Austria’s Constitutional Court Decides to Uphold Property Rights
To everybody’s vast surprise, Austria’s constitutional court has decided not to side with the government in the infamous Hypo Alpe Adria (HAA) case. The bank went belly-up after the 2008 crisis and slowly but surely it emerged that it represented a financial catastrophe of truly stunning proportions.
Incompetence on a rarely seen scale, but also probably also fraud (although that angle has yet to be pursued by the judiciary) ultimately produced the biggest de facto (if not de iure, yet) insolvency in Austria’s history.
Hypo Alpe Adria – a giant house of cards that imploded in the course of the financial crisis.
Photo credit: hypo-alpe-adria.hr
One big problem with the HAA case was that the Austrian province of Carinthia had written deficiency guarantees on the bank’s bonds – including its subordinated debt. These guarantees amounted to more than €11 billion, which compares to the province’s total annual budget of about €2.4 billion.
As a result, the Austrian federal government initially felt compelled to bail HAA out. Alas, it soon emerged that the costs of this bail-out would balloon in a nigh endless spiral of new “discoveries†of worthless assets on HAA’s balance sheet. At first it was decided to limit the government’s – and especially Carinthia’s – potential liability by passing a new law governing the wind-down of HAA (in the meantime rechristened “Heta Asset Resolutionâ€).
In this law, the subordinated bonds were simply declared extinguished – along with Carinthia’s “guaranteesâ€. Not surprisingly, this blatant expropriation of bondholders was challenged in court, and Austria’s constitutional court has now decided it is indeed in conflict with fundamental property rights. As Reuters reports:
