Carinthia cash crunch gives Austria its own mini - Greece
By Michael Shields
VIENNA (Reuters) - A newspaper cartoon depicting the cash-strapped province of Carinthia as "Greece without the ocean" captures the public mood as Austria weighs what to do with a region facing ruin over unaffordable bank debt guarantees.
The southern province, once the heartland of support for late right-wing leader Joerg Haider, says it will run out of money in June unless the federal government throws it a financial lifeline.
Powerful provincial governors have in the past bossed around ministers in Vienna, but Finance Minister Hans Joerg Schelling is demanding tough reforms in return for renewed access to borrowing via the federal treasury.
That effectively gives euro zone member Austria its own local version of the problems besetting Greece.
Discussions on a loan deal between civil servants and provincial officials on Monday were "constructive" but yielded no breakthrough, Schelling told reporters. Asked about concerns Carinthia might go bankrupt, he said such talk was mistaken.
A government source said Vienna was ready in principle to help finance Carinthia as long as it fulfils certain conditions.
Governor Peter Kaiser, the Social Democrat leader of Carinthia's governing coalition, meanwhile made the case for aid in an interview with ORF radio.
"All the provinces are financed via the Austrian federal treasury. Carinthia has done this before and always repaid everything on time," he said. "There is no reason in my view not to grant Carinthia this financing."
HYPO HEADACHES
With its stunning landscape of mountains and lakes, Carinthia is Austria's version of California. Nearly 560,000 people -- 6.5 percent of Austria's population -- live there.
But debt guarantees it granted lender Hypo Alpe Adria during a decade of breakneck expansion that ended with Austria's nationalising the bank in 2009 have left its finances in a mess.
At one stage, the guarantees were worth 10 times the state budget of around 2 billion euros (1.45 billion pounds).
Carinthia still backs more than 10 billion euros of debt held by "bad bank" Heta Asset Resolution [HAABI.UL], which is winding down the now-defunct Hypo.
The guarantees are in focus after Austria's FMA financial watchdog took control of Heta in March and froze its debt repayments until May 2016 while it works out a plan to share the pain among creditors.
The extent of "haircuts" is still unclear but Kaiser has acknowledged his state cannot shoulder the burden alone.
Last month, ratings agency Moody's downgraded Carinthia to one notch above junk grade, making it more difficult for the province to borrow in the open markets.
Schelling has said any federal assistance would be limited, however, and stressed that the federal government is not legally obliged to support ailing provinces.
No Austrian province has ever gone bankrupt and there is no legislation on how to handle such an event.
Some legal experts suggest Vienna could be forced to help out, although the issue has not been addressed by courts, unlike in Germany, where the federal government does back states.
The standoff comes amid a broader discussion of how to share 80 billion euros worth of tax revenue with state and local governments. The central government collects practically all tax revenue now, and also lets provinces piggy back on federal bond tenders to borrow at low interest rates.
Negotiations start on Monday on how to split up the tax pie, which has traditionally gone two-thirds to the federal government and one-third to states and municipalities.
($1 = 0.9225 euros)
(Editing by Catherine Evans)
