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Jorma Ollila speaks out

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Credit bottlenecks threaten businesses

By Richard Milne in London

Published: November 17 2008 18:25 | Last updated: November 17 2008 18:25

Banks withdrawing finance from small companies is the biggest problem facing the European economy, according to a group of 47 of the continent’s largest industrial groups.

Jorma Ollila, the head of the European Round Table of Industrialists and chairman of Nokia and Royal Dutch Shell, told the Financial Times that large, healthy companies were deeply concerned about whether their suppliers could get credit.

“That is perhaps the single most important issue: the availability of credit to SMEs [small and medium-sized enterprises]. It is a very severe situation,” he said. “It needs a lot of discussion with the banks. There are a lot of bottlenecks.”

His comments came as the industrial group – including companies from Siemens and Telefónica to Fiat and Unilever – urged European governments to launch bigger fiscal stimulus plans quickly to counter the effects of a prolonged recession.

The group also called on the European Central Bank to cut interest rates by a large amount and rapidly after many industrialists criticised it heavily for tightening monetary policy as recently as July.

“The speed with which the economic situation has deteriorated is something none of us has ever experienced before. The concern is very great,” said Mr Ollila.

The Nokia chairman said he and other members of the group expected a “long recession” that demanded “co-ordinated reaction” from governments and central banks.

The ERT, whose member companies have combined annual revenues of €1,600bn and employ 4.5m workers, also expressed concern about rising protectionism and warned about bailing out individual sectors and companies.

“The gravity of the situation means there is a danger of looking at bail-outs as a quick solution,” Mr Ollila said.

Many of Europe’s largest companies have become so concerned about the plight of their suppliers that they are offering SMEs financial help in exceptional circumstances. Fitch, the credit rating agency, has highlighted how banks were likely to restrict credit to any company smaller than the leading 300 on the continent. Moody’s, another rating agency, also noted how companies below investment grade would increasingly struggle to raise finance as banks tighten lending criteria.

The German association for the car industry, responsible for one in seven manufacturing jobs in Europe’s largest economy,blamed the country’s banks last week for withdrawing credit or making it more expensive and pushing suppliers to the brink of bankruptcy. Several small suppliers to the retail and car industries have gone bankrupt including Geiger Technologies, a Bavarian maker of plastic components.

Mr Ollila complained that many suppliers “do not have access to working capital financing” – something that has been withdrawn from some suppliers and industries by credit insurers worried about risky businesses.

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