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A sovereign in search of liquidity

"If Austria's capital market can be proud of one thing above all else," says a foreign banker in Vienna, "it is the performance of the Federal Financing Agency. I would say that in sophistication and risk management Helmut Eder and his team are one of the top five borrowers in Europe."

That's high praise, although not even Eder, managing director of the agency responsible for borrowing on behalf of the AAA-rated Republic, could legislate for the perceived political risk arising from the inclusion of Jörg Haider's Freedom Party in Austria's coalition government. When the Republic added an e1.165 billion ($1.05 billion) tranche to an outstanding 10-year deal via Deutsche Bank and Morgan Stanley Dean Witter last February, it was forced to price the issue at a very hefty spread to German Bunds of 28 basis points. That was towards the top of the indicated spread range and at least 8bp more than Austria was paying before its mini-political crisis.

Analysts say that quantifying precisely how much of a political premium Austria had to pay for its borrowing in 2000 is more of an art than a science, although one suggests that there was a premium of between 5bp and 8bp associated with EU-imposed diplomatic voting sanctions.

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