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  Austria vs. Hungary - The Showdown !
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« on: September 13, 2011, 06:50:31 am »

BUDAPEST/VIENNA, Sept 12 (Reuters) - Hungary's prime minister on Monday gave a conditional green light to a plan enabling families to repay foreign currency loans at a big discount to market levels, sparking outrage from neigbouring Austria, home to some of emerging Europe's top lenders.

Orban's remarks helped allay the worst market fears triggered by a Friday proposal of the ruling centre-right Fidesz party, which implied banks might be forced into issuing new forint loans for all borrowers wishing to repay their expensive FX mortgages.

Analysts estimated full conversion of the total outstanding stock of Swiss franc loans -- which proliferated in the central European country of 10 million before the 2008 financial crisis -- could have caused bank losses of up to 1.1 trillion forints ($5.3 billion).

The current proposal would enable borrowers with sufficient savings to repay their foreign currency mortgages in full at 180 forints per Swiss franc and 250 forints per euro, far below current market exchange rates.

"We propose that on top of the proposal by Fidesz-Christian Democrat (parliamentary group), (lawmakers) should not present any further motions burdening the banking system with regard to the final repayment (of loans)," Orban told parliament.

"This means that apart from the final repayment, they should not prescribe mandatory (loan) conversion into forints or mandatory forint loan issuance, because this will commence anyway," he said.

With these caveats, Orban dubbed the new scheme offered to hundreds of thousands of households holding Swiss franc debt equivalent to 18 percent of Hungary's gross domestic product "feasible", adding that parliament would have the final say.

It was not immediately clear when parliament would vote on the new programme.

The plan is a further blow to banks active in Hungary, which have already been slapped with Europe's highest financial sector tax, and triggered an angry response from Austria, whose banks are among the leading lenders in the EU's emerging eastern wing.

Lenders including UniCredit Bank Austria , Erste Group Bank and Raiffeisen Bank International have roughly 6 billion euros ($8.23 billion) worth of foreign-currency loans outstanding in Hungary, Austrian officials said.

The banks declined to comment, while officials said they were seeking more details on the proposal.

But an Austrian official who asked not to be named said the European Commission was intervening.

"Already over the weekend there have been several attempts to get an idea what (Orban) is planning exactly and to convince him to back down because it could have a major impact on banks and it is not in line with the legislation in the European Union," the official said.

"It is a complete failure to comply with the rules within the Union."

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