VIENNA, July 8 The lower house of Austria's parliament approved legislation on Tuesday that would wipe out some subordinated creditors of nationalised lender Hypo Alpe Adria despite guarantees from its home province, entering uncharted territory for debt markets.
The government insists its move, which still needs to pass the upper house and be signed by the president, is a one-off step to ensure Hypo investors help pay to wind down a bank that has cost 5.5 billion euros ($7.5 billion) in public aid so far.
The step is in line with European bank bail-in rules to take effect in 2016 that ensure taxpayers alone no longer shoulder the burden of propping up or killing off ailing banks.
But ratings agencies, senior bankers and the International Monetary Fund warn that Vienna has set a dangerous precedent which may undermine confidence in other state guarantees that underpin billions of euros in debt. ($1 = 0.7331 Euros) (Reporting by Michael Shields)