Like Greece before it, Austria’s banking crisis is quickly becoming Europe’s problem.
In a matter of weeks the case of Hypo Alpe Adria, a tiny state-backed troubled bank in the Austrian state of Carinthia and the country’s biggest casualty of the 2008 financial crisis, has threatened to spread like wildfire across the entire continent.
The latest crisis has been ignited by the Austrian government’s refusal to pay the bank’s €8 billion in debt. That amount might be seem small potatoes for the European Union’s €14 trillion economy, but like Greece, it’s a matter of credibility.
Bankers, politicians and rating agencies fear that the Austrian debacle could set a precedent for the whole of Europe. The decision by Austria not to honor its commitments has seriously shaken the industry’s faith in government guarantees, which are still relied on by across much of Europe’s banking sector.
Germany’s banking lobby has already called on Berlin to take up the matter with Vienna. Now, it looks like the European Commission in Brussels is getting involved.
Handelsblatt has learned that Jonathan Hill, the E.U.’s commissioner in charge of financial services, is looking into whether Austria has violated E.U. law. At issue is whether Austria can rightly refuse to pay off the debts of a state-backed bank.