The recent announcement by the European Union Commission of the Junker plan will have an important impact on Romania.
It is clear to all businessmen that the economies of Eastern Europe still need much work done upon them even after seven years in the case of Romania of EU membership. The same comments ap0-ply to many businesses in the „old Europe”.
As Romania Law Firm experience, working with companies in Romania it is clear to us that so far as Romania is concerned there is still a failure both at the macro and micro level to understand financing of companies and individual business.The Junker plan will go some way in part to address this issue.
The plan of the EU Commission has two parts. One addressed to major projects in the EU. These will be in the nature initially of major infrastructure projects which will by their very nature be political. Even as I write this blog the politicians are in Brussels dividing up this cake. Which countries will benefit and which will be left behind is anyone’s guess.
More importantly for small businesses and SME’s is the second part of the plan dealing with small and medium business financing. Under the current proposals (and we must remember the plan is still being discussed) up to five billion Euro will be made available to business in Europe to encourage job development.
At a recent meeting which we attended it was explained that this would be done by funneling funds from the commission via the European Investment Bank (EIB) to local banks. These funds from the EIB would be used to guarantee loans made by local banks to SME and small business. Currently the EIB assists small business by arranging for reduced interest payments, but the new funding is to guarantee the lender banks against loses that maybe incurred. This is it hoped will encourage banks in the European Union to lend monies more readily than they do at the moment.
The Commission is aware that the current rules and regulations which they have imposed, together with the rules and regulations of government have meant that in many cases EU structural funds have not been used. The Commission is therefore trying to reduce the red tape and number of such rules and regulations. It hopes that it will also be able to convince the Government and Parliament of the member countries to do the same. From our own experience in the past worked on a number of funding projects where we have come to the conclusion that it was not possible to comply with all the requirements of both the EU and the Romanian Government and have therefore withdrawn from the project.
The new plan of the Commission will require a sea change in the attitude of both the Romanian Government and the bankers in Romania in many areas of how they perceive business and how it operates.
The Government will have to allow some rules regarding business to be relaxed and in some cases for market forces to govern what is and what is not a bankable project. The EIB has been asked to take a more relaxed view of risk and this will therefore be transferred down to the relevant the Governments and the banks. Reading between the lines it appears that the Commission is asking for the level of risk to be raised o as to allow more projects to be developed. If this will reduce the appraisal of projects from more than box ticking to an understanding of the actual business and a cost/benefit analysis then we welcome this step. Whether the Romanian bankers will also take this view will be another matter.
At the time of writing this blog the question of quantitive easing by the EU Central Bank is still under discussion. We hope that the banks will not take both sums of money and then buy bonds, (the safe bet). We would hope that there will be put in place some means to encourage/force banks to lend to small and medium businesses as that is what the EIB money is intended for.
Will the Commission’s plan succeed? I do not know. The only thing that I have noted was a clearer understanding from the EU Commission that they have a duty and responsibility to try and encourage SME’s. This plan goes someway, and if implemented in part will give Romanian companies who are short of funding a welcome step up. The only thing missing is a Romanian business sector able to appreciate the position and take advantage to develop their businesses.
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