CREDIT CRUNCH

Trying to Help Greece Help Itself

Merkel Tsipras IfG AfP
Plenty of their plates: Angela Merkel and Alexis Tsipras.
  • Why it matters

    Why it matters

    Many Greek businesses are hampered by the country’s credit crunch, yet they are not getting access to much-needed loans.

  • Facts

    Facts

    • Germany and Greece each contributed €100 million ($112 million) to the Institution for Growth.
    • The joint business development fund was launched in May 2014 to provide loans to SMEs.
    • Only 49 loans totaling €23.5 million have been approved by Piräus Bank, one of two Greek banks entrusted to award the loans.
  • Audio

    Audio

  • Pdf

Rarely has a venture been so euphorically announced by Germany and Greece as the Institution for Growth, a joint business development fund.

However, the fund, launched in 2014, has failed to release all of the €200 million ($224 million) in loans earmarked to help small and mid-sized Greek businesses.

Back in 2013 Germany’s finance minister, Wolfgang Schäuble, had already promised Greece assistance in restoring economic growth.

Chancellor Angela Merkel renewed the promise a year later. During her visit to Athens in 2014, she said conditions must be established “so the economy can once again show its innate potential.” Another aim was to demonstrate that Germany stands not only for tough austerity measures, but also for generous assistance.

But the development project, which has struggled with problems and delays from the very start, is proving how difficult it is to help Greece effectively. This is evident in the German finance ministry’s latest interim report, obtained by Handelsblatt.

Only 49 loans totaling €23.5 million have been approved by Piräus Bank, despite widespread need for credit in Greece.

Germany and Greece each contributed €100 million to the fund. The German share was channeled through its state-owned development bank KfW. The €200 million in loans were intended to go to small- and mid-sized companies, via two Greek commercial banks, Piräus Bank and Eurobank.

In a statement to mark the launch of the fund in May 2014, the KfW stated that the IfG was intended to “provide Greek SMEs with improved access to investment loans and working capital to help foster economic growth.”

But the arrangement has been only partially successful.

The interim report by Jens Spahn, deputy finance minister, reports that in the case of Piräus Bank, there have been “significant delays in the marketing of the loans.”

The election of a radical-left government in January 2015 seems to have contributed to the difficulties.

The report cites “politically motivated changes of management” at the bank, as well as “protracted negotiations with the Greek government.”

The result: Only 49 loans totaling €23.5 million have been approved by Piräus Bank, despite widespread need for credit in Greece. The second institution, Eurobank, has distributed almost its entire amount, in 380 loans totaling €99.3 million.

The problems at Piräus Bank have forced the German government to act.

All the loans were supposed to have been disbursed by the middle of 2015. It had been assumed that a year would be sufficient time in a country suffering from a severe credit crunch.

The German finance ministry, after consulting with the economy ministry in Berlin, extended the deadline by four months to October 9, according to the report. But even that wasn’t enough. Now the deadline has been extended another month, to November 9.

And Berlin is showing flexibility on more than just deadlines. According to the contract, it could have demanded early repayment of the loans to Eurobank and Piräus Bank at the end of June, because both financial institutions were drastically downgraded by ratings agencies.

It was in late June that capital controls were introduced in Greece after Prime Minister Alexis Tsipras called for a referendum on the bailout conditions set by international lenders.

Despite the majority of Greeks backing the government’s calls to reject austerity, Mr. Tsipras then turned around and agreed to the tough conditions in exchange for a €86 billion bailout.

However, the Greek banks are still subject to limited credit controls ahead of stress tests in October, and are also in urgent need of recapitalization.

And Greece, which re-elected Mr. Tsipras and his Syriza party last Sunday, will need to convince its lenders that it is making efforts to reform when its bailout program comes up for review in October.

However, despite the fact that Greece still faces a risk of default if it cannot convince its lenders, the German government “is refraining from an amortization of the global credit on the basis of the lowered ratings of the banks,” the finance ministry said in its report.

After all, if the loans are actually disbursed, then they will help the Greek economy get back on its feet.

 

Jan Hildebrand heads Handelsblatt’s financial policy coverage from Berlin. Siobhán Dowling, an editor with Handelsblatt Global Edition, contributed to this article. To contact the author: hildebrand@handelsblatt.com

 

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