* Restoring lending to companies an "absolute priority"
* Lending needed to get economy to grow again, avoid crisis
* 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.