Bank bailouts weigh on Austrian economyBy James Shotter in Zürich
Austria is likely to run bigger budget deficits than planned this year and next as a result of sluggish growth and further public support for its struggling banks, the country’s finance minister has warned.
Presenting the draft budget for 2013, Maria Fekter said the finance ministry now expected that Austria’s deficit would be at least 3.1 per cent in 2012, before falling to 2.3 per cent in 2013.
While both figures are below the European average, they are above the finance ministry’s previous targets of 3 per cent and 2.1 per cent respectively. Ms Fekter said the out-turn was “unfortunate” but added that the support for the country’s banks had had an “enormous” impact on the public finances.
The Alpine republic has come through the financial crisis better than many of its European peers. At 4.5 per cent, unemployment is less than half the EU average, while public debt, which stood at around 64 per cent of national output in 2008, is now projected to peak at 75.4 per cent in 2013.
However, Austria’s banking sector, which is both relatively large in comparison with its economy and significantly exposed to weak markets in central and eastern Europe, has struggled – a fact which led Standard & Poor’s to drop Austria’s triple A credit rating in January.
Since then, the state has had to spend €1bn to save Oesterreichische Volksbanken, having already nationalised Hypo Alpe-Adria-Bank in 2009 and Kommunal Kredit Austria in 2008.
On Tuesday Ms Fekter said that to meet capital requirements Hypo Alpe-Adria-Bank would now need to receive another €1.5bn this year and €700m next year. Beyond this, she set aside a further €200m to cover state guarantees which come due in 2013.
Austria’s public finances are also suffering from the ongoing economic malaise in the European markets, which take around 70 per cent of its exports.
Austrian growth in 2013 is now expected to come in at 1 per cent, rather than 1.3 per cent, and Ms Fekter used this context to defend Austria’s contributions to the European Stability Mechanism, which will run to €900m in both 2012 and 2013, and which are increasingly unpopular in Austria.
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