Austria's 'hard schilling' and the road to the euro

From 1981 the Oesterreichische Nationalbank pursued a 'hard-currency' policy, holding the schilling at a nearly fixed rate against the Deutsche mark. Because Austrian trade and prices were so closely tied to Germany, importing German monetary credibility was a cheap way to anchor Austrian inflation: interest rates followed German rates and inflation settled in the low single digits for decades. The schilling's stability also pushed firms toward productivity gains rather than relying on devaluation to stay competitive. Austria joined the European Union in 1995 and adopted the euro at its launch on January 1, 1999, with schilling banknotes replaced by euro notes in 2002. After joining, the Oesterreichische Nationalbank became part of the Eurosystem, which set interest rates for the whole euro area, so Austria's inflation and interest-rate charts since 1999 closely follow euro-area averages.