IMF rejects concerns on Austrian economy

IMF chief Dominique Strauss-Kahn insisted on Friday that he was not worried about the Austrian economy, after US economist and Nobel laureate Paul Krugman said it was at risk due to the financial crisis.

"I do believe that the Austrian situation is very good so I have no particular concern about the Austrian economy these days," Mr Strauss-Kahn told Austrian radio Oe1 in an interview broadcast Friday.

Mr Krugman commented earlier this week that, after Iceland and Ireland, Austria was "probably the advanced country at most risk from the financial crisis", according to his blog on the New York Times website.

Austrian banks have handed out about €230 billion or about 70 per cent of the country's gross domestic product - in loans to crisis-hit central and eastern Europe.

Mr Strauss-Kahn argued however, that Austria was no more at risk than other countries.

"If things become more difficult in eastern Europe, then all the countries - not only Austria, but Italy, Belgium, France, Germany - will have some problems because of the movement in eastern Europe," he said.

"That's why eastern Europe is so important, but it's not typically a problem which will be bigger for Austria than for others," he added.

Mr Krugman's comments were strongly rejected by Austrian politicians and economists this week, with Vice-Chancellor and Economy Minister Josef Proell calling them "totally wrong".

But Mr Krugman defended his position on his blog, noting: "Austrian lending to eastern Europe is off the charts compared with anyone else's, and that means some serious risk given that emerging Europe is experiencing the mother of all currency crises."

"Is Austria doomed? Of course not, but it may need a bank bailout that will seriously strain the country's resources," he wrote.

On Thursday, Austria's financial market authority (FMA) estimated that Austria would at most lose between €15 and €30 billion in the event of eastern Europe defaults.

This would bring the public debt to between 67 and 70 per cent of GDP.

In 2008, the public debt was 62.5 per cent of GDP.