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Dont disregard insolvency for Hypo bank says WIFO head

A leading Austrian economist has caused controversy by questioning the government's stance about how to deal with ailing bank Hypo Alpe Adria.

Professor Karl Aiginger, who heads up think tank WIFO and is Professor of Economics at the Vienna University of Economics and Business Administration, said the government were too quick to completely reject the possibility of letting Hypo go bust.

"We have to look at this solution," he said. "It is absolutely unintelligent to rule out this solution."

Government officials and a task force assigned to deal with Hypo said recently that they will not be considering insolvency for the bank, despite rumours in Austrian media that this was still under discussion.

They argued that it would be too risky for the country and could snowball out of control, affecting other healthy Austrian banks.

However Aiginger has said that steps could be taken to try and manage the fallout from a Hypo bankruptcy. These could include guaranteeing billions in covered bonds, and providing financial aid for the state of Carinthia, which is unable to pay it's debts back to Hypo.

Options favoured by the government at the moment include using healthy banks to absorb some of Hypo's toxic assets, although this idea has not proved popular with banks, who feel they are already under pressure from a recent tax levy hike.

The task force are due to announce their decision over the way forward this month.

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