Public spending cutbacks for the government of Austria

Austria flag
Austria flag

The Austrian government may be forced to move to cutback public spending, since the liquidation of the ailing bank Hypo Alpe Adria will increase the debt by 17.8 billion euros, said the central bank governor Ewald Nowotny country. Novotny announced that he and members of the supervisory authorities of the financial sector have advised the government to break into two pieces this credit institution and create a bad bank of the nationalized Hypo, which will have to bear the burden of non performing loans and other inefficient agreements were the result of a failed expansion efforts in the Balkans. That would be better than to declare bankruptcy of the bank, which would give rise to danger of deterioration of creditworthiness of the country, following the advice of Novotny and special.

Adria Bank, Austria

Adria Bank, Austria

The assets bad bank will be included in the calculation of the debt of Austria, which thus will increase from 74% of the Gross National Product now 80% of GDP, well above the limit of the eurozone, said the commander of the Austrian National Bank, the central institution of the country, the public television network ÖRF during the liquidation, the sale of certain assets of Hypo will reduce some of the debt, but on the other hand, this would mean that fiscal policy is restrictive, said Novotny. In addition to the increase in debt the government will have to recapitalize the bank with 3 billion before the split, he said. Any austerity measures will follow the recent increases in value added tax and taxes on businesses. The Vice Chancellor and Finance Minister Michael Spindelegger did not rule out taking austerity measures in an interview published today in the newspaper Österreich. However, in a statement issued within the day promised that taxpayers will not pay the full liquidation of Hypo.

Austria flag

Austria flag

Nowotny endorsed the participation of previous owners of Hypo, the province of Carinthia and the German bank Bayern LB, because they had supported the risky policy of expansion that followed the administration. Spindelegger has left open the possibility that the government might announce bankruptcy of Hypo. Today said the coalition government expects to have come up with a clear plan at the end of the month.

By Nicole P.

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