Article Tools

Austria: Painful Austerity Measures Ahead

Published: March 10, 2014; 07:44 · (Vindobona)

The Austrian public debt level grows massively. The disaster of the nationalized Balkan lender Hypo Group Alpe Adria is not the only reason for the unfavorable situation.

Nowotny: "No alternative to bad bank". / Picture: © Wikipedia / JJ55 (30 March 2008)

This week, the Hypo Group task force has submitted the final report to the Austrian government. Ewald Nowotny, new chairman of the Hypo Group task force, wants to establish a downsizing unit for the ailing lender. In an interview with the Austrian broadcaster ORF, Nowotny stressed that the downsizing unit would be a substantial burden for the public finance. In total, the public debt level would by € 17.8bn, according to Nowotny.

However, there is no alternative to the “bad bank”, Nowotny pointed out. In case of a Hypo Group´s bankruptcy, the Austrian financial sector would be in severe troubles, Nowotny added. The Austrian mortgage bank sector might be infected and the creditworthiness of the Austrian banking sector would suffer enormously, Nowotny argued.

The maintenance of the status quo would be no option too, according to Nowotny. The Austrian Ministry of Finance would have to inject fresh funds into the distressed lender permanently.

After the creation of the bad bank, the Austrian public debt level would jump above 80% of GDP. Moreover, the shares in Hypo Group Alpe Adria would have to be partially written off which would trigger an increase in the budget deficit. The one-off effects are estimated to reach about € 3.8bn. According to experts, Austria will not be able to keep the budget deficit below 3.0% of GDP. As a result, another austerity package would be inevitable in this case. Even Austrian Minister of Finance Michael Spindelegger did not exclude austerity measures.