Austria protests Krugman's economic meltdown scenario

Austria protests Krugman's economic meltdown scenario Vienna - Austrian officials and politicians on Wednesday protested comments by US economist Paul Krugman that Austria risked bankruptcy owing to its large exposure in Eastern Europe.

There was no need for "unqualified statements based on inadequate information, which can put a country under massive pressure if they are uttered carelessly," Vice Chancellor and Finance Minister Josef Proell said, according to Austrian press agency APA.

Krugman, a Nobel laureate, Princeton University professor and New York Times columnist, told reporters Monday in New York that after Iceland's financial meltdown, Ireland and Austria were also at risk.

Although Krugman admitted he did not have exact figures, he said Austria's exposure in Eastern Europe was "pretty scary."

"The crisis in Eastern Europe is at least as bad as the East Asian crisis of the 90s," he said.

Austrian banks have granted credits worth 201 billion euros (268 billion dollars) in Central and Eastern Europe, some 70 per cent of the country's gross domestic product.

Austria's triple-A rating, which several rating agencies recently confirmed, was not put in danger by the economist's remarks, said Christoph Leitl, the head of Austria's chamber of commerce.

But such "erroneous" statements could lead to higher risk premiums on Austrian bonds. "That really damages Austria," he said.

Western European banks were happy to bankroll the credit boom in new European Union member states. Recently, monthly repayments have ballooned by up to 50 per cent as local currencies weaken.

The European Bank for Reconstruction and Development estimates that Austrian banks could lose up to 20 billion euros through unpaid loans in Central and Eastern Europe.

The Austrian government has set aside 100 million euros that are being used to inject capital into banks and to guarantee loans. (dpa)

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