* Restoring lending to companies an "absolute priority"
* Lending needed to get economy to grow again, avoid crisis relapse
* EU mulling alternatives to bank loans like private equity
By Jan Strupczewski
BRUSSELS, June 12 The European Union may guarantee the repayment of bank loans made to companies in an effort to improve firms' access to credit, especially in southern Europe, European Commission President Jose Manuel Barroso said on Wednesday.
Easier access to credit is critical to getting Europe's economy growing again, with even record-low interest rates failing to translate into an increase in lending.
The main challenge is to inject life into the six shrinking southern European economies -- Greece, Cyprus, Italy, Portugal, Spain and Slovenia -- since they will never be able to pay back their large debts without growth.
Barroso said three types of 'instrument' were under consideration to stimulate lending, with efforts focused on loans to small and medium-sized companies (SMEs) that make up more than 95 percent of all firms in Europe.
All three would involve pooling resources from a variety of EU lending facilities to provide the guarantees, he said.
"In every case the provision of public support will be conditioned on the benefits being passed through to SMEs in the form of increased lending," Barroso said.
Currently, a company based in southern Europe has to pay two to three times more interest on a standard loan than a northern competitor, European Central Bank data has shown.
A company in Cyprus, for example, would have to pay 70,300 euros to get a 1 million euro loan for one year while its rival in France would spend just 21,600 euros. A Greek firm would pay 66,600, while a German one only 29,200.
Companies in the south face shrinking domestic demand as recession grips much of the region - in the case of Greece for the sixth year in a row. This means company profits fall and customers are often late with payments, reducing working capital and making bank loans all the more necessary.
On the other hand, Germany only dipped into recession for one year in 2009 and has been growing since. So has Austria and France and, apart from a small contraction last year, Belgium and Finland. Demand for credit among German, Austria and Dutch companies has been falling, meaning capital is available.
The emerging split into the more economically successful north and troubled south threatens the unity of the 27-nation bloc, and especially the 17 countries that share the euro.
Voters in the north have grown resentful of rising commitments to the south, while those in the south in turn resent the loss of sovereignty implicit in receiving helped.
"Excessively tight access to credit remains a key obstacle to the revival of economic activity - especially in our most vulnerable member states," said Barroso. "Restoring lending to SMEs... remains an absolute priority."
Apart form bank loans, the EU is also exploring other ways to improve companies' access to finance, such as via private equity partnerships and special risk-sharing instruments coordinated with the European Investment Bank.
"We will soon come forward with a proposal for a regulatory framework for long-term investment funds," he said.
Financing for companies will be one of the topics discussed by EU leaders at a summit on June 27-28.