EU SME week: Informed and rational decision-making

EU and national policymakers must ensure their decision-making is well rooted in facts, avoids setting unachievable targets and is designed with, rather than imposed on, Europe’s SMEs, argues Paolo Borchia
Source: Alamy

By Paolo Borchia

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

22 Nov 2021

Over recent decades, the progressive globalisation of international political and economic relations has led to the adoption of relevant, long-lasting structural changes to the economic ties between international actors. This has fostered the rise of an increasingly free and deregulated global market.

Recently, analysts and policy makers across the political spectrum have identified a link between the rise of global free market economics and the alarming reduction of the industrial potential of actors such as the European Union; actors that previously used to be world-class leaders of industrial growth.

“A European Parliament own-initiative report, approved in December 2020, which, as rapporteur, I had the honour to draft, stressed how the pace of growth among European SMEs was already lower on average than those outside the EU”

As early as 2016, the European Parliament acknowledged, in one of its resolutions, the need to take action to reindustrialise the EU. Meanwhile, the Von der Leyen Commission issued a Communication in March 2020 - updated in 2021 – with the intention of rolling out the roadmap for the next European industrial strategy.

Within this framework, the EU institutions are well aware of the alarming situation facing SMEs caused by the broader industrial recession affecting the Union’s production network. 

A European Parliament own-initiative report, approved in December 2020, which, as rapporteur, I had the honour to draft, stressed how the pace of growth among European SMEs was already lower on average than those outside the EU. This was the case even before the COVID-19 pandemic, due to multifaceted and deep-rooted structural challenges such as hyper-regulation, limited access to credit, undercapitalisation and severe late payments.

In the same report, the Parliament also noted the inability of SMEs to keep pace with unfair competition practices. This arose from the globalised nature of the European economy and primarily from the action of non-EU market players, who rely on lower labour and environmental standards while exporting goods or services to the EU. 

There is therefore neither a lack of institutional awareness nor of political will to support the resilience of Europe’s SMEs, while there is a growing political commitment from many sides of the EU institutions to reduce the Union’s broader industrial dependence on third parties.

Nevertheless, given such a clear commitment to rescue SMEs from the crisis, there is no unanimous view on how to go about it. From my perspective, it is crucial that decision-making both at European and national levels is based on real data and avoids setting targets that may prove hard for - or worse still, detrimental to - European SMEs. 

This is particularly relevant when important matters such as innovation, digitalisation and compliance with green targets, become subject to new legislation. Regarding the first two, they should not be intended to exclusively enhance enterprises that are directly related to innovation.

EU and national assistance and financial instruments should also be readily accessible to non-digital and non-innovative enterprises, including those operating in traditional sectors. They should be supported in their journey to digital, an essential move for preserving their competitiveness.

The green transition should likewise provide an economically sustainable opportunity for growth and competitiveness for micro-, small- and medium-size enterprises. This should be both in terms of cost-effectiveness and implementation while taking into account the existing competitiveness gap with third countries that hinders European companies. The roadmap for this transition should be designed together with SMEs rather than imposed on them.

Therefore, informed and rational decision-making from legislators is crucial. It should also be noted that the post-lockdown economic environment has brought new severe and unexpected challenges, particularly a sudden shortage in critical raw materials.

“It is crucial that decision-making both at European and national levels is based on real data and avoids setting targets that may prove hard for - or worse still, detrimental to - European SMEs”

The supply of these materials is now as much of a problem as their sky-rocketing costs. The construction and manufacturing sectors are particularly affected, resulting in their sharp contraction.

Meanwhile, the economic recovery of global competitors such as China has also contributed substantially to the rapid increase in raw material prices. As well as the obvious and severe impact on smaller European enterprises, these shortages and rising costs will inevitably affect the sustainability of the broader commitments made under the NextGenerationEU recovery instrument. 

Along similar lines, the rise in energy costs is another cause of grave concern for SMEs. The burden of higher energy prices seems to be shared unevenly both across the EU and across the market, with SMEs paying higher electricity bills in some Member States.

This is all the more reason for EU and national institutions to take into proper account such unforeseen developments while designing the transition roadmap and work out with urgency proper tools to ensure that SMEs will not be overwhelmed by an excessively ambitious agenda. 

Read the most recent articles written by Paolo Borchia - SMEs & the Recovery: A strategic approach to helping Europe’s SMEs

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