Access to EU recovery funds gives Greek businesses a chance to compete

Labros Bisalas remembers what it was like to run a business in Greece during the depths of the country’s financial crisis.

“In 2011, Greek banks would finance us with 10% interest rates while our German competitors would borrow with less than 2%,” said Bisalas, managing director of Sunlight Group, a company specializing in storage systems. energy and exporting to more than 100 countries. “It was impossible to be competitive.”

Athens wants to solve the problem that Sunlight and thousands of other businesses faced during the crisis and often still face – high borrowing costs. He wants to use 11.7 billion euros in EU loans, part of the 750 billion euro coronavirus recovery fund, to reduce the cost of loans to Greek companies and increase investments to comparable levels. to those of other EU countries.

The EU recovery fund is a central pillar of Brussels’ plans to boost economies after the coronavirus pandemic. For Greece, which has endured three bailouts and a series of austerity measures over the past decade, this is an opportunity to make its economy more competitive. And policymakers are aware of the importance of designing a different approach to stimulate the flow of money to businesses.

“If we don’t reduce the cost of lending, our economy can never recover,” said Theodoros Skylakakis, the alternate minister for fiscal policy responsible for the plan, which was approved by the EU last June.

But some opposition leaders and politicians question whether the program, which is expected to start providing loans in the spring, will go far enough to expand loans.

“This program could end up making no difference to the economy,” said Efi Achtsioglou, head of economic policy for the left-wing Syriza party, the main opposition party, pointing out that most Greek companies were too small to meet the investment criteria.

Under the scheme, Greece will receive loans from the EU’s Recovery and Resilience Facility (RRF) at near-zero interest rates and transfer the funds to banks. They will lend up to 50% of a loan at these low rates and an additional 30% on their usual financing terms, while up to 20% will come from the project sponsor or borrower. By structuring the financing of projects in this way, companies will be able to borrow much less expensively, at rates similar to those of other countries in the euro zone.

“We are finally getting competitive with this method,” Skylakakis said.

Although the country’s economy is in much better shape after eight years of strict reform programs, it is not investment grade and has the highest levels of sovereign debt and the highest percentage of non-performing loans of the euro zone. Greek banks still offer the most expensive loans in the bloc, raising the cost of capital for businesses.

Line chart of non-performing loans as % of total in each sector showing Greek bad debt levels have improved since the crisis but remain high

Early next month, six Greek banks, along with the European Investment Bank and the European Bank for Reconstruction and Development, will receive the first tranche of the fund, worth €1.57 billion, and will start approving loans. The selection process will be carried out by the banks without any government interference. Independent auditors will monitor loan procedures.

Syriza, which led the Greek government from 2015 to 2019, criticized the state’s lack of control over loan disbursement. “You can’t let the banks take over the process,” Achtsioglou said. She fears the scheme could be used to lend to businesses that already had access to cash.

Fokion Karavias, managing director of Greek lender Eurobank, acknowledged that the program mainly targets large companies considered creditworthy and profitable. Only 2.5% of some 900,000 Greek companies are classified as medium or large. Some successful small businesses will qualify, but the vast majority of small businesses are not eligible because they have overdue debt and are not making a profit.

“It’s true that the money will go to medium and large companies while the smallest [find it] more difficult to participate,” he said, adding that the Hellenic Development Bank and other EU programs were geared towards small businesses.

But Karavias said the scheme, which will foster projects focused on the green economy and digital innovation, will give many Greek businesses the boost they need to grow. “RRF funds inspire business people to think big,” he added. “There’s an investment dynamic that we haven’t seen in many decades.”

Sunlight is considering applying for an RRF loan. Although the company can now borrow at more competitive interest rates than during the crisis years, the scheme’s lower rates and the longevity of the loans, which will be up to 12 years, will further reduce the cost of funding.

“The RRF is a useful tool that will accelerate our investment plans,” Bisalas said. By mid-2023, Sunlight aims to expand its lithium battery assembly lines, double production of lead-acid technologies, and increase production of its battery recycling unit by 70 percent, it said. he adds.

The EU-backed loan program is only part of the solution to a bigger puzzle for Greece – how to attract more foreign investment. In 2019, FDI represented only 2.4% of the country’s gross domestic product, compared to 7.8% for neighboring Albania and 8.3% for Serbia.

“RRF loans are the lightest but not the main fuel that will keep the Greek economy running,” said Nikos Vettas, chief executive of IOBE, an Athens-based economic think tank. “The most important thing is to create a greater infrastructure.”

Sunlight’s plan called for the creation of 450 jobs, including 350 in Thrace, one of Greece’s poorest regions, Bisalas said. “The investments that the RRF will hopefully fund will not only help Sunlight,” he added, “but will have a positive impact on the Greek economy.”