The biggest weapon in the arsenal Europe assembled to counter the coronavirus economic collapse has yet to find the target.
Less than 15% of funds made available by governments via banks as loan guarantees for business has been used, according to figures from seven of Europe's largest economies compiled by Bloomberg News. That means more than 2 trillion euros ($2.3 trillion) -- an amount exceeding Spain's gross domestic product -- was still available to be deployed as of June 18.
The programs' teething pains risk slowing the recovery from the deepest recession in memory, especially in Italy and the UK, as the guarantees were seen as critical to keeping small and medium-sized firms alive. Bigger companies, including Air France-KLM and Renault SA, received bespoke bailouts or were able to sell bonds.
The initial feedback on the guarantees suggests "deployment is slow and that businesses in need are not able to benefit from them," said Christoph Leitl, president of Eurochambres, a Brussels-based group that represents more than 20 million companies. "We need decisiveness and delivery to ensure much-needed working capital for businesses coping with the heavy legacy of months of economic slowdown while at the same time jumpstarting their activities."
The rollout wasn't ineffective everywhere. Spain is considering a significant increase in its loan-guarantee fund after the program attracted huge demand. In Switzerland, banks cut red tape and quickly met the government goal of a 30-minute turnaround.
The loan guarantees were part of an exceptional campaign by officials around the world to limit the damage that the OECD predicts will result in a global contraction of 6% this year; France, Italy and the UK are all headed for a slump of more than 11%. With a rise in bankruptcies and a sustained period of unemployment ahead, the Paris-based group urged officials to keep up support until growth regains momentum.
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"Many of the programs are really experimental," said Nicolas Veron, a senior fellow at the Bruegel think tank in Brussels. "Assessing how much is needed is extraordinarily difficult because of the unprecedented nature of the shock."
The limited take-up of the guarantees involved issues on both the supply and demand side. There was excessive red tape, costly rates and reluctance by banks to extend any credit at all, according to a survey by Brussels-based lobby group SME United. On the other hand, German companies, for example, had adequate cash reserves, officials said. The European Union's top financial-services official has promised urgent help to get everyone on the right track.
In Italy, which was the first EU country to lock down, banks and the government blamed each other for the sputtering rollout of relief measures. Companies requested more than half of a 100 billion-euro package for small businesses, but received only around 36 billion euros, according to the Bank of Italy. Out of a 400 billion-euro program for bigger firms, only about 700 million euros have made their way out the door.
"We still note delays and frictions in the actual paying out of the guaranteed loans," the central bank's head of banking supervision, Paolo Angelini, said in a parliamentary hearing on June 11. "The novelty and complexity of the process, together with the difficulty stemming from managing an exceptional amount of requests" were among factors that led to delays, he said.
Banks there said the procedures were too complicated, and that they still had to perform due diligence on the borrowers.
The UK's 330 billion-pound ($415 billion) scheme had its share of growing pains. The government initially backed 80% of all loans for small businesses, and banks still had to do the usual checks. After mounting pressure over denied credit, Chancellor Rishi Sunak introduced a new program to help the smallest firms with loans 100% backed by the state.
Fourth Generation Ltd., a family-owned business that supplies power generators for concerts and other events, said it was denied two so-called Coronavirus Business Interruption Loans and never heard back on a third. The only assistance it's received to date is one of the fully guaranteed "bounce back" loans, which are capped at 50,000 pounds. Co-owner Laura Hurlocker said it barely makes a dent in what the company now owes in rent, business rates and other expenses.
Austrian borrowers faced similar issues. Surveys of small companies gave the programs terrible grades, and Finance Minister Gernot Bluemel admitted difficulties, saying "there was no blueprint" to follow.
In Germany, only a tiny fraction of the 1.2 trillion euros in guarantees that Chancellor Angela Merkel's government put on the table were used even as initial complaints about bottlenecks in the programs receded.
Many firms entered the crisis with enough cash to get through a few months and resisted taking on more debt, according to Jan Pieter Krahnen, scientific director of the Leibniz Institute for Financial Research SAFE in Frankfurt.
"Are we worrying about a problem that doesn't exist or is it still upon us?" Krahnen said in an interview. "My assumption is it's still upon us because the liquidity buffers will first have to be used up." He said furlough programs, where the government subsidizes salaries when staff is put on reduced hours, also helped counter a slump in revenue.
In France, about a third of the 300 billion euros in guarantees was used. Most of the money went to firms with fewer than 250 employees and 50 million euros in revenue. As the slump drags on, though, more are likely to tap the facility. Bpifrance, the public development bank handling the program, urged companies to avoid borrowing all their entitled amount at once.
Switzerland has been hailed as a benchmark in Austria and the UK -- because those who asked for help had no problem accessing it. The program was designed to allow firms to request what they need, and banks say they did their part in speeding up procedures by cutting red tape as much as possible.
"At first glance, the low utilization of the loans made available comes as a surprise," said Alain Conte, UBS Group AG's head of corporate and institutional clients in Switzerland. "On the other side, Switzerland has a very strong and diversified economy, which had to face several big challenges over the last decades but was always resilient and is able to quickly adapt to the changing economic environment."
Spain shows where things may be headed in countries still grappling with a rocky rollout. The program was deployed in tranches, allowing the government to make tweaks as it went along. More than half of the 100 billion-euro guarantee package has been financed and officials are now weighing adding as much as 50 billion euros.
Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement