We store cookies on your device to make sure we give you the best experience on this website. I'm fine with this - Turn cookies off
Switch to an accessible version of this website which is easier to read. (requires cookies)

EU long-term budget deal paves way for up to €100bn of lending to SMEs

June 30, 2013 3:44 PM
By David Gow in British Influence - EuropeWatch
Originally published by East Midlands Liberal Democrats

There may finally be a sense of urgency in Europe to deal with the lack of investment in the real economy and, specifically, the decline in lending to SMEs. The latter account for 85% of all new jobs created in the past decade and, in Italy, for 80% of all employment; some 21m SMEs make up over 65% of private sector employment in Europe as a whole. Yet, for 12 months in a row, lending to the sector has declined.

But, as Tilman Lueder, a senior Commission official heading up plans for new long-term investment funds, told a Deutsche Bank seminar in Brussels: "There's a huge imbalance between the financial needs of SMEs and the energy and transport sectors and dormant capital." Many big companies are cash-rich, even households are saving, more than the US, yet - unlike in America - small firms are being starved of funds. In Britain, Sir Richard Lambert, a senior bank adviser, added: "Business investment as a share of GDP is small and falling; the horizon for investors is short and getting shorter."

There are plenty of ideas for dealing with this scandal. Thursday's political deal on the seven-year EU budget (MFF) paves the way for Europe to get serious about a related "new investment plan" - first endorsed a year ago and, it's said, capable of unleashing up to €100bn of lending to SMEs. José Manuel Barroso, Commission president, directly links the MFF - "the growth fund for Europe" - to measures to combat youth unemployment, now standing at 6.5m across Europe. If the deal is signed, sealed and delivered by MEPs next week, €2bn can be spent from January to help beat youth unemployment - including by investing in start-ups by young people or in existing SMEs.

The plans already under way include using the €10bn capital increase for the European Investment Bank to buttress a 50% increase in the bank's lending capacity. The summit heard that the EIB has identified €150bn of lending opportunities across Europe. All very well, said some leaders, but is it not time you put all this money into the real economy rather than worry about your Triple A credit rating? But also, as Sir Richard pointed out, there are other proposals as well - notably getting the European Central Bank to play a much more direct role in spurring lending to small firms. Mario Draghi, ECB president, laid out some of these to the summit.

One such idea he set out is to revive securitization. This would see the ECB and/or EIB, for instance, pool together loans for SMEs and create a liquid market for them. Or member states could take part of their structural funds to support loans to SMEs and, again, pool them as joint guarantees for such lending. Lueder's plans envisage longer-term investors putting money into managed funds which would invest in unlisted securities, project bonds…These and other ideas are in the summit's conclusions - and help inform the business manifesto that British Influence and Business for New Europe will jointly launch on Monday.

They may even win approval from David Cameron and the UK government. The prime minister arrived at the summit talking about "making sure we live within our means" but also about "making it easier for businesses to create jobs". For his EU partners that means using available funds, including the new MFF, to boost lending to SMEs and investment in infrastructure. (Shades of Danny Alexander). It's about ending what one senior diplomat calls the "sterile debate between austerity and growth" - getting Europe to create jobs when 26.5m are out of work now.

Cameron, meanwhile, kept his backbenchers on their toes and on his side by smelling a French rat in the MFF deal: a Gallic effort to cut back the UK's annual budget rebate by, one hears, some €200m through an arcane clause in the CAP about rural development in central Europe. The prime minister sought and got the support of Herman Van Rompuy, summit president. French officials shrugged and said: Cameron is playing to the gallery.

Today we have agreed the money to back up our words," Barroso said early on Friday as he hailed deals to release funds for loans to business and measures to combat youth exclusion from the labour market. Van Rompuy confirmed that Britain's £3bn annual rebate remains intact - good cheer for Cameron on a dreich Brussels summer's day.

Meanwhile, Europe's de facto leader, Angela Merkel, is playing down her own remarks earlier in the day to the Bundestag about a "solidarity fund" for the Eurozone. Nein, she said on arrival, no new pots of money. But rewards or aid for countries making themselves more competitive - or German - through binding agreements to carry out painful structural reforms. That is, a very modest proposal.

About the Author

David Gow

David Gow

David Gow has been a journalist for almost 45 years, working successively for The Scotsman, London Weekend TV's Weekend World, The Scotsman and The Guardian. He was Scotland's first full-time EU correspondent. At the Guardian he was German Correspondent (1989-95) and European Business Editor in Brussels (2004-09, 2011). He is also a senior adviser to CabinetDN, a Brussels consultancy, chairman of Volunteer Centre Hackney and a school governor.