SME Extraordinary Convention

Policymakers urged to “think and act small first” at Craft and SME Convention

The first Craft and SME Convention took place in Brussels on 27 April at the European Economic and Social Committee. Featuring Commissioners Neelie Kroes and Günter Verheugen as well as the EIB’s Vice President Philippe De Fontaine Vive, the event was organised by UEAPME and its members ACCA, the Association of Chartered Certified Accountants and EFAA, the European Federation of Accountants and Auditors for SMEs and moderated by Ulrika Stuart Hamilton from the Swedish Foundation for Small Business Research. More than 100 delegates gathered to take stock of the recovery measures put in place so far and discuss what is missing from a small business perspective.

After a welcome speech by the EESC’s Group III President Staffan Nilsson, UEAPME President Georg Toifl stressed that the policy answers given now will determine to a large extent whether the economic crisis will feed through the whole economy or whether, on the contrary, the recovery process will concretely start. The next six months will be crucial in this respect and also in relation to the European elections, with a new Parliament and a new Commission to take office soon.

Sergio Arzeni, Director of the Centre for Entrepreneurship, SMEs and Local Development at the OECD, stressed that in the present economic crisis all countries targeted businesses but not all had a specific strategy for small businesses, be it for political reasons or for other reasons. Timely measures are essential, he continued, building on the OECD analysis of what has been done so far. Data clearly show that access to finance tops the list of SME concerns. Smaller local banks tend to fare better in this respect compared to their larger international counterparts, concluded Mr Arzeni.

UEAPME’s Study Unit Director Gerhard Huemer presented participants with an assessment of the policy reactions to the crisis and a brief overview of our findings on the economic situation of SMEs in Europe, starting from UEAPME’s first SME Business Climate Index, which has hit a record low in the first half of 2009. He then went on to elaborate on the EU Craft and SME Barometer, which will be published twice a year ahead of the European Councils in Spring and Autumn, and the UEAPME Think Small Test and SBA Implementation Scoreboard, which report once a year on the extent to which the European Commission, the European Parliament and Member States are respecting their own promises to “Think Small First” and to implement the SBA recommendations adopted in December 2008 by the European Council.

UEAPME Secretary General Andrea Benassi stressed that it is now time for Europe to mark a discontinuity. First of all, the timeliness of the policy response is a key aspect: SMEs cannot wait for years to have legislative measures approved, as it was recently the case with the Late Payments Directive, which was approved with a significant delay and now faces more time before its final adoption.

Secondly, more political courage is needed. ”This Commission has sometimes renounced to make proposals for fear of not getting them approved, or not reaching unanimity”, stressed Mr Benassi. Thirdly, the current crisis is to a large extent also a crisis in confidence. ”Thinking and acting ’small first’ is one of the more useful and impressive tools policymakers have in their hands to restore confidence”, he said. Finally, equal treatment must be ensured for SMEs when restructuring support is given, and it must be accessible both for SME owners and for their staff, concluded Mr Benassi.

Philippe De Fontaine Vive, Vice President of the European Investment Bank, spoke about the EIB group’s role as lender during the crisis. He stressed that the EIB worked in close cooperation with the European Commission to tackle the economic crisis, starting from the 30 billion EUR that the EIB has set aside for SME loans, to be spent between 2008 and 2011. 8.1 billion EUR were already budgeted for 2008 to this end, which represents a 40% increase compared to 2007, said Mr De Fontaine Vive. He then stressed that other sources of SME funding are present, such as via the European Investment Fund and JASMINE, a joint initiative of the European Commission and the EIB Group to promote microfinance. For 2009, the EIB intends to offer other, more sophisticated financial products which will encourage commercial banks to lend to their SME customers, concluded Mr De Fontaine Vive, who also stressed that the EIB is working on the banks’ side to improve their capital conditions as well on the SMEs’ side.

Competition Commissioner Neelie Kroes said that the internal market and competition rules remain fundamental for SMEs even during the economic crisis. By comparison with the USA, European SMEs still have an unexploited growth potential in the internal market, said Ms Kroes, warning against the temptation to ”retrench into national markets and indulge in protectionist rhetoric because there is a crisis out there”. Commissioner Kroes stressed that her services will fully play their role of competition watchdogs to make sure that there is a fair level playing field and that all national markets are open for all competitors, whatever their size. She also presented a handbook on Community rules for State aid to SMEs, which gives a concise overview of the aid possibilities for the SMEs as allowed by the Community State aid rules and includes measures covered by the Temporary framework for State aid measures to support access to finance in the current financial and economic crisis. This handbook should be used by SME representatives to hold their governments accountable and stimulate their action, said Ms Kroes, who went on to explain the recent actions taken by the European Commission in favour of SMEs in the field of State aid, such as the ”General Block Exemption Regulation”, and to tackle the crisis through the new ’”Temporary framework for State aid measures”.

Commission Vice President Günter Verheugen said he fully agreed with UEAPME’s view that SMEs will be crucial to accelerate Europe’s economic recovery. He stressed that, although SMEs proved to be resistent and flexible, they are also more vulnerable during a crisis, citing late payments and the lack of qualified workforce as two examples. He also pointed out that politicians should not ”take the risk factor away” from larger companies considered ”too big to fail” during the crisis and target SMEs as well as their larger counterparts. Commenting on the Study Unit indicators and key results, Vice President Verheugen said he was ”positively surprised” by the outcomes and by the first results, although there is further room for manoeuvre and clearly much remains to be done. He also said he believed that the outgoing European Commission marked a change of season for SME policy, which is now at the centre stage although a long term strategy is clearly required, and concluded by singling out issues such as promoting entrepreneurship, fostering entrepreneurial education, improving access to finance and removing barriers to cross-border business as main challenges ahead.

In the ensuing debate, lack of access to finance was once again identified as the first and most obvious effect of the crisis on small businesses. Investments have been put off and day-to-day activities are equally at stake for SMEs, which means that working capital for small businesses must also be secured. Guarantee schemes have proved to be very helpful in this respect, and have been rightly prioritised in the last months by many European policymakers. However, not all Member States have reacted equally. In some countries, the money put aside does not reach SMEs, which are not included at all in other cases.

A second key concern for SMEs is how to keep employment levels stable. Small entrepreneurs have shown so far to be more reluctant to lay off workers compared to their larger counterparts, due both to a closer relationship with their staff and to the need to secure skilled workers for the future. However, small entrepreneurs need support to maintain this re-sponsible behaviour, in terms of flexible working arrangements, temporary unemployment benefits as well as measures for staff training and requalification. SMEs should be treated equally when restructuring support is given, and this must be accessible both for SME owners and for their staff, stressed participants.

On a more general note, the widespread feeling of participants was that despite the very helpful policy responses put in place in the last months, such as the coordinated rescue of the financial sector, the new temporary State aid framework presented by the European Commission and the increase of the SME loan facility by the European Investment Bank, a stronger focus on the needs of SMEs would be more than welcome. On other policies, such as the European Commission’s efforts to reduce red tape, participants felt that the situation on the ground has not changed. Criticism was also directed towards Member States for not using all the abovementioned possibilities, which were created in the last months.

Finally, all participants agreed that more attention must be devoted to SMEs’ specific needs. “Europe’s richest regions are those with a higher density of SMEs, and this is not by chance. However, too often policymakers indulge in protectionist temptations and give in to larger industries’ more vocal calls, rather than designing rules with small businesses in mind at all levels and in all areas. We believe that they should start thinking and acting ‘small first’ if they are serious about finding ways to get out of the crisis. This was the key message of our conference”, said President Georg Toifl.