Amid the splendour of Michelangelo’s architectural innovations at the Palazzo dei Conservatori on the Capitoline Hill, delegates from six European countries signed the Treaty of Rome on 25 March 1957. The treaty, which included the articles that founded the European Investment Bank, was “a declaration of future good intentions,” according to one historian. For two weeks, we are publishing a series of stories to mark the sixtieth anniversary of the treaty—one for each decade of the EIB story. These are stories of how the EIB helped turn good intentions into reality.
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Guarantees for SMEs
In central Bohemia, 30 kilometres south of Prague, TG Scarabeus manufactures specialised foils and packaging, as well as recycling plastic packaging, which it sells in the Czech Republic and Slovakia. The company, founded in 2004, had to buy new machinery to keep pace with technological changes in the industry and needed EUR 137 000 to pay for it. Credit is short for small businesses across Europe, so in 2016 Scarabeus’s owner Miroslav Goiš turned to a guarantee system that ultimately is backed by the European Investment Fund, the EIB Group’s specialist provider of risk finance for small and medium-sized enterprises. Using the EU budget guarantee of the Investment Plan for Europe, an EIF counter-guarantee backed a guarantee from ČMZRB, a Czech bank, which in turn allowed Goiš to receive a loan of EUR 122 000 from Česka Spořitelna, the Czech savings bank. If that sounds complicated, it’s because financing for SMEs across Europe is not a simple problem. In fact, it’s a thorny issue that the EIB Group has been working hard to deal with throughout this decade. The bottom line is clear for Scarabaeus. “Without the guarantees, we couldn’t cover the loan,” says Goiš. “Over time, our competitiveness would go down. So we’re really happy that we got the help from ČMZRB.”
The essence of the EIB Group’s work in the SME sector is that it acts against the economic cycle. This strategy underpins EIB operations in many sectors, particularly during a decade that has seen the EIB and the EIF spearhead the Investment Plan for Europe’s campaign to revive the continent’s economy and crowd-in private capital.
In the case of the SME loans, the aim is that banks which actually lend to small businesses have to worry much less about the risk of the loan, because a European Commission initiative called COSME transfers much of that risk to the EIF with the backing of the Investment Plan for Europe’s EU budget guarantee. Of course, that makes the bank much more likely actually to grant the loan – and that’s good for small businesses. With the EU budget guarantee, the EIB and EIF aim to make banks and private investors feel more secure about putting their money to work. That’s important in the Czech Republic, for example, where the EIF signed its deal with ČMZRB in August 2015. The EIF will counter-guarantee the guarantees made by ČMZRB, a state-owned development bank, to the tune of EUR 115 million. “There’s enough liquidity, but banks require collateral, and that’s missing,” says Lubomir Rajdl, deputy chief executive of the Prague-based bank. “Our programme is really filling a market gap.”
Such a market gap that demand among Czech SMEs led to an increase in the size of the counter-guarantee. In late 2016, the EIF agreed to boost it to EUR 389 million. By the end of 2016 the counter-guarantee had supported 1 880 projects and was securing loans totalling EUR 185 million. By the end of the programme in 2018, ČMZRB expects the counter-guarantee to be backing 3 800 SMEs with loans totalling EUR 556 million.
One of ČMZRB’s first guarantees under this programme was on a EUR 92 500 loan to OVEX Plus, a waste management company in Ostrava, the Czech Republic’s third-largest city. With the loan and some of its own money, OVEX bought a new technology that allows dust-free storage of ash produced by the energy, coal and metal industries across Moravia and Silesia. That’s important in a region where air quality is seriously affected by industrial production. “The technology helps boost our position in the power and energy market in a sustainable and effective way,” says Miroslav Olszovy, executive director at OVEX. “There are also positive environmental aspects of the new technology, which is important, especially for our region.”
These small loans extend the reach of the Investment Plan for Europe to every corner of the continent. On the Danube’s Bulgarian bank, Georgi Dikov runs a factory that makes scaffolding and construction equipment. He received a EUR 34 000 loan from Cibank in Sofia, backed by the Investment Plan for Europe, for the purchase of a second-hand harvester from Germany. Dikov employs 45 people in his factory and five others on a 100-hectare plot of agricultural land in Oryahovo, a town of 5 000 people where the unemployment rate is higher than the Bulgarian average and wages are half the national average. It’s an area with relatively few highly trained workers. “I train people with no education,” says Dikov, “and I turn them into specialists.”