Management Strategies

10:42 AM
Reuters
Reuters
News
Connect Directly
RSS
E-Mail
50%
50%

Nervous Banks Hold Back Europe's Revival Strategy

Among the piles of papers on one European diplomat's desk in Brussels is a memo with the words "growth" and "jobs" scrawled in blue ink, followed by a large question mark.

LOOKING FOR A CROWD

Banks are most reluctant to lend in the region's weakest countries - Greece, Ireland and Portugal - where the stakes for the euro zone's stability are highest and growth is needed if mountainous debt levels are ever to be whittled away.

But in 2011, only one in four loan applications by small businesses were successful in Greece and Ireland, compared to seven out of 10 in Germany.

"A country's ability to borrow sets the benchmark for its banks and corporations," said Sony Kapoor, at think-tank Re-Define. "That is why this is not a uniform problem throughout Europe, but concentrated in the periphery."

Firms in Greece will likely face more stress as the country's banks wait for fresh capital agreed under the second bailout.

"The real oxygen will only come into the economy once Greek banks are recapitalised later this year," Horst Reichenbach, the head of the European Commission's Greek task force, told Reuters. "I hope that will be a turning point for the country."

The ECB has lent European banks an unprecedented 1 trillion euros of cheap money over three years but banks have consistently parked roughly three-quarters of the money at the ECB overnight, instead of issuing loans.

"There's a growing realisation among EU policymakers that the ECB's stimulus may have calmed financial markets," said a senior EU diplomat working on financial affairs. "But it hasn't translated into anything tangible for the wider economy."

Companies in Britain and France are turning to a grassroots system known as crowd funding, where entrepreneurs publicise projects online to try to win backers.

One website, Funding Circle, was set up in response to the credit freeze following the 2008-2009 financial crisis. It allows people to lend directly to small firms in Britain.

Investors have lent 28 million pounds ($44 million) to some 670 firms through the website since August 2010, although that is just a fraction of the financing that businesses need. ($1 = 0.6326 British pounds) (Reporting by Robin Emmott and John O'Donnell; additional reporting by Sakari Suoninen in Frankfurt and Claire Davenport in Brussels, editing by Mike Peacock)

Previous
2 of 2
Next
Comment  | 
Print  | 
More Insights
Register for Bank Systems & Technology Newsletters
White Papers
Current Issue
Bank Systems & Technology - August 2014
Modern core systems are emerging as the foundations of effective channel integration and customer engagement initiatives.
Slideshows
Video