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Hypo insolvency no longer ruled out says Spindelegger

Hypo insolvency no longer ruled out says Spindelegger

Insolvency for failing bank Hypo Alpe Adria is back under discussion by the Austrian government after Finance Minister Michael Spindelegger announced it is no longer ruled out.

Spindelegger had said a few weeks ago that the bank would not be allowed to go bust as it was deemed to be too much a risk for the financial security of the country.

He has gone back on his position following recent criticism from leading Austrian economists about ruling out all possible options for the bank. They argued that insolvency at Hypo could be managed to prevent it snowballing out of control.

The government's preferred approach would be to set up a 'bad bank' with the support of Austria's healthy banks who could absorb some of Hypo's 13 billion Euros of toxic assets and keep them off state debt. This idea has had a lukewarm reception from such as Bank Austria and Erste Bank who say they are already struggling following recent hikes in bank levies.

"If no solution is found with the banks, nothing is ruled out. For me, it's about finding the most favourable solution for taxpayers," Spindelegger said. "There are no taboos here."

A insolvency solution for Hypo might include the government providing state aid to Carinthia, who owe around 12 billion Euros in guarantees to Hypo. The government has been warned by Hypo that insolvency could cost as much as 25 billion Euros in total.

A government task force responsible for recommending the government's best course of action concerning Hypo is expected to make an announcement this month.

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