Three billion euros’ worth of EU cartel fines could fill a growing credit gap for small and medium-sized enterprises, according to a proposal made by Christopher Leitl, president of the Austrian SME union, to the European Commission.
A combination of write-downs, higher capital requirements and stricter regulation harbours a gloomy year ahead for SMEs, according to European business groups. A guarantee fund backed by money from EU cartel fines would alleviate a multi-billion credit gap which hampers enterprises’ access to funding, according to the Austrian plan.
The euro zone is looking at a 240-billion-euro credit gap in 2010, according to the latest calculations by the International Monetary Fund (IMF) in its October Global Financial Stability Report.
“We need quick implementation of this fund,” Erich Kuehnelt from the Austrian Federal Economic Chamber told EURACTIV, quoting the IMF figure.
Kuehnelt argues that the guarantee fund is based on the terms of an existing EU programme adopted by the European Parliament in June 2006. The EU’s Competitiveness and Innovation Programme (CIP), which foresees that each euro spent leverages an average of €50 on bank loans, provides loan guarantees to encourage banks to make more money available to SMEs.
The Austrian union expert proposes to use the same leverage as the EU’s SME guarantee facility, which would turn one billion euros of cartel fines into €50bn of fresh credit available for SMEs.
The proposal was tabled in Brussels by the Austrian Federal Economic Chamber’s president, Christopher Leitl, who met with EU Economic and Monetary Affairs Commissioner Joaquin Almunia to discuss a series of proposals put forward by the chamber on the regulation of financial markets.
Cartel money double-booked
However, the proposed fund would possibly conflict with an EU proposal to use the cartel fines for private damages claims made by victims of cartel cases. It is unclear whether a victims’ fund will be realised soon.
According to Jonathan Todd, spokesperson for EU Competition Commissioner Neelie Kroes, the proposal could be adopted before the end of the current mandate. The mandate, due to expire at the end of this month, will likely be extended until final ratification of the Lisbon Treaty by the Czech Republic. Money from cartel fines currently goes into the EU budget, said Todd.
“That’s three billion less than the taxpayer has to pay,” Todd added, because the fines reduce member states’ contributions to the EU budget. However, according to the Commission, the current figure amounts to 1.4bn euros in 2009. In 2008, the figure stood at 2.27bn. Overall, the Commission got 9.58bn euros from cartel fines imposed between 2005 and 2009.
Legal hoops to jump through first
Funds from cartel fines are not immediately available to the Commission and could take a couple of years to become accessible, Cristina Arigho, spokesperson for Budget Commissioner Algirdas Semeta, told EURACTIV.
Though cartel fines must be paid within a three-month deadline, the money is not collected for the budget as long as there is an appeal against the fine, but is kept in a separate account, earning interest pending the outcome of the appeal. The fine may also come in the form of a bank guarantee.
Even though a certain amount of the fine hovers in a blocked account, it is still not at the EU budget’s disposal until the appeal process rules against the cartel, Arigho added.
A conservative idea
Leitl’s guarantee fund would not represent a free-for-all for SMEs but would be a “conservative” loan facility, Kuehnelt argues. The fund would only step in when a business is insolvent and cannot repay its debts to credit institutions, while the SME in question would pay a yearly guarantee fee to ensure it could make use of the fund’s loans at a time of insolvency, he added.
“The proposed fund would not extend guarantees directly to SMEs but to public national/regional/local guarantee institutions that offer loan guarantees to SMEs,” the expert noted.
In theory, the arrangement would create an incentive for national and regional lenders to offer new guarantees to SMEs because they reduce their own risk via the EU fund, according to the Austrian plan.
Current proposals to increase capital requirements at banks to stave off future bankruptcies could have a devastating effect on small and medium enterprise at a time when their growth would be instrumental in driving a recovery.
In the EU, SMEs account for 90% of GDP and two thirds of jobs. According to the latest ECB survey, one third of SMEs report a deterioration in access to bank loans.
On 1 June 2006, the EU adopted a seven-year framework programme aimed at enhancing competitiveness and innovation.
The new framework, which will run from 2007-2013, merges several already existing measures into one comprehensive programme to boost the competitiveness and productivity of European businesses especially SMEs, while at the same time proposing support for eco-innovation and sustainable energy.