THE GOVERNMENT could have to wait to implement its credit easing programme until the spring of next year as it contends with EU law, a Treasury source told City A.M.
The government is desperate to flood the economy with cheap credit as soon as possible to combat a funding crunch that is choking off growth.
But it has to steer a difficult course between banks’ requirements and a list of technical rules from the European Commission (EC), which writes the EU’s “state aid law”.
EC guidelines limit how much aid can be given per firm (€500,000), to what degree their loans can be made cheaper (15 per cent), the maximum term of the loan (two years) and what purpose they put the cash towards (investment and working capital, but not other uses like acquisitions).
A spokesman for the Treasury said: “The credit easing proposals are being designed to comply with state aid regulations.” He added that the EU has waved through similar schemes in the past.
However, some experts say that the current plan is on a much larger scale than those previously given a nod.
Chancellor George Osborne plans to unleash some £20bn of guarantees to make bank debt cheaper on the condition they pass on the benefit to small businesses in the form of lower cost loans.
PricewaterhouseCoopers partner Alex Henderson said: “The Treasury is caught between the Devil and the deep blue sea to some extent… I think there is a difficulty if they really want to unleash something of great firepower because it could be seen as distorting the economy.”
Henderson suggests that Osborne could have to scale back the plan or stretch it out over a longer time period to get it through Brussels quickly.
The EC is also overloaded with work: it is in charge of developing some 30 different regulatory initiatives and is trying to manage the Eurozone crisis.