Union president forced to resign over bank scandal
In late March 2006, the Austrian Trade Union Federation (ÖGB) revealed information about shady derivatives trading carried out by its own bank, BAWAG. Subsequently, ÖGB President, Fritz Verzetnitsch, was forced to resign after admitting his involvement in a decision of assuming liability for the bank’s losses by using the union’s ‘strike fund’ as collateral. Rudolf Hundstorfer was appointed as the new ÖGB President in April, a post he will take up in 2007.
Major losses lead to bank crisis
In autumn 2005, the Bank for Employment and Commerce (Bank für Arbeit und Wirtschaft AG, BAWAG) – Austria’s fourth largest bank, owned by the Austrian Trade Union Federation (Österreichischer Gewerkschaftsbund, ÖGB) – admitted that it had been involved in obscure derivatives trading with Refco, an insolvent US futures broker. This resulted in major losses of several hundred million euro. As a result, the chief executive officer of BAWAG was forced to resign. When his successor, Ewald Nowotny, took office in January 2006, he immediately promised to cease all ‘exotic trading’ and to clear up all businesses causing major financial problems for the bank. In late March 2006, internal investigations within the bank revealed that additional losses of one billion euro had also been covered up. These resulted from derivatives trading in the Caribbean from 1995 to 2000.
At a press conference on 24 March 2006, attended by Mr Nowotny and the Chair of the BAWAG Supervisory Board, Günter Weninger, the latter officially announced the bank’s accumulation of €1.3 billion in overall losses during the previously mentioned five-year period. Mr Weninger also stated that he had been informed of these losses by management at the end of 2000. However, at the time, he had decided to conceal the losses in derivatives trading for fear of triggering a bank run by customers and thus possible insolvency. Moreover, he did not inform the rest of the supervisory board members nor BAWAG’s former co-owner and major shareholder, the Bayerische Landesbank, which held 46% of its shares, nor the Austrian financial supervision authorities. The only trade union representative made aware of the crisis by Mr Weninger was ÖGB President, Fritz Verzetnitsch.
Trade union involvement
At the time, Mr Weninger simultaneously held the positions of BAWAG Supervisory Board Chair and Chief Secretary for Financial Affairs of the ÖGB. He thus administered all the financial affairs of the country’s trade union movement, including the strike fund from which employees who engage in industrial action are compensated when their wages are not paid during a strike period. At the press conference on 24 March, Mr Weninger revealed that, at the end of 2000 in light of a possible crash at BAWAG, he and Mr Verzetnitsch had jointly decided ‘to use all means in order to avert serious damage’ from the bank. Therefore, the ÖGB, as the owner of the bank, inevitably assumed the liability for the bank’s losses. Several smaller business branches of the ÖGB, including the so-called ÖGB-Privatstiftung which covered the ‘strike fund’, were used to cover up these losses. Thus, funds that were mainly supplied by membership dues and that were set aside for financing industrial action in cases of emergency had been used as security for losses suffered by high-risk trading. Both Mr Verzetnitsch and Mr Weninger have justified their actions by arguing that this had been the only possible way to protect the bank. They emphasised that: ‘At the end of the day, the guarantees have been annulled, the bank is viable, the balances are correct and there has been no need for the owner to contribute funds to the bank.’
Unrest within ÖGB
Nonetheless, the majority of ÖGB members and functionaries are not satisfied with these explanations. A number of ÖGB officials, including the chairs of the 13 ÖGB affiliates, have strongly criticised the leadership of the organisation. They argued that while the trade union federation has always condemned ruthless enrichment practices and speculative financial transactions, yet it has in fact allowed such practices to occur for a long time. Moreover, they claimed that the ÖGB leadership should have relieved the management from their posts as soon as their business practices had become known.
Furthermore, most trade unionists considered as unacceptable the complete ‘abuse’ of the ‘strike fund’, which is regarded as the core instrument of the trade union movement. Many trade unionists feel deeply hurt by their own leadership. In particular, they stressed that, even if the ‘pawn’ of the ‘strike fund’ has proved the right strategy in the end, the ÖGB leadership should have been obliged to consult with the rest of the board members regarding such an important decision.
Due to increasing public pressure and calls from within the ÖGB for the resignations of the President, Mr Verzetnitsch, and the Secretary for Financial Affairs, Mr Weninger, they both stepped down on 27 March 2006. In a series of emergency meetings held by the ÖGB’s federal executive committee, two new appointments followed. On 6 April 2006, Erich Foglar was appointed Secretary for Financial Affairs, while Rudolf Hundstorfer of the Municipal Employees’ Union (Gewerkschaft der Gemeindebediensteten, GdG) will become the new ÖGB President by 2007. Mr Hundstorfer is understood to be a compromise candidate accepted by the large political factions within the ÖGB.
Georg Adam, Institute of Industrial Sociology, University of Vienna