The V shape recovery: EC unlocks €8 billion to boost SMEs

For this #mondaypost we will discuss about the main Covid19 aftermath theory – The V shape recovery.

Some economists consider that the EC financing and the national schemes to restart the continent’s economy will boost the economy in a V shape recovery. The huge figures announced by most European countries are indeed impressive but some are still pessimistic.

“According to data from national statistical institutes, Covid-19 wreaked havoc on both domestic and external demand in France, Italy and Spain, while contractions in smaller Eurozone economies were sizeable but less severe. Prospects for the second quarter are even bleaker, due to protracted lockdown measures, with a bigger blow to activity expected, as suggested by collapsing consumer and business confidence and a diving PMI reading in April. To cushion the economic impact of the coronavirus crisis, on 9 April Euro area ministers rolled out an emergency package worth EUR 540 billion; nonetheless, they remained deeply divided on post-crisis stimulus.” – focus-economics.com

EC just announced on 6th May that is unlocking €8 billion in finance for 100,000 small and medium-sized businesses.

According to European Commission, this funds will allow the EIF to issue special guarantees to incentivise banks and other lenders to provide liquidity to at least 100,000 European SMEs and small mid-cap companies hit by the economic impact of the coronavirus pandemic, for an estimated available financing of €8 billion.

This week announcement fulfils the commitment in the Commission Communication of 13 March to bring immediate relief to hard-hit SMEs, with money able to flow already in April. It is part of the package of measures announced by the EIB Group on 16 March designed to rapidly mobilise support for Europe’s SMEs and mid-caps.

“One of the immediate economic consequences of the coronavirus pandemic is the sudden lack of liquidity affecting small and medium-sized businesses. These companies are typically the most affected in a crisis, and it is essential to support them with adequate liquidity so they can survive the crisis. However, in a situation of liquidity crunch banks are not incentivised to lend SMEs money due to the sudden increase in perceived risk. That is why EU guarantees supporting these loans are necessary. As of today, the EIF is offering to the market dedicated EFSI-backed guarantees to contain the impact of the pandemic on small and medium sized enterprises and small mid-cap companies.” EC

Following the announcement, the call for expression of interest is officially opened and financial intermediaries with existing EIF agreements under these COSME and InnovFin programmes will be able to access the new guarantees immediately upon their request.

The EC release also mentions that other financial intermediaries can access the guarantees following a swift application process. In that way new money can already start flowing to hard-hit businesses in April. SMEs will be able to apply directly to their local banks and lenders participating in the scheme, which will be listed on the access to finance website.