Northern Country

How globalization changes capitalism, the economy and politics

Austria – is there an emergency plan for Eastern Europe?

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Back in January this year experts from the EZB, IMF, EBRD and Austrian government together with representatives from the largest banks in the country met almost secretly to what has been called ‘Gedankenaustausch’. Officials denied it was a crisis meeting but rather a swapping of ideas about how best to meet the challenges threatening the stability of the country coming form Eastern Europe.

Noble laureate and US economist Krugman even claimed that the country is at severe risk of default because of its off the charts exposure to Eastern Europe. Krugman: “So what I said …..— that after those two (Iceland and Ireland), it’s (Austria) probably the advanced country at most risk from the financial crisis — shouldn’t even be controversial.”

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The professor does not even deem it controversial and yet Austrian officials both from politics and financial industry maintain the crisis is manageable and not as bad as some might fear.  Walter Rothensteiner CEO of Raiffeisen Zentralbank (RZB), one of Austrian’s biggest banks, does not agree with international organizations like the IMF that his bank will need more government funds in 2010. Of course those funds are expensive. So far RZB has requested 2.5 billion euro from the government (that’s almost 30 percent of core capital!). Rothensteiner refuses to make any projections about the magnitude of possible NPLs in his firm.

Recently economist Paul Hilbers, head of IMF’s monetary and financial systems department, downplayed the threat coming form Eastern Europe. “We don’t see a threatening default scenario. Austrian banks are facing a difficult time in Eastern Europe, but I wouldn’t call them threatened," Hilbers said.

Today the OECD again warned of more risks to the financial stability of the country through its heavy Eastern European exposure. They recommend to the Austrian government to prepare emergency plans in case the financial and economic crisis should get worse. In addition OECD experts suggest further cross-boarder initiatives to handle the crisis.

There are no official emergency plans known. Maybe they do exist though. Even the OECD admits so far Austria has weathered the storm better than others, but I sincerely hope that politicians and experts do not turn off electricity entirely when they all go on vacation in the coming months. Better yet hopefully there will be no emergency at all, at least not in the months of July and August.

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Written by Alfred

2. July 2009 at 1:15 pm

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