VIENNA Oct 15 Austria’s parliament passed a
bill on Thursday paving the way for the government to reach
settlements with the creditors of defunct bank Hypo Alpe Adria
and remove a millstone from the country’s public finances.

Austria has for years been trying to draw a line under the
collapse of Hypo, a regional lender whose expansion was
facilitated by its home province, Carinthia, which guaranteed
its debt to the tune of up to 25 billion euros ($28.47 billion),
or more than 10 times the province’s annual budget.

The lender’s failure led to the creation of “bad bank” Heta
in 2014. Creditors holding around 11 billion euros in
Heta debt covered by Carinthia’s guarantees are looking to
recoup their investments. Many of them are mired in litigation.

Finance Minister Hans Joerg Schelling, a conservative who
has been in office just over a year, has pledged to put an end
to the lingering crisis, which has cost Austrian taxpayers
billions and swollen the budget deficit.

Thursday’s law creates a framework for Austria to pay 1.23
billion euros in a settlement with Bavaria, Hypo’s former owner,
a sum equivalent to 45 percent of Bavaria’s claims against Heta.

“In the contract that the Republic of Austria has concluded
with the Free State of Bavaria, nothing changes,” Schelling said
in parliament, explaining the bill’s provisions.

His Bavarian counterpart, Markus Soeder, said earlier in the
week things were progressing as planned.

“Both are working on the legal details,” he said on Tuesday.
“We are on the right track.”

The law approved on Thursday also provides a mechanism for
compensation to flow in the event of a separate settlement with
the remaining Heta creditors, and includes a clause under which
terms agreed with creditors holding two-thirds of the total
amount of loans will also apply to hold-outs.

Some creditors have already rebelled against Austria’s
latest attempt to put the Hypo debacle behind it – one group
including Germany’s Commerzbank said it would “fight
this plan of action by all available means.”

Previous efforts to impose losses on creditors have
backfired. In July, Austria’s highest court overturned a law
that had cancelled nearly a billion euros of debt owed by Hypo.
($1 = 0.8783 euros)

(Reporting by Francois Murphy, editing by David Evans)