Eurozone faces first regional bankruptcy as debt debacle stalks Austria's Carinthia

[Chippiewill]

Fitch has stripped Austria of its AAA rating, adding that 'within a short space of time the debt dynamics of Austria have deteriorated significantly'

The Alpine region of Carinthia faces probable bankruptcy after Austria’s central government refused to vouch for debts left by a disastrous banking expansion in eastern Europe and the Balkans.

It would be the first sub-sovereign default in Europe since the Lehman Brothers crisis, comparable in some respects to the bankruptcy of California's Orange County in 1994 or the city of Detroit in 2013.

Austria’s finance minister, Jörg Schelling, said Vienna would not cover €10.2bn (£7.4bn) in bond guarantees issued by the Carinthian authorities for the failed lender Hypo Alpe Adria, or for the "Heta" resolution fund that succeeded it. This leaves the 550,000-strong province on the Slovene border to fend for itself as losses spin out of control.

“The government won’t waste another euro of taxpayer money on Heta,” he said, insisting that there must be an end to moral hazard. The Hypo affair has alredy cost taxpayers €5.5bn. The Austrian state has said it will cover €1bn of its own guarantees “on the nail” but nothing more.
Sources in Vienna suggested that even senior bondholders are likely to face a 50pc writedown, becoming the first victims of the eurozone’s tough new “bail-in” rules for creditors. These rules are already in force in Germany and Austria, and will be mandatory everywhere next year.

“We are at a very delicate phase when Europe’s banking system switches from a bail-out regime into a much tougher bail-in regime, and Austria has just thrown this into sharp relief,” said sovereign bond strategist Nicholas Spiro. The biggest bondholders are Deutsche Bank’s DWS Investment, Pimco, Kepler-Fonds and BlackRock. The World Bank also owns €150bn of Hypo debt.

http://www.telegraph.co.uk/finance/e...Carinthia.html

Looks like we finally found a eurozone disaster that Nigel hasn't predicted.

[-:Undertaker:-]

Interesting to see a sovereign state (although it is in the Eurozone) allow part of it to default... that normally seems to be something you only see or hear of in countries with strong federalist structures, and I always assumed Austria to be quite centralised given the small size of the country.

[GommeInc]

Interesting to see a sovereign state (although it is in the Eurozone) allow part of it to default... that normally seems to be something you only see or hear of in countries with strong federalist structures, and I always assumed Austria to be quite centralised given the small size of the country.

Austria has always been a peculiar member state in the Eurozone/EU. It seems to go idly by and unheard from. The last major EU related thing to happen with Austria was when they were nearly kicked out of the Union (or faced heavy sanctions - technically under EU law they could have been) when they had a far right majority in Government in the 00's, spouting fascist views.

It wouldn't surprise me the EU just blanked Austria, forgetting it exists or thought they wouldn't put themselves in a position of causing problems for themselves since last time.