In another sign of Europe's financial woes, the Austrian government has spent $137 billion to shore up its banks, worried that they're overexposed to Eastern Europe's struggling economies.
The Viennese pride themselves on having turned back the Ottoman invasion of Europe at the city’s gates after a famous 1529 siege. But these days there’s a new threat coming from the East: billions of dollars in potentially bad loans Austrian banks gave out to their former Communist neighbors.
Austrian banks have outstanding loans in Central and Eastern Europe totaling some €200 billion Euros ($273 billion), an amount equal to 70 percent of their country’s gross domestic product (GDP). With the world financial crisis hitting that region particularly hard, there have been fears that a tidal wave of bad loans could overwhelm Austria’s banks, possibly pulling the country itself into bankruptcy.
The government here has already spent €100 billion ($137 billion) to shore up its banks, guaranteeing loans and refilling their depleted coffers. In December, it nationalized Hypo Group Alpe Adria, a Klagenfurt-based regional bank overwhelmed by bad loans to clients in the Balkans, for fear a collapse would endanger the rest of the sector. In the event of a regional meltdown, it is unclear if Austria has the resources to save its highly exposed banks.
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