* EU struggles to restart growth as lending stalls
* Finance ministers set to discuss banks at Denmark meeting
* Businesses struggle most to borrow in peripheral countries
By Robin Emmott and John O'Donnell
March 26 Among the piles of papers on one
European diplomat's desk in Brussels is a memo with the words
"growth" and "jobs" scrawled in blue ink, followed by a large
"I think we're missing something," said the diplomat as he
sucked his pen. "There's a lot of talk about growth strategies,
but what about the banks? They are still not lending."
When EU finance ministers meet in Copenhagen on Friday,
banks - and their reluctance to lend - will be high on the
agenda as Europe looks to its economies at a time of austerity.
Blamed four years ago for triggering the global financial
crunch and Europe's ensuing debt crisis, banks are now being
criticised for being too cautious.
The European Central Bank points to a steady rise in the
cost of borrowing and says access to finance has become one of
the most pressing concerns of small business.
"Most small businesses feel almost hatred towards their
banks," said Mark Fielding, head of the Irish Small and Medium
Enterprises Association. "The level of loan approvals is
somewhere in the region of 50 percent. The smaller the business,
the less chance you have of getting money."
Europe's smaller firms are critical to the health of its
economy, generating some 80 percent of all jobs in the 17-nation
A record 17 million people are unemployed in the single
currency area - more than one tenth of the workforce - and the
bloc is sliding into its second recession in just three years,
likely pushing the jobless rate yet higher.
EU leaders have repeatedly attempted to craft a formula for
growth, most recently in a snowbound log cabin in the Arctic
Circle at the weekend. Without higher bank
lending, the effect of any strategy will be muted.
European companies tap banks for almost three-quarters of
their financing, compared to about a third for businesses in the
United States which rely more on capital markets.
European banks say they are willing to lend. But their
resources have has been depleted through the financial crisis
and they are under regulatory pressure to increase capital
buffers, meaning they have to tread carefully when making loans.
LOOKING FOR A CROWD
Banks are most reluctant to lend in the region's weakest
countries - Greece, Ireland and Portugal - where the stakes for
the euro zone's stability are highest and growth is needed if
mountainous debt levels are ever to be whittled away.
But in 2011, only one in four loan applications by small
businesses were successful in Greece and Ireland, compared to
seven out of 10 in Germany.
"A country's ability to borrow sets the benchmark for its
banks and corporations," said Sony Kapoor, at think-tank
Re-Define. "That is why this is not a uniform problem throughout
Europe, but concentrated in the periphery."
Firms in Greece will likely face more stress as the
country's banks wait for fresh capital agreed under the second
"The real oxygen will only come into the economy once Greek
banks are recapitalised later this year," Horst Reichenbach, the
head of the European Commission's Greek task force, told
Reuters. "I hope that will be a turning point for the country."
The ECB has lent European banks an unprecedented 1 trillion
euros of cheap money over three years but banks have
consistently parked roughly three-quarters of the money at the
ECB overnight, instead of issuing loans.
"There's a growing realisation among EU policymakers that
the ECB's stimulus may have calmed financial markets," said a
senior EU diplomat working on financial affairs. "But it hasn't
translated into anything tangible for the wider economy."
Companies in Britain and France are turning to a grassroots
system known as crowd funding, where entrepreneurs publicise
projects online to try to win backers.
One website, Funding Circle, was set up in response to the
credit freeze following the 2008-2009 financial crisis. It
allows people to lend directly to small firms in Britain.
Investors have lent 28 million pounds ($44 million) to some
670 firms through the website since August 2010, although that
is just a fraction of the financing that businesses need.