EU should do more to its SME regulatory framework

We need to find ways to encourage our SMEs to stay in Europe, writes Othmar Karas.

By Othmar Karas

Othmar Karas (AT, EPP) is First Vice-President of the European Parliament

05 Nov 2015

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, with access to a market of more than 500 million consumers. SMEs make up 99 per cent 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 per cent of worldwide economic growth is expected to take place outside of Europe in the next 10 to 15 years. This means that there is a huge potential for the EU economy and businesses in rapidly-growing third country markets. 


Even though 25 per cent of European SMEs export to countries within the EU, only 13 per cent do business outside the EU. For this reason, the internationalisation of SMEs and foreign investment in Europe are crucial to fostering economic growth.

When exploring new markets, differing national product and service rules along with difficulties getting access to information and finance present the main barriers for trade for SMEs. Europe has a major responsibility to ensure that the regulatory framework is SME friendly. 

EU policymakers play a pivotal role in translating the internal market from political concept to economic reality. We should improve the quality of our regulation, not increase the quantity.

This is something proposed by the European Commission's regulatory fitness and performance programme (Refit), something I fully support.

Better access to information to help companies understand and comply with different requirements should be prioritised. This is why an effective and user-friendly single digital entry point to the internal market, allowing businesses to find the right information is important.

Moreover, it demands stricter surveillance and monitoring systems at EU level and a zero tolerance policy towards those member states, who do not apply European rules. 

National capitals must recognise their responsibilities and the mutual benefit of effective, coordinated implementation. Both the Commission and the European Parliament should ensure legislation is implemented properly.

Alongside a stable legislative framework, the European legislative bodies are currently revising the measures taken and developing fresh ideas.

The review of the prospectus directive focuses on a reduction of administrative and financial burdens for SMEs. We have to reduce red tape, without endangering the high standards we have set so far.

The European fund for strategic investments (EFSI) was one of the first steps towards attracting more investment in Europe, because it helps bridge the investment gap through financial guarantees from the European side.

The second step in supporting SMEs and increasing their contribution to economic growth will be the capital markets union (CMU). 

Almost 60 years after the treaty of Rome we still lack a fully integrated capital market. Europe needs to rapidly improve in this area or we risk 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 €90bn for investments. We have to make use of this 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 Europe's infrastructure and economy. 

Secondly, it is also a provision for one's old age. We have to better connect liquidity with the need for investment 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 aim for additional financing options without replacing the current ones.

Around 30 per cent of start-up companies in New York have their roots in Europe. Every single one of them is a missed opportunity. We must ensure we have an adequate legislative and financial framework to encourage them to stay in Europe, where they can help foster growth and jobs.

It must be our goal to develop a better start-up mentality for these SMEs, while helping well-established companies expand their businesses. This can be done if the upcoming legislative steps have a clear aim of supporting SME, creating jobs and facilitating investment.