Cantillon: Angela Merkel comes bearing gifts for Irish SMEs

We all know to beware strangers bearing gifts. But what if the stranger is Angela Merkel, she's wearing a Santa suit and the gift is a German bank offering low-interest loans to Ireland?

It was Merkel's waxwork model (above) that donned the Santa suit yesterday in Berlin, but the German leader was already mentally in costume when Enda Kenny called last week.

After the Government decided against applying for a bailout safety net – solely Dublin’s decision, Berlin insists – Dr Merkel offered to hook the Taoiseach up with the state-owned KfW bank to expedite low-interest loans for small and medium-sized Irish enterprises.

Dublin officials contacted the KfW in recent days. Now the German bank is waiting to hear in detail what funding the Irish want, when they want it and how. (Used €50 notes, nonsequential serial numbers?) Germany’s public development bank also wants an Irish partner to deal with. One option is the yet-to-be-established Strategic Investment Bank promised in the programme for government.

In July the KfW agreed to raise €800 million on money markets to lend to the Spanish development bank ICO. Spanish owners of credit-starved SMEs can then apply for low-interest, KfW/ICO-backed loans through their local banks.

A similar deal was penned with Greece, though its KfW-style bank – the "Institution for Growth" – is based in Luxembourg, where backers will feel happier investing their Greece-bound investment.

So how does the KfW view the prospects of its next future customer?

"It looks as though Ireland's return to the capital markets in 2014 will succeed," noted the KfW in a November 13th report. But it warned that ongoing growth and lending concerns meant Ireland was "not fully over the hill".

Department of Finance officials were in Berlin this week to discuss these details in the hulking federal finance ministry. They had barely departed when the first German doubts became audible.

Does it make sense for Ireland to jump through bureaucratic hoops to secure low-interest KfW loans given the low interest rates available on the open market and Ireland’s improving risk profile? And, by the time all bureaucratic boxes have been ticked to release KfW-backed loans, will they still be needed?

Irish officials give an emphatic yes to these questions, insisting the KfW co-operation is part of a long-term strategy and no quick-fix solution. Like a puppy, it seems, German funding for Irish SMEs is for life, not just for Christmas.