayer commented.  An even more Austrian solution.


The problems with the Americans

Then there is the problem with the Americans, and the recent Foreign Accounts Tax Compliance Act (FATCA), which as of July 2013, will require foreign banks to report on the holdings of US citizens with $50,000 or more on their books, backed up by threats of withheld dividends and interest to the banks.

Even though the provision hasn’t yet taken effect, the banks are already starting up the procedures to find out who of their account holders are actually American citizens. This is an issue that cuts a little too close to home for Bayer, whose American wife, a researcher at IASSA, is being fined retro-actively for assets she hadn’t known she was required to report.

“The banks know that it will come,” he said.  “There is so much political pressure, and I know that the Austrians are negotiating.  But the Americans are going to do it with the whole world – they’ve done it with Switzerland – and they are strong enough to enforce that.”

Which could also create problems for Austria with the European Union.  If Austria were to give U.S. authorities information on American citizens it had not given to the EU, the country could well be sued in European court.

“The EU tax commissioner could threaten Austria,” he said. “I mean, you can’t really treat a third country better than your own EU partners; it’s a political problem, and a serious one.”


Still marketing nostalgia

Now back in Vienna after five years in London with the EBRD, Bayer is on the whole positive about the changes he sees in Vienna. An enthusiastic choral singer and avid theatre and opera fan – mentioning recent productions of The Rake’s Progress and Tristan and Isolde – he is full of praise for the support of  the arts. “There’s a lot more cultural activity at all levels,” he says. “Vienna’s a very, very well run city.”

What puzzles him is the attitude. “With all this, somehow they don’t brag about it; they market themselves nostalgically – with Sissi, the Lipizzaners, the Heuriger.  Modern Vienna, they don’t really promote this. So in most of the international comparisons [for business locations], Austria never shows up.

There’s a lot going on, but if you just sell the Gemütlichkeit, you can’t be surprised.” Mayor Michael Häupl he describes as “very 1950s”. Compared to Berlin Mayor Klaus Wowereit, Häupl is the “fiacre of mayors”.  In concert halls, too, little has changed. Austrians still hate 20th century music, he points out, so conductors generally schedule anything challenging after the intermission, as they are afraid people will leave.

Still, there is far more internationalism. Particularly the influx of Germans, who in recent years have become the largest new immigrant group, a reversal from a decade ago, a trend he finds “very healthy”.

“The Austrians have no reason to say they can’t integrate – they speak German, perhaps even better German – or that everyone from somewhere else is so different.” And Austria needs them. “Demographically,” he said, “Austria is a dying country.”

“[Banking Secrecy] is an issue that gives Austria a very bad name,” says Bayer | Photo: Stephan Rebernik

“[Banking Secrecy] is an issue that gives Austria a very bad name,” says Bayer | Photo: Stephan Rebernik

A question of basic economics

After working in development for nearly two decades, at the Finance Ministry, at the World Bank and at the European Bank of Reconstruction and Development (EBRD), he has no doubt about what’s at stake.

“Developing countries especially lose a lot due to the tax havens and bank secrecy laws and … all these transparency issues,” he said. “In many places, you can go with a driver’s license and get an account or found a firm, nobody asks who the beneficiary is, what are you doing and so on. So if you look at global equity, or the difficulty countries have in developing, you see that they are being hurt a lot. And of course the tax havens are essentially very rich, very industrial, all independent territories.”

It is a question of basic economics, that taxes need to be collected and distributed where the economic activity is taking place. And if the wealthy don’t pay, the tax burden falls back on the middle and working class, who don’t have the knowledge or means to avoid it, with potentially destabilising effects. “We can always talk about rates, but who pays and how much is extremely important – that has something to do with social cohesion and the whole acceptance of the social economic system in the country.”

So digging in their heels on banking secrecy has not been good for Austria’s reputation within the EU: “It’s an issue that gives Austria a very bad name,” Bayer said. But then again, it may be a bit of the pot calling the kettle black:

“Some of the biggest problems with tax evasion are in the UK with the Channel Islands and all the ex colonies in the Caribbean.” There are changes, “but they also see some kind of Standortvorteile, a point that attracts foreign capital into the country.” Britain may have signed on to the EU Directive, but it may only be lip service.


Fairness still a long way off

With all the difficulties, Bayer finds the work with Transparency International satisfying.  And now that he is out from under the pressures of management, he is able to focus on the issues.

“At the ministry I had responsibility for 40 people, at WIFO, 150… And a lot of deadlines,” Bayer remembered. “And if other people don’t deliver, you have to jump in…”

He sighed.

On the eve of his 70th birthday, however, economic fairness still feels a long way off.  “I still feel I have something to contribute,” he said. “But sometimes I feel as if I’m 100 years old.”

To widen his reach he is writing a blog at kurtbayer.wordpress.com, both in English and German, arguing the case for banking transparency.

“I’m trying to get more rationality into global and Austrian economic policy,” he said. “It’s a hopeless fight, of course, but if you want to know, I think it’s worth it.”

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