VILNIUS - The prime minister has said a lack of public confidence is one of the major problems in the European Union at the moment, but that he hopes that the problem will be solved soon through EU support.
"I believe that we can say with certainty that we can have confidence in the EU's ability to find common solutions, although the economic situation gives no ground for optimism. The more European-level activity there is, the sooner 's and the better 's confidence will return," Prime Minister Andrius Kubilius told media in Brussels at an informal summit.
He said some proposals put forward during the summit were important to Lithuania, which in turn called on the EU to return to these proposals at the European Council meeting on March 19 and 20.
LENDING
Kubilius also urged lenders to tighten their grip on funds.
"Special attention was drawn to the activities of parent banks' subsidiaries in this region. They [parent banks] must ensure efficient operations of their subsidiaries. The ECOFIN Council has been instructed to keep the situation under constant review, to work closely with the European Commission, and to work out aid instruments if needed," the prime minister said. "[They must] recognize that unblocking the credit channel is crucial for the effectiveness of fiscal impulses undertaken by member states," he said.
Banks have hit back saying that they need more guarantees before lending to people.
"We are happy to give credit, but we are measuring the risk 's it's not a question if the money is there or not, but if the risk assessment is good. We are looking carefully at all projects and we have been doing this since last year. We haven't changed much, but a year ago, out of 10 customers, six were okay, while now two would be okay. The risk assessment is okay, but the customers are changing," Swedbank board member Tomas Andrejauskas told The Baltic Times.
"It is strange the prime minister is urging banks to unlock lending because you can't be sure that this additional credit wouldn't become toxic. The following question is that if the banks lend more, who will be responsible for these bad debts that come from irresponsible lending? The government hasn't given any options for that 's if they want to urge the banks to do this, then they have to give state guarantees," he added.
Vice-minister for Economy Rimantas Zylius replied by saying that while the government won't guarantee the loans in full, it is planning to bankroll the majority of the plan.
"What we are trying to do is not make bank loans risk free, but make banks more tolerant to risk. Let's say a bank would be valuing a company as a yellow company [moderate risk] 's we want to provide banks with financial instruments to make them risk tolerant. If a bank finds a company not worthy of lending in the current situation, we want to provide the funds to make that possible," Zylius told TBT.
Zylius cited a lack of liquidity in banks as a problem for lending, adding that the government intends to supply up to 80 percent of the funds for loans to allow banks to help companies that it normally wouldn't consider.
Siauliu Bankas told TBT they are enthusiastic about lending more if the conditions are right. The bank had previously won a government tender for lending, which they are again hoping for.
"Two years ago the Lithuanian government announced the microlending policy and they made a tender with all banks and we won the first place and got the funds for microfinance. We will lend for microcompanies and these rates are very good 's the final interest rate is about 3 percent," Donatas Sacickas, Deputy head of Siauliu Bankas, told TBT.
The bank is hoping for a similar tender from the government this year with funding from the European Union and the European Investment Bank, Savickas said.
Andrejauskas warned, however, that banks do not hold the only key to the economy's recovery. He thinks that the government is blaming the banks specifically.
"The problem with government and forex is that [in their eyes] the banks have caused this crisis and they have to lend the money now to the market and maybe create a debt portfolio, but to give the money out…The rhetoric is not correct and the reasoning is not correct. If you want things to work, then you need to work."
"This will not make the sun shine 's we will not see 5 percent GDP growth every year," he said.
The Ministry of Economy disagrees.
"Now banks are participating in this vicious cycle of making the economy go broke. If we provide liquidity to the economy, we will allow this economy to go to a lower, but functioning, level of activity. We don't want the economy to fall from 100 percent to 20 percent of capacity 's this could be fatal. We want the economy to slide down, not fall down," Zylius said.
