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Without small and medium-sized enterprises, there will be ‘no recovery’ in Europe

Politicians have to realise that they are responsible for providing companies with the right conditions to allow them to grow, to create the new jobs needed and to allow Europe to maintain – or even to increase – the current level of welfare and social stability, writes Gerhard Huemer

Small and medium-sized enterprises represent 99.8 per cent of companies, two thirds of all jobs and 60 per cent of added value. This makes them crucial for Europe’s economic success but it seems they struggling to come out of the crisis. So what has to be done to enable SMEs to prosper?
The European Craft and SME Association, UEAPME, has published a barometer showing that Europe’s smaller firms are lagging behind in the economic recovery and, all in all, they will not grow significantly in 2014; also meaning they will not create additional jobs.

The analysis show that there are two main reasons small companies struggle to return to growth. First, the decrease of internal demand – especially in countries most hit by the crisis – affecting enterprises in the construction and personal services sectors; sectors dominated by small enterprises. Second, SMEs seeing positive perspectives and wanting to invest struggle to access finance for such investments and are confronted with extremely high costs for loans – especially in southern Europe.

All of us should know that the over-indebted public sectors will not be able to provide new fiscal stimulus to bring Europe out of the crisis, meaning that any real recovery of our economy depends on the private sector. We must therefore ask – what has to be done to bring Europe’s SMEs back to prosperity. And what is sufficient for sustainable growth and job creation? We would recommend a strategy built on four pillars.

The first is access to finance. Without granting SMEs sufficient access to external finance, they will not be able to invest and without new private investments – and so there will be no recovery. Therefore, the reforms of the financial sector including the banking union have to be brought to an end. Furthermore, in countries where SME finance is dominated by decentralised cooperative and saving banks, companies have much less problems with finance compared to countries where large commercial banks dominate SME finance. Maybe Europe needs a renaissance of such structures, more committed to financing real economy.

Second is access to market. Private investment will only take place, if it is profitable for investors. Therefore, the competitiveness of Europe’s economy has to be increased by implementing the needed structural reforms on goods, services and labour markets to create new and competitive business opportunities.

Third is better regulation. Small companies suffer significantly more from unnecessary bureaucratic burdens while European and national politicians are adding well-intended regulations more or less weekly – only creating additional costs for companies. Just to mention a few we have seen over the last weeks: data protection officer, seasonal workers directive, food labelling, and so on.

Fourth is skills. If Europe wants to stay competitive at the current level of welfare it has to compete on quality, competence and innovation. This requires a well-educated and qualified workforce offering the skills needed by our companies. Furthermore, well-designed vocational training schemes together with modernised labour market regulations will also reduce the unacceptable high levels of youth unemployment as demonstrated by the few European Union member states having more young people employed.

Most of these policy measures have already been discussed for too long now at the European level and member states have committed themselves but have failed at the implementation stage. Finally, national politicians have to realise that they are responsible for providing companies with the right conditions to allow them to grow, to create the new jobs needed and to allow Europe to maintain – or even to increase – the current level of welfare and social stability.

Gerhard Huemer is economic policy director at UEAPME – the European Craft and Small and Medium-Sized Enterprises Association

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