After the last week’s visit of Austrian minister of finance, Josef Pröll in Romania, Croatia, Bulgaria and Ukraine, the commentaries on the Vienna official’s attempt to drum up support for rescuing the Austrian banks (Bank Austria, Raiffeisen Bank and Erste Bank) and the response of the aforementioned countries have grabbed most of the headlines in Austria. Romania, Croatia, Bulgaria and Ukraine received the proposal with suspicion, reticence and lack of interest, as they are too proud of their economic performances and too sure that the financial crisis would not jar their economies.
The failed mission of the minister sparked fears that the state budget would be exhausted when the country will intervene to rescue the Eastern banks and this will drive Austria to meltdown. Romania is deemed as one of the areas likely to pose the biggest problems, due to high current account deficit and worryingly high default rate of population, especially for foreign-currency denominated loans.
Profil publication is asking rhetorically “Is Austria facing the threat of meltdown?” and stressed that Eastern European countries, such as Romania, were pushing the country down, as long as the Austrian banks don’t have enough resources to support the losses of their branches there, and the state would have to intervene. In this case, wouldn’t the state be overworked, especially when the euro’s strength is volatile? Profil says.
Nowadays, the banks are the recipients of social benefits. “I hope we won’t see takeovers of banks by the state, yet we can’t exclude this variant”, said the chancellor Werner Faymann. “The state has to save his banks, because without them, the entire economic system would fall apart, but then, who can save the state afterwards?” Profil publication comments.
The utmost concern stems from the fact that “the billions and billions of euros of Austrian banks are stuck in the crisis of Eastern Europe”. The biggest fears of the banks are related to their branches in Bulgaria and Romania. “Both countries had record CA deficits in the past few years, and the living standards have not been improved. Even if the citizens in Eastern Europe are still good debtors, the experts forecast a twofold-increase of the default rate, because there are no savings, while the unemployment risk is rising at an alarming pace”, Profil writes.
Furthermore, the loans have been granted in foreign currency, which in case of a downfall of the local currency, there are nearly impossible to pay. In certain countries, the loan delinquency rate could actually reach 10%, which is 30 billion euro loss.
“In 2007, BCR circulated a 1 billion euro own capital flow and granted loans of 8 billion euros in Romania. If 10% of the 8 billion euros cannot be cashed in anymore, it means that the own capital shrinks to 200 million, and in this case, the branch in Romania would urgently need fresh capital, and the easiest way to do it, would be to ask from the parent company, that holds 70%”, Profil notes.
If the parent-bank doesn’t have the resources to grant the liquidities, it doesn’t mean that Erste would slide into bankruptcy, but only its Romanian subsidiary. On the other hand, the bankruptcy would severely impact the overall balance sheet of the banking group. In order to avoid these situations, Austria relies on the help of the other EU’s Member States and hopes to collect the 150-billion euro needed to rescue the Eastern Europe banking system. The reactions of European partners have been “anything but friendly”. Furthermore, the visit of finance minister Josef Pröll in Bulgaria, Ukraine, Croatia and Romania, got caught between “clear lack of interest” of his counterparts.
Wiener Zeitung is wondering whether the visit in Eastern Europe of Josef Pröll was in vain or not. According to sources cited by the publication, Pröll’s visits were a complete politic and diplomatic failure. The problem? “Eastern European countries are very proud of their economic performances and they are convinced that they can dodge the crisis”, Wiener Zeitung explained.
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