Croatia Faces Lawsuit Over Franc Loan Plan

A consortium of international banks, involving the major part of Croatia's banking system, on Thursday announced a lawsuit against the Croatian government's over its decision to solve the problem of loans in Swiss francs by converting them into euro.

Earlier the same day, Croatia announced that Swiss floans will be converted into euro loans using the exchange rate on the day the loan was taken out.

The decision will be confirmed next week, while banks will have three months to prepare to convert the loans.

The banks say it will cost them a lot of money and is being rushed through. The consortium made up of Austria's Erste Group Bank AG, Italy's UniCredit SpA, Russia's OAO Sberbank, Austria's Raiffeisen Bank International AG and the Austrian Hypo Group Alpe Adria AG, said the decision "breaches EU legislation and bilateral investment contracts.

"Forced conversion, which is not preceded by planning and reviewing possible outcomes, as well as an overview of the debt-servicing capacity of citizens, places retroactive interference on existing contracts," the joint statement read.

Finance minister Boris Lalovac reacted by saying that the government "protects its citizens in accordance with the constitution" and will continue to do so.

"Where were the banks when citizens should been helped; where were they when they granted so-called speculative loans?" he asked.

Swiss franc loans became popular in western Balkans, but also Hungary and Poland, in recent years.

However, after the Swiss government abandoned the currency peg with the euro, the franc soared in value, making repayments on loans in francs increasingly expensive.

The franc rose by 20 per cent in relation to the Croatian currency, the kuna, in less than a...