Big thinking for small business?

The Commission is now promising real change for the EU’s smaller businesses, writes Lorraine Mallinder.

Europe seems at last to have reached a turning point in its attitude towards small- and medium-sized enterprises (SMEs). SMEs, the engine of the European economy, generating two-thirds of the bloc’s jobs, have long been fobbed off with well-intentioned rhetoric and half-hearted policy gestures. But as the European economy lumbers into the crucial last phase of the ambitious Lisbon Agenda, policymakers are now promising real change for smaller businesses.

"Nobody after 2009 should be able to go back to a policy of Sunday speeches," says Petra Erler, head of cabinet for Günter Verheugen, the vice-president of the European Commission. Erler is referring to the political preaching that often characterises the debate on SMEs, but which has thus far delivered little of substance. Post-2009, it is hoped that the Commission will have established a new dawn for the SMEs with its small business act, a collection of initiatives intended to inject new energy into the sector that will be announced this summer.

"One of the main policy goals is to fully establish ‘think small first’ as a daily practice in EU decision making," says Erler. "SMEs are the backbone of the European policy, but too little has happened until 2005. That’s why we looked at SME policy in the process of the re-launched Lisbon strategy in 2005." The strategy of ‘thinking small first’ was given major political momentum three years ago by Tony Blair, the then prime minister of the UK, and has recently been picked up by French President Nicolas Sarkozy.

France last year called on the Commission to issue proposals for a small business act, which will be one of the main priorities of the French presidency in the second half of this year. "President Sarkozy has offered us a major gift. He has called for a small business act, increasing the focus on how to best establish an easy framework allowing business to flourish and grow," says Erler.

The act will draw together existing initiatives in various policy areas with the aim, among other things, of reducing administrative burdens for SMEs, increasing their participation in EU programmes, increasing their share in public procurement and reducing barriers to cross-border trade. Funding will be a central element of the act. "The question is how to help people that need that little boost, be it in terms of venture capital or financial instruments. How do we help those who need to make those first steps before going global?" says Erler.

It seems likely that funding issued through the European Investment Fund, an EU body which specialises in providing risk capital and guarantee instruments to businesses, will be increased. Austrian centre-right (EPP-ED) MEP Paul Rübig, who works with small businesses through the SME union, an EPP-ED lobby, says that payments should be made quicker and more efficiently with less paperwork. Rübig points out that it will be crucial to pass the act as soon as possible before MEPs reach the end of their mandate in June 2009. Any delays could hold the act back for another year.

SMEs are expecting the Commission to show commitment towards the sector with a small business act that will serve as a solid basis for future policy across the EU. The legal format of the act is still up in the air, but it seems clear that the sector will not stand for yet another toothless communication.

Aiding struggling firms

SMEs’ access to public cash is improving gradually. Under the state aid action plan for 2005-09, guidelines are being overhauled so as to meet more effectively the needs of struggling firms that need a little extra support, whether it be to shoulder legal burdens or simply to move on to the next level. Improving SMEs’ access to capital could play a crucial role in boosting EU growth and competitiveness in coming years.

Special provisions have been crafted for SMEs in the European Commission’s forthcoming energy package, a series of draft laws on energy and climate change set to be unveiled on 23 January. The tough laws will put SMEs under new pressures. The basic aim of the guidelines will be to ensure that state aid acts as an incentive for firms to go beyond community targets on emissions reductions, perhaps opening new markets in the process. Theywill replace rules on state aid for environmental protection dating from 2001.

The Commission is in the process of reviewing areas where SMEs are exempt from competition law. Draft revisions to the block exemption regulation, published last year, cover aid in areas such as research and development, training and environmental protection. New rules, which are expected to cut down on red tape and simplify life for SMEs, will replace the present block exemption which expires this summer.

Last year, the Commission issued new guidelines aimed at easing access to venture capital. The guidelines set clear rules for public cash injections in cases of market failure. A ‘safe harbour’ of €1.5 million investment over 12 months is set for each company assisted. Authorities have to prove that state funding will leverage private investment, target market failures and be proportionate, so as to avoid distortions of competition.

In theory, common principles on ‘flexicurity’ agreed by member states last year should allow employers to recruit under more flexible conditions, while improving workers’ security and guaranteeing retraining opportunities during transition periods.

SMEs, which employ an estimated 75 million people throughout Europe, would not necessarily benefit from the plans. Insufficient co-operation between national authorities and social partners on retraining and lifelong learning could make it more difficult for smaller businesses to attract and retain talented staff.

Small suppliers and service providers, which frequently operate under ‘flexible’ conditions imposed by large enterprises, find it difficult enough as it is to offer job security and attractive conditions to workers. Flimsy provisions could make talented workers think twice before taking a job with a smaller business.

"For SMEs it is important to have structures at sectoral and regional level which provide security," says Gerhard Huemer, director of economic and fiscal policy at UEAPME, the SMEs’ lobby. UEAPME is calling on the European Commission to include measures on lifelong learning in guidelines for the last three-year phase of the Lisbon Strategy for growth and jobs.

The Commission is now promising real change for the EU’s smaller businesses, writes Lorraine Mallinder.