Austria-Bavaria Deal

Peace in the Alps

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Alpine neighbors Austria and Bavaria have settled their differences over Hypo Alpe Adria.
  • Why it matters

    Why it matters

    The Austrian government’s refusal to foot the bill for the collapse of one of its banks had eroded its reputation, especially in the German banking world. Tuesday’s settlement could go some way to repairing the damage.

  • Facts


    • Austria has agreed to pay €1.23 billion, or $1.36 billion, to the state of Bavaria – just under half of the money that the state-backed BayernLB bank had loaned the now-defunct Austrian bank Hypo Alpe Adria.
    • BayernLB bought Hypo Alpe Adria in 2007, but was forced to sell the bank to the Austrian government for €1 two years later.
    • Hypo Alpe Adria owed another €3.1 billion in bonds to other German banks and insurers, who will now be hoping for settlements of their own.
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It was a truly unexpected turn of events. Austria and Bavaria, the two neighbors that have argued bitterly for many months over who should foot the bill for a major bank failure on their patches, have finally reached a settlement.

The Austrian government, after months of refusing, will now pay some of the bill stemming from the collapse of Hypo Alpe Adria, an Austrian bank that was once owned by Bavaria’s state-backed BayernLB and has been the biggest banking headache for Austria since the 2008 financial crisis.

The Austrian government will transfer €1.23 billion, or €1.36 billion, to the state of Bavaria. That’s about 45 percent of what BayernLB had demanded back in debts owed – but it’s better than nothing. The settlement brings to an end a raft of lawsuits and counter lawsuits demanding money in the case.

The settlement ends a long-running feud that had boiled over into a diplomatic crisis between Germany and Austria. Hypo’s bankruptcy had also threatened to put a major hole in the balance sheets of a number of other German banks that had loaned Hypo Alpe Adria money, including Commerzbank, and even led to the bankruptcy of one other German bank, Düsselhyp.

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