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European Investment Bank agrees to fund Greek firms

ATHENS (Reuters) - The European Investment Bank (EIB) will provide 1.44 billion euros ($1.75 billion) in loans to struggling Greek firms, providing a stimulus to the debt-laden country's ailing economy, Greece's finance ministry said on Saturday.

With Greek banks dependent on ECB cash to survive and reluctant to finance any but the biggest companies, Athens and the European Union have been pushing the EIB, the EU's long-term investment arm, to step into the breach.

But the EIB hesitated for months, worried about getting too exposed to Greece -- which has not yet escaped the risk of a chaotic default that might force it to abandon the euro. EIB financing for Greek projects had dried up to a mere 10 million euros this year, Finance Minister Yannis Stournaras told reporters after meeting EIB chief Werner Hoyer.

"The EIB will re-activate its engagement in Greece as soon as possible," Stournaras said. "It seems there can also be good news in this country," said Greek Development Minister Costis Hatzidakis who also took part in the meeting.

Athens is desperately looking for ways to kick-start its stricken economy, now in its fifth year of recession. Austerity measures associated with two EU/IMF-led bailouts over the past two years have plunged the economy into its longest and deepest slump since World War Two.

Gross domestic product shrank by a postwar record 6.9 percent last year, with investment slumping by about 20 percent. The economy is expected to contract by a fifth in 2008-2012.

The EIB will disburse the loans over the next three years to small and medium-sized enterprises, using Greek banks as intermediaries. The EIB will also help Greece push ahead with road construction, foreign investment and privatization projects, Hatzidakis said without giving details.

The EIB gets top-notch terms when it taps capital markets to raise funds thanks to its triple-A rating. In recent years, it has provided more than 700 million euros in financing to large Greek energy companies.

As a way to help boost Greek growth, the European Union has already increased its share of financing in certain EU co-financed projects. It has also said it would help Athens cut red tape to make more efficient use of EU funds earmarked for it.

Greece is entitled to a total 20 billion euros in so-called EU structural funds for the period 2007-2013. But it has only used about 8 billion euros so far -- partly because of red tape and partly because it could not provide adequate funds to match EU grants for certain projects.

(Reporting by Harry Papachristou, editing by William Hardy)

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