Juncker plan “too ex­pen­sive” for SMEs due to coun­try risk

Financial Mirror (Cyprus) - - FRONT PAGE -

In­vest­ment fund­ing to Cypriot small and medium-sized en­ter­prises and mid­caps through the In­vest­ment Plan for Europe, known as the Juncker plan, is ex­pen­sive due to the risk as­so­ci­ated with Cyprus, which is ex­it­ing a three-year eco­nomic ad­just­ment pro­gramme, ex­perts have told an event or­gan­ised by the Rep­re­sen­ta­tion of the Euro­pean Com­mis­sion in Cyprus.

As Cyprus is rated three to four notches below in­vest­ment grade, the Euro­pean In­vest­ment Bank (EID), the bank of the EU, lends Cypriot banks in nor­mal op­er­a­tions with low in­ter­est rates due to the state guar­an­tees the Cypriot govern­ment pro­vides off­set­ting the risk that oth­er­wise would be as­sumed by the EIB, ac­cord­ing to the Cyprus News Agency.

“That en­ables us to lend the banks with zero risk for us, whereas if we were to give a bank a guar­an­tee un­der the Euro­pean Fund for Strate­gic In­vest­ment (EFSI), take the Cypriot coun­try risk, we would lend with 6% to 7%,” Flavia Palanza, EIB Di­rec­tor for Cen­tral and South East Europe said at the event.

The EIB with the Cypriot au­thor­i­ties have de­vel­oped cus­tom made in­vest­ment schemes for Cypriot SMEs and mid­caps that reached EUR 200 mln in 2015, from which EUR 100 have been al­lo­cated.

Ac­cord­ing to Ni­cos Yi­ambides, Se­nior Loan of­fi­cer at EIB, un­der the scheme el­i­gi­ble com­pa­nies must em­ploy up to 3,000 em­ploy­ees and ap­ply for loans up to EUR 25 mln. The in­ter­est rate ranges be­tween 2.6% and 3.5%.

“With the cur­rent rat­ing of the Cyprus econ­omy and the banks I don’t think the in­ter­est rate would be less than 4% to 4.5% to lend the banks (un­der EFSI),” Yi­ambides ex­plained.

Not­ing that no EFSI in­vest­ment fund­ing has been ob­served in Cyprus, Palanza said “what mat­ters is to in­crease in­vest­ment and in­crease them well ei­ther with EFSI or with­out EFSI.”

Kyr­i­akos Kak­ouris, Se­nior Eco­nomic Of­fi­cer at the Min­istry of Fi­nance, said that Cyprus did not man­age so far to at­tract EFSI fund­ing for projects.

“We look at the op­por­tu­ni­ties and po­ten­tial EFSI has for Cyprus,” he said, adding that as Cyprus is ex­it­ing its three-year pro­gramme and eco­nomic growth re­stored “EFSI could have a cat­alytic role in its riskbear­ing role may be in­stru­men­tal in boost­ing in­vest­ment and lead­ing our econ­omy into fur­ther progress in the com­ing years.”

Ge­orge Markopouli­o­tis, head of the Euro­pean Com­mis­sion Rep­re­sen­ta­tion in Cyprus, said the Juncker plan comes to fill a gap, as Europe faces a 15% of EUR 430 bln re­duc­tion in in­vest­ment from the peak of 2007.

“This is a real prob­lem. In the short term, weak in­vest­ment slows eco­nomic re­cov­ery, in the longer term, the lack of in­vest­ment hurts growth and com­pet­i­tive­ness. Weak in­vest­ment in the euro area has a con­sid­er­able im­pact on the cap­i­tal stock which in turn holds back Europe’s growth po­ten­tial, pro­duc­tiv­ity, em­ploy­ment lev­els and job cre­ation,” he stressed.

Palanza ex­plained that fol­low­ing the fi­nan­cial cri­sis of 2008, al­though there is an abun­dance of liq­uid­ity, in­vest­ment have de­clined due to a more risk-averse pol­icy fol­lowed by the banks but from en­trepreneurs them­selves who do want to as­sume risk in a new ven­ture.

The Juncker plan comes to cover this void by pro­vid­ing the EIB with guar­an­tees from the EU bud­get, en­abling the EIB to fund riskier strate­gic in­vest­ment that would oth­er­wise would not do so given its risk pro­file, as EIB se­cures liq­uid­ity from the mar­kets.

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