VIENNA (Reuters) - Austria is not prepared to provide unlimited help to the province of Carinthia as the region comes to grips with its debt guarantees for the “bad bank” Heta [HAABI.UL], Finance Minister Hans Joerg Schelling told the magazine Der Boersianer.
A capital hole at Heta, which is winding down the remnants of defunct lender Hypo Alpe Adria, prompted the FMA financial watchdog to take control of the vehicle last month and freeze debt repayments until the end of May 2016.
Carinthia, Hypo’s home province, holds more than 10 billion euros ($10.6 billion) in debt guarantees for Heta, and is trying to figure out how to handle them, given that its annual budget is only around 2 billion euros.
No Austrian province has ever gone bankrupt and there is no legislation on how to handle such an event. Schelling reiterated his view that it would be a mistake to pass such a law now. Asked if that meant negotiations with creditors were in order, he said:
“Purely from a constitutional law perspective, the federal government is not obliged to back provinces. Only Carinthia as the (Heta) guarantor can take these steps, together with the FMA.
“What we can do is support and provide liquidity, but this will certainly not be unlimited, and will go primarily toward the orderly resolution of the provincial budget,” he added.
The debt moratorium at Heta gives the FMA time to work out a plan to wind down Heta to ensure equal treatment of creditors.
The FMA said last month it would not negotiate on the size of any losses it imposes on debtholders, the extent of which may become clear in about a year.
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Reporting by Michael Shields; Editing by Kevin Liffey