European Central Bank Executive Board member Benoit Coeure said there are limits on what the ECB can do to help small and medium-sized companies gain access to bank loans.
“The ECB does not have a magic wand,” Coeure said today in Dublin, according to a speech text provided by the ECB. “The central bank cannot compensate for a shortage or misallocation of equity. That is something that has to be addressed, in one form or the other, by other stakeholders.”
ECB President Mario Draghi said on April 4 he’s looking at “both standard and non-standard measures” to stimulate growth and help the 17-nation euro economy exit its recession. While policy makers are examining what they can do to encourage banks to lend to so-called SMEs, they have yet to come up with a plan, officials familiar with the deliberations said last week.
Coeure said SMEs are “the backbone of the euro-area economy,” employing around three-quarters of the region’s workers and generating some 60 percent of economic growth.
It is “to some extent inevitable that credit sources for small firms tend to dry up more rapidly than for large companies during economic downturns, thereby disrupting the business and investment activities of these firms to a greater extent,” he said. “This has indeed been the case during the crisis in the euro area.”
While the ECB has taken “exceptional monetary policy actions” during the crisis, financial fragmentation is still hindering the transmission of its interest rates, Coeure said.
SMEs were paying on average around 160 basis points more than large companies for loans in the six months through January, he said, adding there was “a substantial divergence across euro-area countries.”
“The spread was around 50 basis points for SMEs in Austria and Belgium, but 261 in Spain and 174 in Ireland,” Coeure said. “Between 2003 and 2008, the same spread was 84 basis points in the euro area, 79 basis points in Spain and 44 basis points in Ireland.”
The ECB’s non-standard measures “have proved to be effective in alleviating bank funding constraints, containing the risks of a disorderly bank deleveraging process,” he said. “However, they have proved to be of limited effectiveness in stressed countries.”