Experts meeting in Vienna this week agreed the two could eventually become “sister churches” that recognize the Roman pope as their titular head but retain many church structures, liturgy and customs that developed over the past millennium.

The delegation heads stressed unity was still far off, but their upbeat report reflected growing cooperation between Rome and the Orthodox churches traditionally centered in Russia, Greece, Eastern Europe and the Middle East.

“There are no clouds of mistrust between our two churches,” Orthodox Metropolitan John Zizioulas of Pergamon told a news conference. “If we continue like that, God will find a way to overcome all the difficulties that remain.”

Archbishop Kurt Koch, the top Vatican official for Christian unity, said the joint dialogue must continue “intensively” so that “we see each other fully as sister churches.”

The churches split in 1054 over the primacy of the Roman pope, the most senior bishop in early Christianity. The Orthodox in Constantinople, now Istanbul, rejected Roman primacy and developed national churches headed by their own patriarchs.

ADAPTATION NEEDED

The Vatican has sought closer ties for years but the Russian Orthodox Church — whose 165 million followers are the largest branch of the world’s 250 million Orthodox — responded slowly as it emerged from over seven decades of Communist rule.

Roman Catholicism is Christianity’s largest church, with 1.1 billion of the estimated 2 billion Christians worldwide.

Pope Benedict has close ties to the spiritual leader of the Orthodox, Ecumenical Patriarch Bartholomew in Istanbul, and hopes to meet Russian Patriarch Kirill, who has shown great interest in better ties since taking office in February 2009.

Benedict and Kirill are both conservative theologians who say Europe should return to its Christian roots. The Orthodox are closer to Catholicism in their theology and liturgy than the Protestant churches that broke from Rome in the 16th century.

Unity will require change on both sides, the delegation heads stressed. “I won’t call it a reformation — that is too strong — but an adaptation from both sides,” John said.

For the Orthodox, he said, that means recognizing there is a universal Christian church at a level higher than their national churches and the bishop of Rome is its traditional head.

The Catholics would have to strengthen the principle of synodality, by which a church leader consults bishops before making important decisions, he added.

THE FIRST MILLENNIUM

Both those points are sensitive. The Orthodox traditionally prize their decentralized structures and reject the idea of a pope while the Catholic hierarchy is a pyramid with clear lines of authority from local churches up to the powerful pontiff.

To work this out, they are studying Christianity’s early history to see how the Latin-speaking West and Greek-speaking East worked together for 1,000 years before the Great Schism.

“The basic discussion is about how these churches lived in the first millennium and how we can find a new (common) path today,” Koch explained.

Koch said Pope Benedict recently showed his readiness to accept diversity in the church by inviting disaffected Anglicans to become Catholics while keeping some of their traditions.

John said a next step along the way to unity will be a pan-Orthodox council to work out relations between national churches and the Istanbul-based Ecumenical Patriarchate, which has spiritual leadership but no practical authority over them.

“We hope that very soon we will be able to invoke such a council,” John said. He said the joint theological commission could probably meet again in 2012 to discuss the theological aspects of closer unity.

(Reporting by Boris Groendahl, writing by Tom Heneghan; editing by Noah Barkin)

Austria’s RZB [RZB.UL] (RIBH.VI: Quote, Profile, Research, Stock Buzz) also said in a study on the
eastern European banking sector that bad debt levels may go on
rising longer than expected in at least some countries as
stagnation or contraction persists.

RZB is eastern Europe’s third-biggest lender via its
international arm Raiffeisen International.

Bank lending is one of the main avenues for western European
capital flowing into central, eastern and southeastern Europe
and parts of the former Soviet Union, and is therefore a key
determinant of the region’s economic fate.

Despite concerns last year that the region’s dominant,
mainly western-owned banks could pull out, RZB said loan books
shrank only 1.8 percent in euro terms — and not at all in local
currency terms except in Hungary, Russia, Ukraine and Bosnia.

But the moderate growth that RZB researchers have pencilled
in for this year and next may be at risk because bank profits
are being squeezed by new taxes such as in Hungary and Austria
and possibly Poland, the bank said.

“Based on the current expectations for a muted recovery of
the economies at varying speeds … our forecasting model …
projects a moderate growth of banking loans in 2010 and 2011,”
RZB economist Walter Demel said in the study.

“However, given the still elevated stress that the banks
around the globe are facing — including the prospect of the
Basel III regulatory framework and new taxes being imposed on
the financial sector — there might be structural factors that
jeopardize such a recovery.

“Undoubtedly, this is one of the major risk factors for the
economic recovery also in central and eastern Europe.”

A prolonged rise in bad debt rates, which has shown up in
the results of banks including eastern European market leader
UniCredit (CRDI.MI: Quote, Profile, Research, Stock Buzz) and No.2 Erste Group Bank (ERST.VI: Quote, Profile, Research, Stock Buzz), could
persist for some time as unemployment grows, RZB said.
[ID:nLDE66S2CW]

This has shown in particular in Hungary, where a huge stock
of mortgages in Swiss francs combined with a falling forint
currency have added to the economic malaise, and in Romania,
where the economy is tipped to contract again this year.
[ID:nLDE67U164]

UniCredit remained the international bank with most assets
in eastern Europe in 2009, RZB said in the report. Erste
overtook Raiffeisen as the second biggest lender. Societe
Generale (SOGN.PA: Quote, Profile, Research, Stock Buzz) was No.4, followed by KBC (KBC.BR: Quote, Profile, Research, Stock Buzz).

The full study is available here

(Reporting by Boris Groendahl; Editing by John Stonestreet)

Governor Ewald Nowotny and his central bank have long been
critical of Austrian banks, which collectively are the biggest
lenders to Hungarian borrowers and expanded foreign currency
lending aggressively during Hungary’s boom years.

“The central bank has long warned of the dangers of foreign
currency loans,” Nowotny said in an Internet chat with readers
of Austrian daily newspaper Der Standard.

“For Hungary the risks are particularly acute because of the
combination of the rise in the Swiss franc CHFHUF= and the
fall in the forint,” he added.

A fresh rise in risk aversion has prompted investors to pile
money into safe haven currencies, driving the Swiss franc to
record highs against the euro in early September and putting
pressure on Hungary’s currency and government bonds.

Hungary’s key vulnerabilities — a huge stock of foreign
currency debt and poor growth prospects — come under the
spotlight when investor sentiment sours. The global crisis in
2008 paralysed its bond market and drove the country to seek IMF
aid.

Franc loans make up about half of Hungary’s household debt
stock and the Swiss currency’s appreciation means borrowers are
being pushed to their limits to meet payments, driving up
non-performing loan (NPL) rates.

In July, Hungarian households’ Swiss franc loan stock, which
includes home and equity mortgages and car loans, totalled a
massive 5.7 trillion forints ($26.5 billion), or around 27
billion francs. [ID:nLDE67U164]

Households’ NPLs in the banking system rose to 8.1 percent
in June from 7.3 percent in March. However, Nowotny pointed out
that households tend to delay a default on their mortgage as
long as possible.

But as they scrape together funds to cover their mortgage
debt, spending on other goods may suffer, which further weighs
on economic growth, he said.

“That has not, at least not until now, led to a dramatic
rise in delinquencies, although the affected households are
forced to make savings in other areas because of this,” Nowotny
said in the chat.

Austrian banks including Erste Group Bank (ERST.VI: Quote, Profile, Research, Stock Buzz) and
Raiffeisen International (RIBH.VI: Quote, Profile, Research, Stock Buzz) collectively are the biggest
lenders to Hungarian borrowers, according to statistics by the
Bank for International Settlements.

German, Italian and Belgian banks follow in the ranking,
reflecting the strong position of BayernLB [BAYLB.UL], Intesa
Sanpaolo (ISP.MI: Quote, Profile, Research, Stock Buzz), UniCredit (CRDI.MI: Quote, Profile, Research, Stock Buzz), and KBC (KBC.BR: Quote, Profile, Research, Stock Buzz) in the
Hungarian market. [ID:nLDE65714B] [ID:nLDE656120].
(Additional reporting by Krista Hughes in Frankfurt and
Krisztina Than and Sandor Peto in Budapest; Editing by Susan
Fenton)

Prime Minister Viktor Orban’s centre-right government has
confounded markets since sweeping to a huge victory in an April
election, shutting down talks with the International Monetary
Fund to reclaim what he calls Hungary’s “economic sovereignty”.

Further comments eschewing austerity and first suggesting it
could overshoot next year’s budget target agreed with Brussels,
and then backtracking to say the goal will be met, have left
investors wary, hitting the forint and pushing up debt yields.

European Bank for Reconstruction and Development Thomas
Mirow urged Budapest to repair the damage.

“What would help Hungary most is to rebuild trust with
international investors,” he told Reuters Insider television on
the sidelines of a conference in Vienna. “That would also
sustain the value of the forint.”

Some analysts say Orban could be posturing ahead of local
elections next month in which his party hopes to consolidate
power by distancing itself of the IMF- and EU-backed cost
cutting measures undertaken by Hungary’s last Socialist
government headed by a technocrat prime minister.

But they are unwilling to bet heavily on Hungary until he
presents details of the 2011 budget, and particularly how he
plans to cut the deficit to the agreed level of below 3 percent
of gross domestic product, from a planned 3.8 percent this year.

After an initial election boost, the forint EURHUF= has
lost 6.1 percent since the first round of the election on April
12. Five year bond yields have jumped to 7 percent, from 5.8.

SWISS FRANC LENDING

In Budapest, a ruling Fidesz official said planned new rules
aimed at limiting banks’ leeway in setting mortgage policy to
protect troubled foreign currency mortgage holders must not
endanger the country’s lending system. [ID:nLDE6891FA]
Hundreds of thousands of Hungarian households have taken
out foreign currency mortgages and other loans and have been
caught out by a rally in the Swiss franc versus the euro, which
has helped drive the Hungarian forint to record lows against the
Swiss unit CHFHUF= and caused a spike in mortgage payments.

Hungary’s banking association has slammed the proposals,
which call for banks to allow early mortgage repayment without
penalties, among other measures, and said it will destabilise
the legal framework behind the banking sector.

But Fidesz Vice Chairman Lajos Kosa said the party would not
accept rules that would disrupt banking.

“It is Hungary’s fundamental interest that the lending
system works smoothly,” he told reporters. “We will not accept
any kind of solution that would endanger the fundamentals of our
lending system.”

Another controversial policy from Orban’s government is a
windfall tax on banks that it says should help to meet next
year’s fiscal targets while avoiding spending cuts, although
many economists say the tax could cripple lending.

Mirow said levies on the banking sector were warranted in
some cases but joint, coordinated action was preferable and
taxation should not reduce banks’ capital.

“Taxing should not eat up capital when the global regulatory
objective is to increase capital to strengthen financial sector
stability. Reducing capital also diminishes banks’ lending
capacity when the recovery needs new credit,” he said.

Polish central bank Governor Marek Belka also said officials
in that country were considering imposing a banking tax, with
the latest proposal focusing on uninsured liabilities.

“It could be implemented already starting with next year,”
he told Reuters Insider television. The EBRD operates in around
30 countries in central and eastern Europe.
(Additional reporting by Carolyn Cohn and Sujata Rao in London,
Karolina Slowikowska and Adrian Murdoch in Vienna; writing by
Michael Winfrey; editing by Patrick Graham)

ECB Governing Council member Ewald Nowotny told reporters at a trade union conference that government action was needed to wean banks off the emergency supply of cheap cash the bank has provided since the crisis erupted in late 2008.

That added to the impression that the fate of some euro zone banks — particularly in Ireland and Portugal — is now back at the forefront of investors’ and policymakers’ concerns, even after the agreeing of new stricter rules on capital last week.

Axel Weber, the head of Germany’s Bundesbank and another ECB council member, said there was still work to be done on making sure no banks were so big they could not be allowed to fail in future and said regulation would have to renewed regularly.

“The financial crisis is still with us. We are not in year one after the crisis, we are in year four of the crisis,” Weber said in a speech at the European Business School.

“Moral hazard is present in the financial system… I want to get to a situation where the term ‘too big to fail does not exist’. Banks have to be able to fail, but it must be able to happen in an orderly way.”

A cloudier global growth outlook has also reignited worries about the sustainability of the economic recovery.

Ireland has taken a hammering on markets — and pushed out spreads of other countries perceived as at risk — over the growing cost of bailing out its banks, crippled by the collapse of its property boom.

Weber said that although markets were pricing in an eventual sovereign default by Greece, none of the euro zone countries would default.

“A sovereign default in the euro zone will not happen … A lot of money has been put on the table (by governments) but it comes with strong conditionality,” Weber said.

“Greece has to stay an absolute exception,” he added, referring to the huge European Union/International Monetary Fund aid package Greece received to solve its debt problems, which were covered up until earlier in the year.

NO DEFAULT

Also in Vienna, the newly installed European stability fund’s head Klaus Regling said it was unlikely to be used and even in such a case would only be a stop gap to allow governments breathing space to carry out reforms.

The 440 billion euro fund, laid out in early May at the height of market panic over the euro zone’s debt crisis, was not a solution for embattled countries’ structural problems.

“My central expectation is that the EFSF will not need to lend money,” Regling told the conference.

“The EFSF can only buy time when it provides loans; the countries themselves must improve their fundamentals.”

The head of the Organization for Economic Cooperation and Development, Angel Gurria, said the world economy was proving weaker than it had previously expected in the second half and countries should consider pushing back austerity measures if that weakness persists.

“We had forecast a weakening of the recovery in the second half. The question was how weak was it going to be. And I have to say I think it’s been weaker than we thought,” he said.

“In the short term the weakness can be dealt with (by) the prolongation of some of the monetary accommodation in some countries. But if we see that there is a permanence of the weakness perhaps then one can delay the entry into force of the measures of fiscal consolidation.”

(Reporting by Marc Jones; additional reporting by Martin Santa, editing by Patrick Graham)

Sales of the coin, one of the best-selling worldwide,
dropped 41 percent to 468,507 ounces in the year to end-August
compared to the same period in the “exceptional” year 2009, the
mint’s Kerry Tattersall told Reuters.

“Sales were fulminant in April and May when many people were
unsettled in Europe because of the euro,” Tattersall said.
“Since June the market has calmed down quite a bit, and of
course we also have a summer lull.

“At the moment, sales are quiet, there is no huge demand.”

The Austrian Mint had sold more gold in the two weeks from
April 26 than in the entire first quarter of the year because of
soaring demand in Europe. [ID:nLDE64B22L]

Tattersall said he expected the level of sales to remain at
the current level some 40 percent below last year’s unless there
was a new bout of uncertainty pushing customers into gold again.

“I think we will probably remain at the 40 percent drop in
sales in the full year,” he said. “We had this rate of decline
throughout the year with the exception of May.”

Total gold sales, also including bars and other coins, also
declined by 40 percent to 1,007,000 ounces.
(editing by James Jukwey)

“While the crisis was so deep and the potential threat to the euro so severe, it was still such a struggle to create the right structures to make decisions, and to make the right decisions,” Josef Proell told Reuters in an interview.

“That has to teach us a lesson, including those who are always critical of stronger European rules,” he said. “It has to force us into better European processes.”

Proell did not say which euro sceptical nations he had in mind but cited as an example last week’s agreement to overhaul how the EU is policing its financial industry, which had long been opposed by London.

“The opportunity to execute such measures is there now, we have seen that with the implementation of the new European supervisory structure,” he said.

Proell, a member of the EU’s task force charged with coming up with proposals on how to better monitor member countries’ budget deficits, said he was hopeful the group could come up with a proposal in time for next month’s EU summit.

He said it was also a good idea to make the rules and institutions like the European emergency loan fund EFSF a permanent feature of EU policy.

“This is a possibility we should discuss,” he said. “We should not be afraid of giving the EU more weight. I think this is necessary.”

Proell reiterated he was in favour for much stricter penalties for those in breach of EU budget rule, including measures that kick in automatically at an earlier stage and then get more severe gradually if offenders do not change direction.

He also said that the bloc should consider whether to slap sanctions on any state whose deficit moves in the wrong direction even if it stays below the Maastricht Treaty’s deficit ceiling of 3 percent of gross domestic product.

Proell also told Reuters he would press ahead with plans to raise 500 million euros (418 million pounds) through a bank levy but aims to limit the impact on lending to the real economy.

(Writing by Boris Groendahl; Editing by Ruth Pitchford)

The scandal-ridden bank, whose former boss was arrested two
weeks ago on suspicion he diverted bank funds, said on Friday
its net loss tripled to 499 million euros ($634 million) and
reiterated it would return to profit only next year.

The group will lose less in the second half of the year, so
will probably not need another state capital injection, Chief
Executive Gottwald Kranebitter told journalists in Vienna.

“Seen from today we have a sufficient capital base and that
will also be the case at the end of the year,” he said.

Kranebitter, a former KPMG auditor appointed in April by the
Austrian government after it took over the bank last year, is
cleaning up and downsizing Hypo to knock it into shape so it can
be sold again in three to five years.

Hypo, Austria’s sixth-largest bank, will sell or wind down
its franchises in Italy, Montenegro and other countries but aims
to keep its Slovenian, Croatian, Serbian and Bosnian business
pending European Union approval for its state bailout.

Kranebitter said bad debt charges would reach around 1
billion euros this year — after 667 million by end-June –
partly because of a review of Hypo’s loan portfolio but also due
to the adverse economic environment in Croatia and Serbia.

The group had 8.2 billion euros of non-performing loans on
its balance sheet at the end of June, more than 28 percent of
its entire loan book, the bank said.

Hypo, then controlled by German public bank BayernLB
[BAYLB.UL], was nationalised last December to avoid a collapse
that supervisors feared could have sent shockwaves through the
region. [ID:nLDE5BD00D]

BayernLB’s ill-fated investment in Hypo has cost the German
bank 3.7 billion euros. Prosecutors in Germany, Austria and
Croatia are investigating former managers, shareholders and
business partners of Hypo and BayernLB on suspicions they lined
their pockets at the expense of the banks. [ID:nLDE67C17M]

Kranebitter said he was also going after “those who have
inflicted damage on the bank” and would start with “a handful”
of lawsuits seeking compensation next month. He declined to say
whom he would sue.

The bank will continue to file such lawsuits whenever it has
compiled enough evidence, and Kranebitter said he thought damage
claims would likely total several hundred million euros.
(Reporting by Boris Groendahl; Editing by David Holmes and
Michael Shields)
($1=.7867 Euro)

Investigations into the near-collapses of a bank close to
the late rightist leader Joerg Haider and of real estate groups
with links to politics have threatened to overwhelm understaffed
and underqualified prosecutors, and put the spotlight on Justice
Minister Claudia Bandion-Ortner.

The minister on Friday told reporters: “Corporate crime is
getting ever more complex. We need to rearm in the fight against
white collar crimes and corruption.”

Bandion-Ortner, a judge who presided over the court that
handled the highly political BAWAG banking scandal three years
ago, said whistleblowers would in the future get away with a
fine rather than prison if they helped to secure a conviction.

The rule mirrors a provision in Austrian antitrust law,
where 90 percent of all cases are discovered because members of
a cartel come clean to authorities.

Critics say a system where prosecutors must report cases to
the Justice Ministry, which can tell them to halt
investigations, leads to prosecutors taking it easy on former
politicians or people close to them.

But Bandion-Ortner said the system was necessary to ensure
that prosecutors worked to uniform standards.

She said she would assign 40 of Austria’s more than 300
state prosecutors to special units for large-scale white-collar
crimes including fraud, breach of trust, false accounting, Ponzi
schemes, tax evasion and money laundering.

Her initiative also includes making it easier to confiscate
the proceeds of criminal activity.

Among cases that have been under investigation for months or
years are the near-collapse of Hypo Group Alpe Adria, a bank
controlled by Haider when he was governor of Carinthia province;
coffee-roasting heir Julius Meinl’s bank and its real estate
group; and a 1 billion euro ($1.28 billion) auction of
government real estate under former finance minister and Haider
protege Karl-Heinz Grasser.

Many raids and arrests were made months after these cases
started, many prominent suspects have not yet been interviewed,
and none have yet been charged.
(Reporting by Boris Groendahl; Editing by Kevin Liffey)

Bwin, Europe’s biggest online sport betting operator, posted second-quarter core earnings that were only half of what analysts had expected and turned into a loss on the bottom line, mainly due to costs for starting a French betting site.

Earnings before interest, tax, depreciation and amortisation (EBITDA) for the June quarter fell 27 percent to 11 million euros (9 million pounds), as marketing costs for the Soccer World Cup also weighed. Analysts in a Reuters poll had on average expected 20 million euros.

“What the market has underestimated was the costs for the French startup,” said UniCredit analyst Katharina Kastenberger. “On the cost side, the second half of the year is going to be much better.”

Bwin won a licence in June to offer online sport bets in France and has spent money on software and marketing for the new websites.

Bwin shares initially fell on Thursday, extending a drop that started last week, but turned positive when the company gave a full-year outlook that analysts said showed the disappointing results were a one-off.

Bwin said it expected its EBITDA margin to reach 25 percent of net gaming revenue in the full year, which UniCredit’s Kastenberger said was in line with market expectations.

“The guidance was very vague but it’s consistent with what the market expects, which means that the costs which caused the second quarter loss are a one-off,” Kastenberger said.

By 1:37 p.m. British time, bwin stock was up 3.4 percent at 38.395 euros, still off a 45.50 euro peak reached when bwin announced its plans to merge with PartyGaming on July 29.

Bwin said its planned merger with PartyGaming was on track to close early next year.

The deal to create a $3.3 billion online gaming business, the world’s biggest listed internet gambling company, is designed to give the groups enough scale to enter the lucrative U.S. market once deregulation is in place.

Bwin’s share price is tied closely to PartyGaming’s since the deal was announced, as its shareholders will get 12.23 PartyGaming shares for each bwin share in the merger.

PartyGaming earlier this month posted a 14 percent rise in first-half profit and said it had traded in line with internal hopes in its second-half so far.

(Additional reporting by Maria Sheahan; Editing by Dan Lalor and Erica Billingham)