While small-to-medium sized enterprises, typically abbreviated to ‘SMEs’, played little part in bringing about the global financial crisis and Europe’s debt crisis, they were perhaps the hardest hit by its consequences.
Credit dried up and consumer confidence plummeted, pushing many small businesses into receivership or into the difficult position of having to let staff go to cut costs. According to recent Commission estimates around 3.5 million jobs were lost in SMEs in the European Union between 2008 and 2010.
Without the security of the deeper pockets that larger companies can fall back on when access to credit and consumer demand flag, smaller firms are highly vulnerable to shifting market conditions. And when SMEs are vulnerable, Europe’s economy is too. Europe’s is an economy of small businesses, not large multinationals – they account for 90 per cent of all companies registered in the EU and for more than two-thirds of jobs. Helping SMEs survive the crisis so that they can help Europe return to economic growth is therefore a key priority of the Union.
And this has been a priority right from the start of the crisis, with the ‘Small Businesses Act’ adopted in 2008. This policy set out to streamline administrative procedures that impede SMEs operations throughout the internal market, with not inconsiderable success – it provided the impetus for much regulatory reform over the last three years, most recently a proposal to help SMEs recover cross-border debts in the internal market, which we will vote on in the European Parliament after the summer recess.
Now, following a review of the Small Business Act last February, efforts will focus on three priority areas in order to help SMEs overcome the crisis: improving SMEs' access to finance, simplifying the regulatory environment, and enhancing SMEs’ access to markets.
On the first priority, the Commission has been active in using all available financial tools at the European level to improve access to finance for SMEs. A key aim of the next generation of instruments is to use EU funds to leverage larger amounts of private investment, particularly cross-border venture capital – this would have considerable impact on helping small businesses in smaller member states like Malta gain access to external sources of finance.
Apart from this, the traditional sources of EU funding remain. These include structural funds, such as the European Social Fund, the 7th Framework Programme for Research, and the Competitiveness and Innovation Framework Programme. So far, according to Commission figures, over 110,000 SMEs have benefited from the Competitiveness and Innovation Programme and about 300,000 are expected to benefit within the next two-year period. Many Malta-based SMEs have been successful in taking advantage of these funding opportunities, with some benefiting from EU financing to keep staff on the payroll or to take on new employees.
On the regulatory side, the EU has sought to operate on a ‘Think Small First’ principle – that is, placing the interests of small businesses at the heart of market regulation. To put this principle into practice, for example, an ‘SME Test’ has become part of the Commission impact assessment procedure that precedes all regulation.
Progress has also been made in improving SMEs’ access to markets – within the internal market as well as in global markets. The ‘Single Market Act’ seeks to address shortcomings within the Union – proposing a relatively ambitious raft of measures to help businesses operate effectively across EU borders. Alongside this, the Commission adopted a code of best practice on public procurement – a key market for SMEs – to serve as a guide to member states.
Most recently, so as to promote European business in emerging markets, the EU launched an SME Centre in China to address the needs of SMEs and business intermediaries serving SMEs in the Chinese market. Though full of opportunity, doing business in China is not necessarily straightforward. The Centre in Bejing will serve as a support service, completely free of charge, to EU-based SMEs either already operating in China or planning to do so.
By tackling the three key challenges facing SMEs in an ongoing climate of economic insecurity – access to finance, market access, and regulatory obstacles – the EU seeks to lay solid foundations for real economic growth that creates jobs, driven by business and investment rather than speculation. Whether this will be successful in the current economic climate no one can say. What is clear is that the EU has successfully placed the concerns of the SMEs at the centre of Europe’s future growth strategy.
David Casa is a Nationalist MEP