EU recovery threatened by credit access

EU recovery

New reports suggest executives and economists alike are concerned that Europe's economic recovery could be held back by SMEs in nations such as Germany and Italy that are too dependent on banks' finances.

According to new reports, because of the economic crisis, small and mid-sized companies are unable to finance themselves through bonds on capital markets, meaning that, unlike their larger competitors, they are facing the prospect of a further credit crunch.

The main problem is access to credit, as Giuseppe Morandi, head of small industry for Italy’s business lobby group Confindustria, told the Financial Times: "This crisis is making us pay the price of not having developed alternative sources of financing [to banks]."

Too cheap

Access to credit, say the banks, are getting tougher - but European banks are arguing that tighter credit conditions are only happening because loans had become too cheap before the crisis had hit and banks now need to demonstrate responsible lending.

The issue is further exacerbated by nations in Western Europe, such as Germany and Italy, where economies are dominated by SMEs. In such nations, in fact, some bankers are giving strong warnings of a crisis still to come.

In Germany, for instance, Josef Trischler, head of business administration at Germany’s engineering association, the VDMA, has warned that industry in general "see a fight between the long-term perspective of companies and the short-term of banks."

Meanwhile, other nations in Europe - including the UK - are showing concern about SMEs' dependence on banks.

FSB

The UK's Federation of Small Businesses (FSB) for instance has pointed to recent research that two-thirds of its members were not currently asking for credit, confirming the banks' arguments that credit has not dried up but demand for it has.

"Our concern is that a lot of this could be due to the cost of finance," warned the FSB report, however. "People might not be going to the banks because they have had disappointment in the past year. They can be held to ransom by the costs that they are charged."

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