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Austrian probe of Hypo bank scandal gets off to rocky start

VIENNA (Reuters) - Austria’s probe into collapsed lender Hypo Alpe Adria began on Wednesday in a welter of wrangling over how much of the investigation into the country’s worst post-war financial scandal should be made public.

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Several high-profile figures are expected to testify, but the exact list of witnesses is secret. An opposition party has named 200 people it wants to question, including current and former government officials in Austria and Bavaria, market watchdogs, and senior central bankers.

Opposition politicians warned on Wednesday that the parliamentary investigation may fail to shed much light given strict confidentiality rules for many documents in the probe, although parties in the governing coalition played down such fears.

Austria last year decided to wind down Hypo, which late right-wing firebrand Joerg Haider as governor of Carinthia built into a regional powerhouse. Austria nationalized Hypo in 2009 after a decade of breakneck expansion fueled by unaffordable debt guarantees from Carinthia.

The deputy head of the opposition Greens party, Werner Kogler, said the most spectacular parts of testimony in the investigation, which could last up to a year, might never emerge given new restrictions on what can be discussed with media present.

“This is against the spirit of the committee,” Kogler told reporters. He said the new rules were making it impossible to discuss crucial things in public, unlike in previous parliamentary investigations.

After hours of wrangling behind closed doors, testimony began from former state commissars installed to monitor events at Hypo.

The probe may be sensitive for the conservative People’s Party, junior partner in the governing coalition and whose finance ministers were in charge when Hypo was nationalized and while Austria let the bank’s problems fester.

Hypo has swallowed 5.5 billion euros in state aid since 2008, swollen deficits and state debt, and soured ties with Bavaria, whose BayernLB [BAYLB.UL] bank once owned Hypo.

The government decided only last year to wind Hypo down rather than let it go bust, an option opposition parties favored. The Heta “bad bank” [HAABI.UL] unwinding Hypo’s remnants also ran aground last month.

Austria’s bank supervision system is under scrutiny in the Hypo case, although watchdogs say recent laws giving them more clout mean a case like Hypo was unlikely to be repeated.

Prosecutors have begun preliminary checks into whether the central bank acted properly in 2008 when signing off on state aid to Hypo a year before the nationalization.

An independent panel of experts said last year that Austria had bungled its handling of Hypo.

Editing by Susan Fenton