VIENNA, July 6 (Reuters) - Austrian President Heinz Fischer will conduct a thorough legal review before deciding whether to approve legislation that would impose losses on some creditors of nationalised lender Hypo Alpe Adria, he said on Sunday.
The law aims to wipe out holders of 890 million euros ($1.21 billion) worth of subordinated Hypo debt despite guarantees from its home province of Carinthia - an unprecedented step in Europe that has drawn international scrutiny.
The International Monetary Fund last week advised Austria to reconsider the plan, saying it could undermine other public-sector guarantees.
“I will certainly not just simply sign this,” Fischer told Austrian television in an interview, adding he would he have to discuss the legislation in depth first with legal experts.
But Fischer also made clear that Austria had to draw a line under the country’s worst post-war financial debacle and that he saw the Hypo law as a “middle path” between the unacceptable option of letting the bank go bust and the other extreme of having taxpayers alone keep shouldering the entire burden.
The government has said the Hypo legislation - which also mandates an 800 million euro contribution to Hypo wind-down costs from former owner BayernLB of Germany - aims to ensure taxpayers alone are not left footing the Hypo bill.
Austrians are furious that they have had to provide 5.5 billion euros in aid to Hypo since 2008.
The government considered bankruptcy for the lender it had to nationalise in 2009 after a decade of breakneck expansion, but decided instead in March to set up a “bad bank” for around 18 billion euros of assets to be wound down over time.
The plan will boost Austrian state debt to near 80 percent of gross domestic product and nearly double the budget deficit to 2.7 percent of GDP this year.
The lower house of parliament is due to address the legislation on Tuesday. It also needs to pass the upper house and get Fischer’s signature. The government has said it could take effect by August if all went to plan.
$1 = 0.7331 Euros Reporting by Michael Shields, editing by William Hardy