New Equity Indices for Czechoslovakia
Bryan Taylor, Chief Economist, Global Financial Data
One of the countries whose equity history has not been explored in detail is Austria. Austria is one of the few countries for which we have over 200 years of data for stocks, bonds and bills. The only countries with longer histories are the United Kingdom, France, and the United States.
The Vienna Stock Exchange has been in operation for over 250 years. Austria’s public debt began trading in Vienna in 1763, in Amsterdam in the 1780s and London in 1795. Shares of the Austrian National Bank began trading in Vienna in 1817. Austrian railroads and banks traded on exchanges in Austria and Germany during the 1830s and by the 1870s, hundreds of shares traded in both Germany and Austria.
Before 1914, stocks from all areas of the Austro-Hungarian Empire traded in Vienna, but after World War I, the Austro-Hungarian Empire was broken up, and the regional exchanges in Prague and Budapest became the primary national exchanges for Czechoslovakia and Hungary. In 1948, the stock exchanges in Prague and Budapest were closed when the government nationalized all the major industries. Only in the 1990s did these two exchanges reopen.
In 1913, Austria-Hungary represented about 3% of global market capitalization, but today, Austria represents only 0.10% of S&P’s Global Market Index of 50 countries and only 0.13% if you include Hungary and the Czech Republic. In 1913, the Austria-Hungarian Empire was one of the great powers of Europe, along with England, France, Germany and Russia. Vienna was a cultural center where Sigmund Freud, Guztav Klimt, Arnold Schoenberg and others contributed to the nation’s culture.
The Austro-Hungarian Empire
Before World War I, the Austro-Hungarian Empire was one of the largest economies in Europe. The Empire included all of Austria, Hungary, the Czech Republic, Slovakia, Slovenia, Croatia and Bosnia & Herzegovina as well as parts of Poland, Ukraine, Romania, Serbia, Montenegro and Italy. It should be remembered that Austria stopped the Muslim invasion of Europe at the gates of Austria in 1529 and again in 1683.
The Duchy of Bohemia was recognized as an Imperial State of the Holy Roman Empire in 1002, became a kingdom in 1198 and was integrated into the Habsburg Monarchy in the 1500s. Austria suffered defeat during the Napoleonic Wars and the Holy Roman Empire came to an end in 1806. The Congress of Vienna in 1815 established Austria, which included Bohemia and Moravia, as one of the four European powers along with England, France and Russia. However, the empire was multi-ethnic and the different nationalities within the Austro-Hungarian Empire strived for independence.
Archduke Franz Ferdinand was assassinated in Sarajevo in 1914 which led to the onset of World War I. After Austria’s defeat in World War I, the Austro-Hungarian empire was broken up under the Treaty of Saint Germain in 1919. This led to the creation of several new countries, Austria, Hungary, and Czechoslovakia, and the remaining parts of the Empire were allocated to Yugoslavia, Poland, Ukraine, Romania, Serbia and Italy according to their linguistic and cultural heritage. Czechoslovakia was the only country of the Austro-Hungarian Empire that remained democratic between World War I and World War II. Nazi Germany took control over the Czech lands after the Munich Agreement of 1938. Czechoslovakia was freed from Nazi rule in 1945, and after a coup d’etat in 1948, Czechoslovakia became a communist country in the Eastern Bloc. The Velvet Revolution ended Communist rule in November 1989 and on January 1, 1993, Czechoslovakia dissolved into the Czech Republic and Slovakia.
Austria and Czech Government Debt
The Vienna Stock Exchange was established in 1771 as a place where Austrian public debt could trade. Austrian debt was also issued in Amsterdam, Vienna, London and other cities in Europe during the 1800s. Austria suffered inflation during the 1790s reducing the value of its banknotes to 15% of their face value. Austrian banknotes were devalued by 80%. The Austrian National Bank was created in 1816 and in 1817 the bank began issuing currency. Austria suffered through revolution in 1848 and 1849, suspended payments on its debt in 1849, suffered militarily during the Prussian-Austrian conflict of 1850 and the Crimean War of 1853 to 1856. Austria suffered defeat in the Austria-Prussian War in 1866, faced rebellion from Hungary in 1867 and suffered a “Boersenkrach” stock market crash in 1873.
Austria-Hungary was defeated in World War I and its debt was reallocated among the surviving countries with Czechoslovakia taking about 40% of Austria’s debt. Czechoslovakia suspended payment on its foreign debt during World War II, but began servicing its debt after the war was over. The yield on Austrian bonds between 1788 and 2022 is illustrated in Figure 2.
Figure 2. Yields on Austrian Government Bonds from 1788 to 2021
Figure 3 illustrates the yield on Czech Bonds between 1922 and 1972. Czech bonds were in default during World War II. After the war, Czechoslovakia began paying interest on its bonds again, but after the Communist coup d’etat in 1948, Czechoslovakia went back into default and remained in default.
Figure 3. Czechoslovakia External Bond Yields, 1922 to 1972
Both the Czech Republic and Slovakia have had low inflation since they were established in 1993 and Slovakia now uses the Euro as its currency. Consequently, bond yields have been comparable to yields in Euro countries, even briefly turning negative in Slovakia. Figure 4 compares the yields on 10-year government bonds in both the Czech Republic and Slovakia.