26th Jun 2017

Austria pleads with Europe for bail-out of east

  • Vienna is worried that the plug on eastern Europe is about to be pulled (Photo: Wikipedia/Thomas Binderhofer)

Austria, home to banks with massive exposure in eastern Europe, is calling on the EU to offer some €150 billion in a bail-out package for the east and warning of a banking "collapse" across the region that could snuff out the Alpine nation's banking system.

European banks have a financial engagement of some €1.1 trillion in the region, but Vienna's financial institutions are particularly exposed, being owed €220 billion - equivalent to around three quarters of the country's GDP - that they fear may not be able to be paid back. Italy, Sweden, the Netherlands, France and Belgium are also among western Europe's big lenders to the east.

Dear EUobserver reader

Subscribe now for unrestricted access to EUobserver.

Sign up for 30 days' free trial, no obligation. Full subscription only 15 € / month or 150 € / year.

  1. Unlimited access on desktop and mobile
  2. All premium articles, analysis, commentary and investigations
  3. EUobserver archives

EUobserver is the only independent news media covering EU affairs in Brussels and all 28 member states.

♡ We value your support.

If you already have an account click here to login.

To prevent the plug being pulled on the Austrian economy - until now fairly lightly hit by the economic crisis compared to other western states - Vienna wants the EU to raise the currently pledged €25 billion balance of payments assistance to central and eastern Europe to €100 billion.

Austria is also calling for an additional €50 billion in balance of payments assistance to be offered to countries beyond the EU - the so-called European Neighbourhood countries - in the Balkans and further east, notably Ukraine.

The monies would come from the European Investment Bank, the European Central Bank and the EU Cohesion Fund.

Such a move would aid the eastern countries to establish their own bank bail-out packages and economic recovery plans, most of which, whether in the EU or not, until now have not been able to afford them. Of the €200 billion recovery package Brussels announced in November, most of the money, coming from national coffers, remains in the west.

The presidents of the Austrian and Polish chambers of commerce were in Brussels on Tuesday (10 February) to promote a similar plan based on proposals from the IMF and the Austrian central bank. Although the precise details of what Vienna would like to see have yet to be published, the Austrian chamber, close to the governing coalition, says the plans are "not distinct", and have been echoed by a call by the IMF for an equal amount of EU cash to be offered to the east.

Austria opened discussion of the regional bail-out at Tuesday's meeting of European finance ministers in Brussels, but the response was lukewarm from other EU member states, according to Reinhold Lopatka, secretary of state for finance.

Last week, the Austrian chancellor and finance minister toured EU capitals in an unsuccessful attempt to drum up support. The finance minister is also to head to Croatia, Ukraine, Bulgaria and Romania on Wednesday to "forge an alliance in support of the package," said a figure close to the government.

Germany in particular, believing it will be stuck with the bill, is stiffly opposed, despite heavy eastern exposure itself.

"We do not want to get lost in any future rescue measures," said German finance minister Peer Steinbrueck speaking to reporters after the Brussels meeting. "Austrian banks are over-proportionally engaged in the east," he continued.

"It's a legitimate national interest," he concluded, meaning not an issue of wider concern.

Mr Lopatka hit back, saying that the problem had broader implications than losses for domestic banks. "Austria may well be more [extended] than others, but it is more of an EU question."

Without a regional bail-out, he warned, "eastern Europe will start to collapse."

Orgy of lending

The economic crisis has hit both new EU member states in the east and countries beyond the bloc sandwiched between the EU and Russia much harder than it has hit most western member states.

High growth rates fuelled by cheap and easy foreign credit have been replaced by a sharp decline in demand for exports, a decrease in investment and the near impossibility of accessing finance and loans for businesses.

Meanwhile, devaluation threatens businesses that have borrowed heavily in foreign currency. Unemployment is soaring and civil unrest, particularly by farmers and young people, has hit a number of capitals.

Latvia's economy contracted 10.5 percent in the last quarter of 2008, according to figures released on Monday, while analysts fear Ukraine is on the verge of bankruptcy. Hungary, Bulgaria and Romania have also been badly hit.

In recent years, western European banks went on an orgy of lending and buying up the local financial sector. As early as 1 December, a group of six western banks - Italy's UniCredit and Intesa, Austria's Erste and Raiffeisen, Belgium's KBC and France's Societe Generale - sent a letter to the European Commission requesting a regional financial aid package for the east, according to a Bloomberg report published last week.

Separately, the Institute of International Finance, the global association of financial institutions, is to lobby governments for the package ahead of April's G20 summit in London.

'One European family'

Warning of dangers to the European economy and "social stability", Christoph Leitl, president of the Austrian chamber of commerce, told reporters it was not simply about saving Austrian banks.

"We are one European family. The central and eastern European nations are the weaker children of that family," he said, "but we must take care of the weaker child. It is our common responsibility."

He also cautioned that if Brussels did not act in the east, Moscow would.

"Russia is helping in a very efficient way to pick these countries up and take them back into closer connection. There is a competition between the EU and Russia over which family the east belongs to."

Ukrainian Prime Minister Yulia Tymoshenko said on Monday that the country had approached Moscow requesting a €3.8 billion ($5bn) emergency loan.

According to Heinz Kogler, EU co-ordinator of the Austrian chamber of commerce, Germany's blocking of the bail-out "is actually quite consistent with what they have been saying since the beginning of the crisis. They have always opposed any pan-European initiatives."

"They want nothing more than efforts at the national level because they worry they will have to pay for such EU-level schemes."

He said the Austrian government had acted on the matter as a result of the galloping escalation of the crisis in the last couple of weeks and that if the EU did not move soon, "There will be a complete collapse of the region, taking Austria with it."

EU extends sanctions on Russia

German chancellor Angela Merkel said that Russia hadn't done enough to implement the so-called Minsk peace process, a condition for lifting the sanctions.

EU steps up global counter-terrorism drive

EU foreign ministers vowed to increase the number of projects and financial support in different parts of the world ahead of an EU summit in Brussels, where leaders will focus on security and defence.

EU extends sanctions on Russia

German chancellor Angela Merkel said that Russia hadn't done enough to implement the so-called Minsk peace process, a condition for lifting the sanctions.


EU visa waiver unlikely to import Ukraine crime

Visa-free travel, which began last week, unlikely to prompt a Ukrainian crime wave, an EU police expert has said, but Ukraine itself is seeing increases in lawlessness.

News in Brief

  1. British PM closes government deal with Northern Irish party
  2. Merkel on collision course with US at G20 summit
  3. Schulz outlines German election strategy, hits out at Merkel
  4. Berlusconi's party sees comeback in Italian local votes
  5. Low turnout in Albanian election set to mandate EU future
  6. Merkel and Macron hold symbolic joint press conference
  7. Juncker has 'no' clear idea of kind of Brexit UK wants
  8. Belgian PM calls May's proposal on EU citizens 'vague'

Stakeholders' Highlights

  1. Malta EU 2017Conservation of Atlantic Tunas: International Measures Become EU Law
  2. European Healthy Lifestyle AllianceCan Statin Therapy Interfere With a Physically Active Lifestyle?
  3. EPSUOn Public Services Day, Stop Austerity! Workers Need a Pay Rise!
  4. EGBAOnline Gambling: The EU Court Rejects Closed Licensing Regimes In Member States
  5. World VisionFaces of Today, Leaders of Tomorrow: Join the Debate on Violence Against Girls - 29 June
  6. ECR GroupThe EU Must Better Protect Industry from Unfair Competition
  7. Malta EU 2017Better Protection for Workers From Cancer-Causing Substances
  8. EPSUAfter 9 Years of Austerity Europe's Public Sector Workers Deserve a Pay Rise!
  9. Dialogue PlatformGlobalised Religions and the Dialogue Imperative. Join the Debate!
  10. UNICEFEU Trust Fund Contribution to UNICEF's Syria Crisis Response Reaches Nearly €200 Million
  11. EUSEW17Bringing Buildings Into the Circular Economy. Discuss at EU Sustainable Energy Week
  12. European Healthy Lifestyle AllianceCan an Ideal Body Weight Lead to Premature Death?

Latest News

  1. China's slow foray into Central and Eastern Europe
  2. Estonia presidency and Google fine This WEEK
  3. UK previews offer on EU nationals' rights
  4. EU approves rescue of Italian banks
  5. Cohesion policy for a stronger Europe
  6. Cheap meat is a bigger problem for climate and health
  7. Ministers to reject minimum parking spaces for electric cars
  8. Macron’s investment screening idea watered down by leaders

Stakeholders' Highlights

  1. Malta EU 2017End of Roaming Charges: What Does It Entail?
  2. World VisionWorld Refugee Day, a Dark Reminder of the Reality of Children on the Move
  3. Dialogue PlatformMuslims Have Unique Responsibility to Fight Terror: Opinon From Fethullah Gülen
  4. EUSEW17Check out This Useful Infographic on How to Stay Sustainable and Energy Efficient.
  5. Counter BalanceEuropean Parliament Criticises the Juncker Plan's Implementation
  6. UNICEF1 in 5 Children in Rich Countries Lives in Relative Income Poverty, 1 in 8 Faces Food Insecurity
  7. International Partnership for Human Rights26 NGOs Call on Interpol Not to Intervene Versus Azerbaijani Human Rights Defenders
  8. Malta EU 2017Significant Boost in Financing for SMEs and Entrepreneurs Under New Agreement
  9. World VisionYoung People Rise up as EU Signs Consensus for Development at EU Development Days
  10. ILGA-EuropeLGBTI Activists and Businesses Fighting Inequality Together
  11. Nordic Council of MinistersNordic Prime Ministers Respond to Trump on Paris Agreement