Instead of allowing Hypo to declare insolvency last spring, the government in Vienna painted an apocalyptic picture of what would happen if it were allowed to go bankrupt: the province of Carinthia itself would go bust, its hospitals, schools and kindergartens would close. So we ended up with bailouts of €5.5 billion. However, for this to happen politicians from all parties, not just in Carinthia but also the coalition government in Vienna, would have had to admit that huge mistakes had been made due to poor economic reasoning, prolonging and negating inconvenient problems, rather than solving them. Insolvency would have been the best option to avoid burning more taxpayers’ money. Today, now that all these scandals have become public, after years of inquiries and with three burnt Federal Ministers of Finance being forced to leave office, the guarantees by the Government of Carinthia have shrunk to €11bn. Ever since then, the nationalised Hypo has been causing more and more trouble, enduring corruption scandals involving former management, mismanagement, and political intervention. On 14 December 2009, Austria´s Federal Minister of Finance nationalised Hypo Alpe Adria, which once was worth billions, for €1 per shareholder, in addition to payments of €825 million to Bavaria, €200 million to Carinthia, and €30 million to the Grazer Wechselseitige. When the Bayrische Landesbanken refused to recapitalize it, the bank received €900m taxpayers’ money, despite being rated as “not distressed” by the National Bank of Austria in a questionable audit. In 20 Hypo Alpe Adria continued to be a major problem for the taxpayer.

The shareholders of Bayrische Landesbanken and insurance company Grazer Wechselseitige neglected previous losses (mainly in the Balkans, due to heavy corruption and theft), while voters in Austria´s most southern province were all of a sudden confronted with the possibility that their guarantees might become realisable. In 2007 the Bayrische Landesbanken bought the majority of shares from the province of Carinthia in a deal that seemed favorable for both sides. It was put under bank supervision by the Austrian National Bank, the Financial Market Supervisory Authority and the Government of Carinthia. In 2006 the bank suffered massive losses of €300 million because of swap deals. Of course none of these provincial politicians ever thought the guarantees might once become due.īut then things started to go wrong. Back then, this was a well-practiced custom not only in Austria but also in Germany with their Landesbanken (many of which had to be nationalised and saved by the taxpayer even before the financial crisis hit the continent).

The rapid growth of the bank in the 1990s and early 2000s was only possible thanks to an old practice: the €40 billion guarantees by the province of Carinthia for any losses made by the bank. Prior to the financial crisis all almost went well. Back in 1992 the small provincial bank had a balance sheet total of ÖS 26 billion (Austrian schillings), equivalent to €1.89bn, but was about to become a major player in the Balkans thanks to the burning ambition of the local political elites and greedy, supposedly smart bankers. The Hypo Alpe Adria scandal, which threatens to bankrupt the Austrian province of Carinthia, started about two decades ago.

Hipo alpe adria