Europe's companies are choked by a lack of financing, the continent's top business group warned on Friday, saying the European Central Bank should have a bigger role in reviving the paralysed economy. BusinessEurope said it expected the ECB to cut interest rates further in March to ease credit conditions, adding the bank could also help by buying commercial paper from companies.
"We are in a very deep and unexpected crisis, its origin is financial ... In 2009 we are going to have really tough times," BusinessEurope President Ernest-Antoine Seilliere told a news conference. The group's chief economist, Marc Stocker, said: "Since September, we have seen a complete economic paralysis."
What hit European firms the most was increasing difficulty in securing financing for operations, be it through debt issuance, banking loans or stock issues, he said, urging the ECB and governments to help. "The first and essential field of initiative is to restore the flow of financing to companies," he said. BusinessEurope, which represents 20 million companies in Europe, said it expected the ECB to cut borrowing costs again in March after the bank lowered its main interest rate by 50 basis points to 2.0 percent on Thursday, a move the group welcomed.
The business group is also studying the possibility of urging the ECB to buy companies' commercial paper. "The commercial paper aspect is dealt with very intensively at our working groups. I am anticipating it will be priority," Seilliere said. The US Federal Reserve is already helping companies with high ratings by buying their commercial paper.
Stocker said the difficulty in securing financing was highlighted by the fact that the spreads between corporate and government bonds of the same maturity now averaged 6 percent.
"This does not reflect default risk of companies. Companies do not have access to financing at reasonable rates," he said. "Issuing stock is equally unattractive." BusinessEurope lauded the European Union's response to the financial crisis, under which EU governments have pledged a fiscal stimulus of some 200 billion euros ($265 billion).
But it urged the 27-nation bloc's governments to avoid resorting to protectionism in trade and supporting national industries at the expense of those in other member states.