Austria: The return of the debt crisis

Austria is feeling the pain from the Swiss National Bank's decision to unpeg the franc from the euro.


Carinthia: the Swissie's first big casualty

"Everyone was wondering who the first big casualty of the [Swiss National Bank's] currency peg failure would be," says "We now know the answer."

An audit has uncovered a €7.5bn capital hole in Austria's Heta Asset Resolution, a "bad bank" created to wind down the bad debts racked up by the bankrupt lender Hypo Alpe Adria. Hypo had been based in the southern province of Carinthia.It was nationalised in 2009 after suffering heavy losses in eastern Europe.

A key problem for European lenders in recent years has been a reliance on Swiss-franc-denominated mortgages in eastern Europe. As the Swiss franc strengthened, eastern European households owed more in local currency terms and many were unable to pay.

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In January 2015, the Swiss National Bank suddenly abandoned its peg against the euro, sending the franc rocketing after three years of stability. This "appears to have been the last straw for Heta", says Ambrose Evans-Pritchard on, triggering another wave of likely defaults in its loan book.

The Austrian federal government is tired of pouring taxpayers' money into Heta, and has ordered a 15-month moratorium for around €10bn of bonds owned by the bank. It plans to use newly introduced EU rules to force senior bondholders to contribute to the clean up, thus limiting the burden on taxpayers. The decision wiped around 50% off Heta bonds.

However, the federal government's tough attitude leaves the provincial government of Carinthia high and dry. It guarantees the €10bn, around five times its annual revenue. Thus Carinthia itself could go bust if Heta is declared bankrupt (as opposed to being in a moratorium).

This affair is already ricocheting through the financial system. Heta owes €1.24bn to Pfandbriefbank sterreich, which issues bonds on behalf of Austrian provincial banks. German banks are also emerging as key bondholders, notes Boris Groendahl on Deutsche Pfandbriefbank has said it owns €395m.

All this adds up to is a nasty reminder that Europe's banking system remains "awash with interlinked banking and public liabilities, many of which will never be repaid", says Jeremy Warner in The Sunday Telegraph. That raises the spectre of "massive creditor losses". Europe's debt crisis, far from being over, "may have barely begun".

Andrew Van Sickle

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.