Austrian Communes’ Finances Require More Oversight, Nowotny Says
Austrian municipalities need more budgetary oversight and should team up with the country’s debt office to manage their finances and avoid more losses on investments, central bank Governor Ewald Nowotny said today.
The province of Salzburg joined other Austrian towns, cities, provinces and public bodies yesterday when it disclosed as much as 340 million euros ($440 million) of potential losses caused by swaps. A civil servant in the region’s finance department had invested in the securities since 2001 and hid the losses from her superiors, auditors and banks advising the province, according to Salzburg’s finance head David Brenner.
“We have learned that certain things need much more oversight and some should be banned completely,” Nowotny told journalists today, declining to comment on the Salzburg case in particular. The Austrian Federal Financing Agency could help smaller towns and cities to better manage their debt, he said. “More common action and more centralization in this area would be very welcome because it would mean professionalization.”
The cities of Linz and St. Poelten and the Austrian state railway OeBB were among Austrian bodies that lost money with swaps in recent years. Similar cases have emerged in Germany, France and Italy since the collapse of Lehman Brothers Holdings Inc. in 2008.
The losses are a legacy of the era that preceded the Lehman collapse, Nowotny said. “There was huge optimism at the time and municipalities and provinces almost competed about who was using what innovative product,” he said. “It never happened out of ill will, it was always driven by the idea to reduce interest payments and help public finances.”
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