There has been no shortage of discussion around Europe's small and medium-sized enterprises. The European Commission has introduced several omnibus packages aimed at them, including the sustainability omnibus, intended to cut red tape but in practice easing obligations for corporations.
It remains unclear whether this deregulation strategy will truly benefit SMEs.
One reason lies in the way policy is designed: a focus on firm size often leads to late-night trilogues centered on adjusting numerical thresholds — such as employee or turnover limits — used by European institutions to classify SMEs, rather than improving how rules work for businesses.
Crucially, innovation does not follow neat categories, cannot be reliably predicted and is not confined to startups, scaleups or large corporations.
Traditional SMEs play a central role in the European Union's innovation ecosystem, even if they do not scale at venture speed.
Their contribution is often gradual and less visible, based on long-term specialization or their role within supply chains. Some are hidden champions, global leaders in niche markets that combine deep expertise with continuous innovation.
Dismissing this form of innovation simply because it does not fit neatly into today's high-growth narratives would be a strategic mistake. Instead, the focus should be on enabling these firms to compete, attract investment and grow in the European market.
This article is part of the The Parliament's special policy report "Unlocking investment for EU competitiveness."
Killer acquisitions
Competition policy can be a useful instrument, but current merger thresholds do not always capture the risk of so-called killer acquisitions by third-country firms — deals that often escape scrutiny, in which larger firms buy smaller companies to neutralize future competition. Addressing these gaps must therefore be part of the EU competitiveness debate.
This is where European company law must evolve. The EU should consider developing a legal framework that better protects innovative and productive SMEs from premature takeovers by larger players.
The objective must be to strike a careful balance: enabling access to financing and investment without forcing founders to give up control of their companies.
This could be achieved through a European framework for optional forms of steward ownership, anchored in the Commission's proposal for a 28th Regime for a corporate legal framework.
Such a legal form would entail a permanent non-distribution mechanism, a so-called asset lock, ensuring that profits are reinvested in the company's purpose. To enable investment without transferring control, it should also allow funding without granting ownership rights.
The EU needs corporate structures that mobilize capital while ensuring that innovation remains with those who create it.
Succession gap
Approximately 190,000 companies in Germany are due for transfer between 2022 and 2026. As demographic change accelerates, many face difficulties finding successors. This is not just a German issue.
Across Europe, the assumption that the next generation will take over no longer holds, particularly for established SMEs.
Policymakers should therefore focus on enabling business continuity, for example by facilitating new ownership models. The European Parliament has already explored this approach, calling for the proposed 28th Regime to include measures on employee financial participation, including ownership, to support such transitions.
In member states, different models have emerged. Slovenia has taken a concrete step with its Employee Ownership Cooperative Act, creating a legal pathway to transfer ownership to employees and involve them more directly in the company's future.
In Spain, "sociedades laborales" — worker-owned companies developed in the 1960s — were created to promote employment and enable workers to benefit from the wealth they generate.
While further harmonization and integration are necessary, Europe's competitiveness has never depended on a handful of large companies, but on the diversity of its economic base.
Europe is a space where diverse ideas emerge and the system must protect and enable those who create them, including SMEs.
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