Access to EU recovery funds gives Greek companies 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, the Greek banks would finance us with 10 percent interest, while our German competitors would borrow with less than 2 percent,” said Bisalas, CEO of Sunlight Group, a company specializing in energy storage systems and exports to more than 100 countries. “It was impossible to be competitive.”

Athens wants to solve the problem that Sunlight and thousands of other companies faced during the crisis and often still face – high borrowing costs. It wants to spend 11.7 billion. EUR 750 billion of EU loans. EUR, for the recovery of coronavirus to reduce the cost of lending to Greek companies and increase investment to levels comparable to other EU countries.

The EU Recovery Fund is a key pillar of Brussels’ plans to boost economies following the coronavirus pandemic. For Greece, which has been hit by three bailouts and a series of austerity measures in the past decade, it is an opportunity to make the country’s economy more competitive. And politicians are aware of the importance of devising a different approach to increasing the flow of money to companies.

“If we do not reduce the cost of lending, our economy will never be able to recover,” said Theodoros Skylakakis, Deputy Minister of Fiscal Policy responsible for the plan, which was approved by the EU last June.

But some leaders and opposition politicians are questioning whether the scheme, which is due to start providing loans in the spring, will go far enough to extend lending.

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

Line chart of gross fixed capital formation as a percentage of GDP, showing that Greece needs to narrow its investment gap with its neighbors

Under the scheme, Greece will receive loans from the EU Recovery and Resilience (RRF) facility at almost zero interest rates and pass the funds on to the banks. They would borrow up to 50 percent of a loan at these low interest rates and a further 30 percent under their usual financing terms, while up to 20 percent would come from the project sponsor or borrower. By structuring project financing in this way, companies will be able to borrow much cheaper at rates similar to those in other euro area countries.

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

Although the country’s economy is in much better shape after eight years of tight reform programs, it is not at the investment grade level and has the highest levels of government debt and the highest percentage of non-performing loans in the euro area. Greek banks still offer the most expensive loans in the block, which increases business capital costs.

Line chart of non-performing loans in% of the total amount in each sector, showing that the level of Greek bad debt has improved since the crisis, but is still high

At the beginning of next month, six Greek banks, as well as the European Investment Bank and the European Bank for Reconstruction and Development, will receive the first tranche of the fund worth 1.57 billion. EUR and start approving loans. The selection process will be carried out by the banks without government intervention. Independent auditors will oversee the lending procedures.

Syriza, who led the Greek government from 2015-19, has criticized the lack of state oversight of disbursement of loans. “You can not let the banks take control of the procedure,” Achtsioglou said. She fears the scheme will be used to lend to companies that already had access to liquidity.

Fokion Karavias, CEO of the Greek lender Eurobank, acknowledged that the scheme was mainly aimed at larger companies, which are considered solvent and profitable. Only 2.5 percent of Greece’s estimated 900,000 companies are classified as medium or large. Some successful small businesses will qualify, but the vast majority of smaller businesses are not eligible because they have overdue debts and are not posting any profits.

“It is true that the money goes to medium-sized and large companies, while the smaller ones want to [find it] harder to participate, ”he said, adding that the Hellenic Development Bank and other EU programs were tailored to small businesses.

But Karavias said the scheme, which will favor projects focused on the green economy and digital innovation, would give many Greek companies the impetus they need to grow. “The RRF funds give businessmen a push to think big,” he added. “There’s an investment momentum that we have not seen in many decades.”

Sunlight plans to apply for an RRF loan. Although the company can now borrow at more competitive interest rates than in the crisis years, the scheme’s lower interest rates and the life of the loans, which will extend up to 12 years, will further reduce financing costs.

“RRF is a useful tool that will accelerate our investment plans,” Bisalas said. By mid-2023, Sunlight aims to have expanded its lithium batteries, doubled production in lead acid technologies and raised production of its battery recycling unit by 70 percent, he added.

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

“RRF loans are the lighter, but not the most important fuel that will keep the Greek economy going,” said Nikos Vettas, director general of IOBE, an Athens-based economic think tank. “The most important thing is to create greater infrastructure.”

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

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