Austrian chancellor plays down Hypo aid impact-paper

VIENNA, Sept 5 Thu Sep 5, 2013 4:16am EDT

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VIENNA, Sept 5 (Reuters) - Austrian Chancellor Werner Faymann has played down prospects that a new austerity package will be needed to help handle a potentially costly wind-down of ailing nationalised lender Hypo Alpe Adria.

Selling off the bailed-out bank that Vienna took over in 2009 could cost taxpayers up to 5.4 billion euros ($7.1 billion)in fresh capital by 2017 under a plan approved this week by the European Commission.

"I am not preparing for a new austerity package," Faymann told the Oberoesterreichische Nachrichten newspaper in an interview published on Thursday, only weeks away from national elections on Sept. 29.

Finance Minister Maria Fekter, whose conservatives govern as junior partner in the coalition with Faymann's Social Democrats, has also opposed a new round of belt-tightening to ensure Austria hits its target of balancing the budget by 2016.

But economists say the government has its work cut out to absorb a big hit from Hypo while continuing on its path of cutting state debt and deficits.

"A balanced budget in not on the cards without an additional savings package," the paper quoted Linz University economist Friedrich Schneider as saying. He addeed that at the very least no tax cuts can be expected before 2016 or 2017.

Austria is trying to minimise the financial fallout from Hypo by hiving off toxic assets into a wind-down vehicle majority-owned by private investors so that its debts stay off state books.

Healthier banks have shown scant interest in the plan, however, unless they get something in return, perhaps a reduction in the state tax on big banks' balance sheets.

Faymann has insisted the banking sector - including major players such as Erste Group Bank, Raiffeisen Bank International and Bank Austria - should help to shoulder the burden of Hypo's woes.

He wants to extend the Austrian bank levy indefinitely even if lenders agree to take part in a "bad bank" for Hypo.

"If that is supposed to be a way to have the bank tax expire or halve then I am against it," he told the newspaper. ($1 = 0.7577 euros) (Reporting by Michael Shields; editing by Stephen Nisbet)

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