Austria plugs regional finance loopholes after scandal

Austria's finance minister played down the risks to regional finances on Saturday after a Salzburg civil servant gambled hundreds of millions of euros of taxpayers' money on high-risk derivatives.

Speaking a day after federal and provincial officials agreed on steps to curb speculative use of public funds, Maria Fekter said in a radio interview that local authorities had already acted to reduce deals that had potential to blow up.

"Lots of people learned from the situation after 2007 and the risks that emerged on financial markets, changed their ways and gradually reduced very risky positions," she told state broadcaster ORF.

But she noted that regions still had lots of foreign- currency debt on their books that needed to be cut in phases.

The head of the country's auditing agency warned in a magazine interview this week that the Salzburg case could be just the tip of an iceberg and that "ticking time bombs worth billions" may lurk in local authorities' opaque finances.

Fekter and state officials agreed on Friday that Austria should amend its constitution to rule out high-risk public financing such as currency speculation or entering derivative contracts for anything other than hedging purposes.

Details now need to be worked out by mid-year.

Austria said last month it planned stricter controls over regional finances after the Salzburg flap.

Salzburg officials have said they sacked a finance director after determining she used doctored documents and false signatures to hide a trail of losses from deals that started more than a decade ago.

They put the book loss at 340 million euros ($444 million), but experts are still trying to determine the state's exact exposure.

The woman, identified only as Monika R., has denied any wrongdoing, but two of her supervisors have also had to go in a widening scandal that will probably lead to fresh elections this year in Salzburg, governed by Social Democrat Gabi Burgstaller.

Austrian states have 8.2 billion euros of debt, or 8.1 percent of the country's public debt.

The national FMA markets watchdog has said it would welcome a more centralized approach to regional financing even though it saw no risk at this stage to overall financial stability.

($1 = 0.7666 euros)

(Reporting by Michael Shields; Editing by Ruth Pitchford)