Vienna 2.0 faces reality
The row over Hungary’s central bank is one more obstacle to a new agreement on capital flows between new and old EU states. At a time when Austrian banks have some $40 billion in exposure to Hungary, Hungary’s harsh taxation policies against its banks are also doing nothing to help private lenders’ commitment to a regional accord. In the Vienna Initiative in 2009, countries such as Austria and Italy with bank subsidiaries in the new EU states included those subsidiaries in state-sponsored recapitalization programmes. In return, host countries such as Hungary and Romania agreed to deposit-insurance programmes. Western European banks committed themselves to maintaining their exposure in these countries.
National authorities made initial preparations for a new Vienna Initiative with the IMF, European Bank for Reconstruction and Development and others last month. But this time the eurozone debt and capital requirements mean the initiative will be more likely to seek a managed deleveraging from the private sector – possibly accompanied by equity injections from multilateral lenders if subsidiary banks are cut loose.
Austrian’s move late last year to limit new lending in regional subsidiaries to commensurate growth in domestic financing has angered host countries. EBRD chief economist Erik Berglof says a new Vienna Initiative would therefore see home regulators agree not to discriminate against banking operations in other EU countries; local authorities would agree not to ring-fence local funding and capital.