The European Investment Bank (EIB) has opened a trade programme worth a potential €1.5bn to the Greek economy.

The scheme will see the EIB guarantee letters of credit (LCs) issued by three Greek banks to three participating multinational banks. The total volume of LCs guaranteed will be €500mn, but the EIB expects the total trade flows supported to be worth three times that amount.

The Greek banks involved are the National Bank, Piraeus Bank and Eurobank. The international banks are HSBC, Citi and Commerzbank. It marks a change of tack from the EIB, which has traditionally only financed fixed assets. However with the Greek economy struggling so much, Helen Kavvadia spokesperson at the EIB tells GTR that it felt obliged as a non-commercial lender to step in and satisfy demand.

The agreement is not sector specific, but is expected to support SMEs and midcaps exporting to and importing from Greece’s major trading partners: Asia, the EU, Turkey, the Middle East and the Balkan nations. The EIB’s guarantees won’t be issued for individual LCs, but on a blanket basis, covering a portfolio of LCs accepted by the foreign banks.

With the Greek economy and banking system undergoing a succession of downgrades by the credit ratings agencies, Greek businesses found themselves having to pay for goods up front. Banks had to provide cash collateral, adding further drain to the liquidity in the local market. The EIB’s coverage should alleviate this, to an extent.

Kavvadia, tells GTR that Greek exports have become more competitive with the scything cuts in public spending, which have led to rocketing unemployment and reductions in salaries. She admits that this is not an ideal platform from which to build a successful exports economy, but feels that in the short-term, Greek exports may benefit.

There is no timescale placed on the take-up of the guarantees, but it’s expected that given the critical credit situation, the facility will be fully subscribed very quickly. The EIB is considering rolling the solution out to other “troubled” economies, namely Spain, Portugal and Ireland. It expects that no matter what impact such intervention has, export support will be required for a long time in Europe, if it’s to have any kind of competitiveness with the rest of the world.