Germany’s interest in Irish business

Germany's financial support for Irish small- and medium-sized enterprises (SMEs) – on attractive lending terms – is a modest but significant reward for Ireland's success, in accepting austerity as the necessary price of economic recovery. Ireland implemented fully a tough austerity regime, and last November it left the bailout programme without a precautionary credit line. Germany's state-owned KfW bank has now provided a €150 million low-interest loan to the State: with €150 million raised from the European Investment Bank and a further €500 million from the Ireland Strategic Investment Fund.

A new State-owned entity, the Strategic Banking Corporation of Ireland (SBCI), will oversee overall lending, as €800 million in cheap finance is made available to the SME sector. Retail banks will administer the loans, priced at interest rates well below current market rates. KfW’s triple A credit-rating has enabled it to borrow €150 million at a competitive rate, and on- lend this to the SBCI. In this way domestic banks can access the cheap credit, but on condition SME borrowers secure the low interest benefit.

Since the economic downturn the SME sector has been denied access to adequate credit on reasonable terms; as banks with weak balance sheets have remained reluctant lenders to small businesses, which have struggled to secure working capital or to obtain money for investment. For the SME sector the relief that low interest loans offer is welcome, and long overdue. And it should, as Government Ministers suggest, help SME's "to grow and invest and create jobs". Germany's decision to extend the benefit of low interest rates to Irish small businesses may well reflect a mix of altruism and self-interest. But Germany, as an export dependent economy, also needs trading partners with the means to buy its goods and services, not those whose economies remain mired in recession. Germany, in aiding Ireland's recovery, has also helped itself.