The technical details expeted to come out of tomorrow's summit meeting between Rajoy and his chiefs of staff are pretty much finalized. The European Investment Bank (EIB) will pump 100 billion euros into small- and medium-sized businesses (knows by the Spanish abbreviation "PYMES") across Europe. From this funding, the Official Credit Institute (OCI) will channel 11.6 billion euros to Spanish businesses, which will use them in addition to current lines of credit.
According to official data, the PYMES had 22 billion available to them through the OCI before the EIB stepped in to offer more funding. But they only used 1.5 of the funding in Q1 2013. So why is the capital not flowing? Because interest rates on these loans are around 8.5% in Spain. This is why companies in Spain and Germany, which has a more stable economy, pay different amounts for financing.
Both countries use the euro, but credit is a lot cheaper in Germany because the economic situation is better there than in Spain and other southern European countries. German banks have not had to make the same cutbacks and sacrifices as their southern counterparts, and they are also taking advantage of the ECB's cheap money in order to make loans and lower interest rates there.
Spain is focused on cleaning up balance sheets. What is going to happen with the 11.6 billion from the EIB? Perhaps the same thing that happened with the other 22 billion, because the EIB/OCI combined loans will use the same network and call for the same requirements. If the ECB had stepped in to monitor PYMES financing, they would have gotten credit at a much cheaper rate. But Germany rejected this solution, which means that Spanish PYMES will have a hard time getting credit because it is too expensive, rare and selective.
