April 29, 2014 / 8:57 AM / 4 years ago

Hypo bank to push Austrian debt to record high in 2014

VIENNA, April 29 (Reuters) - The cost of winding down nationalised Austrian bank Hypo Alpe Adria will push public debt to a record 79.2 percent of gross domestic product this year, the finance minister said.

Michael Spindelegger said he reckoned with a final cost of 4 billion euros ($5.54 billion) this year for Hypo, whose toxic assets the government plans to put into a “bad bank” five years after it rescued the lender.

The 2014 budget deficit will leap to 2.7 percent of GDP under EU criteria from 1.5 percent last year but fall back to 1.4 percent in 2015, Spindelegger said.

“There will be a real outlier in the Maastricht curve of 2.7 percent for us in 2014. There is just one reason for that and it has four letters: Hypo,” said Spindelegger.

“In our land of mountains there is now one mountain too many,” he said in a speech to parliament on Tuesday.

The structural deficit, stripping out one-offs like Hypo, will fall to 1.0 percent this year from 1.8 percent last year and further to 0.9 percent in 2015, Spindelegger said, reiterating his target of a zero structural deficit by 2016.

The government in Vienna bought Hypo Alpe Adria from Germany’s BayernLB for a symbolic 1 euro after a breakneck decade of expansion in the Balkans had pushed the Austrian bank to the brink of bankruptcy.

It has since cost taxpayers more than 5 billion euros.

The bank made a 2013 net loss of 1.86 billion euros due to large writedowns and risk provisions, helping to push Austria’s whole banking sector into a loss as Bank Austria also wrote down assets massively.

Austria, one of the most prosperous nations in the struggling euro zone with the bloc’s lowest unemployment rate, is forcing efficiency savings on institutions including the police and schools but aims to avoid a fully-fledged austerity package.

Spindelegger is also leader of the conservative People’s Party, the junior partner in a governing coalition with the Social Democrats.

$1 = 0.7223 Euros Reporting by Alexander Schwarz-Goerlich; Writing by Georgina Prodhan; Editing by John Stonestreet

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