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Gabi Burgstaller and Davud Brenner discuss the crisis

Salzburg deputy resigns after 3bn rogue trader loss

Salzburg's deputy governor and the man in charge of the province's finances has announced he plans to resign next month after an alleged rogue trader gambled away billions on risky financial market ventures.

Law graduate  Monika R, 45, was hired in 2001 to speculate with taxpayers money and made massive losses in 2006 after she bought Icelandic sovereign bonds. The mother of one covered the losses by getting one of her staff to sign them off - then allegedly forged his signature after that.

The region's deputy governor David Brenner, 41, was told about the losses said by local media to be 3 billion euros weeks before - but had apparently not made them public - sparking allegations the time in between had been used to hide key evidence.

Brenner learned about the scandal on 15 October, but instead of going public with the fact that there were 253 undeclared derivative ventures in addition to the 43 on the books - it was kept secret for six weeks.

In that time they hired an investigator who Austrian media has now revealed was a former business partner of hers at a German bank that had earned around 30 million euros on the speculative deals and who - they allege - spent that time covering her tracks.

The existence of 253 illegal, secret derivative investments in addition to the 43 on the city's books was only discovered when R., who had not taken a holiday for six years, was forced to go on leave so that irregularities could be checked.

She objected so strongly that colleagues suspected she was suffering from burn-out.

Brenner, a member of the Austrian Social Democrats (SPOe), said he would continue to work on a report on the scandal until 16 January, after which the new budget would be presented to the regional government on 23 January - and that he would then step down.

His immediate superior and fellow Social Democrat Gabi Burgstaller said she had also considered resignation but then had decided to stay on to guide Salzburg through the crisis - and after that she would consider her position.

Brenner was the Social Democrats big hope for the future and his decision to step down leaves a vacuum in the party in Salzburg. Salzburg is the name of the city and the region that is one of nine federal provinces that make up modern Austria. The city of Salzburg is the capital of the province.

The region is famous as the location for the Sound of Music film, as the birthplace of Mozart and for the Salzburg Festival that is attended by Europe's elite including Prince Charles. It is the province that has lost the money.

When police arrived to question her mother-of-one R. reportedly said: "Don't take my baby away," and claimed she had only wanted to help the city - but since then her position has hardened and through her lawyer she claims that all of the deals were sanctioned by her superiors.

Her lawyer Herbert Huebel said not only is she innocent of any wrong doing but that her employers knew what she was doing.

He said: "It is always easy to accuse, buy my client is innocent of the charges - of that I am positive. She had complete authority for the business transactions both from her superiors and politically. That authority included complete freedom for the type of business that nobody complained about for years when it all seemed to be going well.

"The Federal Province of Salzburg wanted to get involved in this type of business, and my client carried it out. She did not operate alone, she reported to her managers and political masters. And she never pocketed a single cent - it was all for Salzburg. She has been questioned and has handed over the documents that prove her role, the truth will now come out.

"She herself feels herself 100 per cent not guilty. I believe that she will not be charged as she did not do anything wrong."

One insider said: "The scandal comes at a bad time, there are early elections taking place. It may be that the real situation only emerges after that." When it was first announced the loss was put at 340 million, today Austrian media have put it at between 1 and 3 billion euros.

It was also warned that Salzburg might be the tip of the iceberg - and that other local authorities might be covering similar bad debts from risky investments. Consultant Gert Edlinger from HLC Communications estimates a potential figure of 8 billion euros in local government losses due to speculation in structured financial products gone wrong in Austria.

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