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Austria bankers fear wave of bad loans tied to Eastern Europe

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. 

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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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