SMEs & the Recovery: A strategic approach to helping Europe’s SMEs

Despite their essential importance to the Internal Market, the competitiveness of SMEs has been severely limited, argues Paolo Borchia.
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By Paolo Borchia

Paolo Borchia (IT, ID) is rapporteur of Parliament’s report on a new strategy for European SMEs

11 Jun 2021

SMEs make up 99 percent of European businesses. According to pre-crisis figures, they produce more than half of Europe’s GDP and employ about 100 million people. Yet despite their essential importance in the Internal Market, the competitiveness of SMEs has been severely limited at both the domestic and global level by a long list of constraints, such as hyper-regulation, delays in payments, absence of tax incentives and recurrent exclusion from access to public funding. 

With the consolidation of globalised economic patterns over the last ten years, giant digital service providers and low-cost third-country exporters have managed to occupy relevant shares of the market, to the further detriment of European SMEs’ competitiveness. The European Commission’s March 2020 Communication was meant to provide SMEs with an updated framework to deal with these new challenges.

“However, while financial help remains of essential importance, it cannot become a permanent replacement of regular business operations. Reopening with safety is the only option, if we want to ensure the survival of Europe’s SMEs”

However, that document became redundant shortly afterwards, due to the WHO’s pandemic alert and the subsequent structural changes triggered within the global economy. New priorities, such as over-indebtedness, insolvency and massive unemployment - combined with the long-standing unresolved issues that affected SMEs even before the COVID-19 emergency -require immediate attention from policymakers. 

However, 14 months after the WHO pandemic alert, the Commission has yet to update the 2020 Communication, even after the European Parliament called specifically for such a revision document in the own initiative report “A new strategy for European SMEs”, which was adopted with a large majority in Plenary in December.

The Commission appears willing to rely exclusively on the capacity of the Next Generation EU instrument as a means of rescuing SMEs from the COVID-19 crisis, instead of focusing on drafting tailor-made legislation for SMEs.

Yet, while the Next Generation instrument does provide an additional tool for economic recovery, at the same time we must not forget that approval of national plans will be subject to strict conditionality criteria. These are decided by the Commission, which casts uncertainty over the actual overall capacity of this instrument. 

The absence of an adequate legislative framework is unfortunately not the only EU-level obstacle having an impact on the survival potential of European SMEs. The difficulties in the Commission’s strategy to secure vaccines severely delayed the expected lifting of restrictive measures in EU Member States, slowing down the gradual normalisation of the economy.

At the same time, uncoordinated responses by national governments led to further disruptions of the Internal Market, which were particularly harmful to SMEs’ export capacity. At the Brenner Pass, COVID-related entry restrictions aggravated the financial burdens already endured by Italian SMEs because of the pre-existing traffic bans adopted by the Tyrol region.

Overall, the lack of an adequate EU-level response to protect SMEs has resulted, to date, in 50 percent turnover losses on average for SMEs across Europe, with occasional peaks reaching 80 percent losses. Over recent months, national governments managed to approve large cash injections to the benefit of the hardest-hit sectors.

However, while financial help remains of essential importance, it cannot become a permanent replacement of regular business operations. Reopening with safety is the only option, if we want to ensure the survival of Europe’s SMEs. 

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