SMEs are the main source of jobs, growth and innovation and are a key driver for the better functioning of the single market. Currently, there are 23 million SMEs in Europe, which have access to a market of more than 500 million consumers. SMEs make up 99% of all EU businesses and account for two-thirds of the total private sector employment in the EU.
Although the EU is the largest economy in the world, 90 % of worldwide economic growth is expected to be generated outside of Europe in the next 10 to 15 years. This means that there is a huge potential for EU economy and businesses in fast growing third country markets. Even though 25% of European SMEs export to countries within the EU, only 13% are doing business outside the EU. For this reason, internationalisation of SMEs and foreign investment in Europe are crucial to foster economic growth.
When exploring new markets, different national product and service rules, complex procedures that accompany such rules, difficulties getting access to information and access to finance present the main barriers for trade for SMEs.
The EU institutions have a big responsibility to ensure that the regulatory framework is SMEs-friendly. Policy makers have a pivotal role in translating the internal market from a political concept to an economic reality. We should not do more, but do better regulations. This is also envisaged by the Regulatory Fitness and Performance Programme (REFIT) by the European Commission, which I fully support.
Better access to information to help companies understand and comply with different requirements should be prioritised. In this regard, an effective and user-friendly single digital entry point to the Internal Market, allowing businesses to find the right information is important.
Moreover, stricter surveillance and monitoring systems at EU level and a zero tolerance policy towards member states, which do not apply European rules, is needed. National capitals must recognise their responsibility and the mutual benefit of effective, coordinated implementation. The Commission has to make sure legislation is implemented properly.
Besides a predictable and stable legislative framework, the European legislatures are currently revising the taken measures and developing new and fresh ideas.
The review of the Prospectus Directive focuses on a reduction of administrative and financial burdens for SMEs. We have to cut red tape, without endangering the high standards we have set so far.
The European Fund for Strategic Investments (EFSI) was one first steps towards the goal to attract more investment in Europe, because it helps to bridge the investment gap through financial guarantees from the European side.
In this context, the second step in supporting SMEs and increasing their contribution to economic growth will be the Capital Markets Union (CMU). Almost sixty years after the Treaty of Rome we still lack a fully integrated capital market. Europe needs to improve here rapidly, otherwise we are at risk of falling back in the global race for economic growth and stability.
If the capital markets in Europe were as integrated as they are in the US, we would have an additional 90 billion Euros available for investments. We have to make use of these untapped potential. We must strive to gain more investments for the European Capital Markets from pension funds and other institutions, because every Euro from them counts twice. First of all, it can be an investment in European infrastructure and the European economy. Second of all, it is also a provision for one’s old age. We have to better connect the liquidity with the need for investments in Europe.
It is clear that SMEs in Europe rely heavily on bank financing, and even a deeper integrated capital market will not change this in the near future. If we want to make the CMU a success for SMEs, we have to keep in mind to aim for additional financing options without replacing the current ones.
30% of newly started companies in New York have their roots in the EU. Every single one of them is a missed chance for us. We must ensure they have an adequate legislative and financial framework to stay in Europe, where they can help to foster growth and jobs.
It must be our goal to develop a better start-up mentality for these SMEs, while helping well-established companies when they want to expand their business. This can be done if the upcoming legislative steps have a clear aim toward supporting SMEs, creating jobs and facilitating investments.
This article appeared originally in print edition of The New European #7. You can read it here.