What’s a state debt guarantee worth these days? Not as much as it used to be, following Austria’s plan to write down the debt of Austria’s Heta Asset Resolution. The decision risks undermining investor confidence in European sub-sovereign debt.
If it were Greece, it wouldn’t come as a surprise. But rich Austria, one of the core members of the European Union?
The southern Austrian province of Carinthia said this month it was checking whether it can escape €10.2 billion in debt guarantees for defunct lender Hypo Alpe Adria that are still outstanding at its wind-down vehicle Heta.
Hypo, formerly owned by publicly-owned Bavarian Landesbank BayernLB, expanded rapidly in Austria and the Balkans, aided by low borrowing costs made possible by state guarantees provided by Carinthia. It overstretched itself and came close to insolvency before the government in Vienna bought it in 2009.