Why small businesses are big in Europe

Business - not policy makers - creates jobs. But policy makers can give companies the framework conditions which help them to thrive. And in this context the focus has to be on the 23 million small-and medium-sized enterprises which are the real job engines in the EU.

This is why, at a time of great economic challenges and competition from abroad, the Commission has shifted Europe's SME policy into a higher gear, putting the needs of small business at the heart of everything we do. Our aim is to improve the financial and regulatory environment for SMEs and to release much more of Europe's entrepreneurial potential.

We know that over-regulation hits SMEs harder than big firms and no less than a 25 per cent reduction in the costs of bureaucracy for entrepreneurs is what we believe is desirable, and possible, in Europe. The flow of new EU laws has slowed down considerably since the new Commission took office in 2004, and we are now screening all new EU laws for their friendliness to smaller companies.

With the specific intention of making life simpler for SMEs, we have already scrapped nearly 70 pending laws and made customs rules and form-filling requirements a lot less cumbersome. Over the next three years, we plan also to simplify 1,400 existing rules.

A single market of 450 million potential customers represents enormous growth opportunities for SMEs, especially those for whom cross-border business begins just a few kilometres away from home. But coping with legal and administrative differences can be prohibitively burdensome for lightly-staffed firms on tight budgets and we need to make sure that the spirit of the common market is not undermined.

In addition to our drive for better regulation and less red tape, the revised services directive we have tabled should not be underestimated in its power to remove many of the administrative obstacles that stand in the way of internationally-minded SMEs.

We know that rules are essential for the single market to function effectively and we are trying not just to strip away or simplify the bad ones, but also to draft intelligent new laws for the future. One of our proposals is to make it possible for entrepreneurs to pay VAT on multinational operations through an online "one-stop shop".

Meanwhile, we are also working with national governments to help them achieve the goal they set at the 2006 Spring summit, namely that a new company can be set up anywhere in the EU, within one week, and through a single point of contact, by 2007.

Our public procurement directive, recently implemented by the national governments, is another key initiative. Public procurement contracts account for no less than 16 per cent of Europe's GDP, and it is crucially important that we level the playing field by breaking down barriers for SMEs in this sector.

Conscious of the need to give ourselves the financial means to really make a difference, we have increased funding for our range of SME support policies. By the end of the 2007-2013 budgetary cycle, the Commission's enterprise and industry directorate will be spending 60 per cent more on SMEs than it did in 2006, thanks to some three billion euros from the new Competitiveness and Innovation Programme (CIP).

Of this money, over €1 billion will be invested in continuing our highly successful range of financial instruments that improve the financial environment for SMEs seeking loans or investment. These measures have already helped scores of companies, such as Luxembourg-based internet telephony pioneer Skype, to get off the ground and grow. Other CIP measures will help SMEs to make the most of information and communications technology and use energy more efficiently.

Meanwhile, regional development funds, which have channelled €21 billion into supporting SMEs over the last six years, will continue to make a big difference, as indeed will our big research and development programmes.

More broadly, the Commission is pushing hard to ensure that public financial intervention in the private sector is always directed at targets likely to produce jobs and growth. Guidelines for the allocation of EU structural funds now stress the importance of backing growth-inducing measures like support for SMEs.

The Commission has also been adapting its competition rules, encouraging national governments to channel aid into supporting SMEs rather than subsidising big national champions.

The other major way in which the EU is good for SMEs is that it provides for member states to share best practices and coordinate their action. One good example is the upcoming small business charter conference, which will provide a forum for national governments to gauge their progress on their commonly drafted projects for helping small businesses.

One of the main things holding us back and undermining our competitiveness in Europe is a pervasive spirit of risk aversion. In many parts of the EU, risk-averse attitudes are solidified by bankruptcy laws that ban failed entrepreneurs from trying their luck again. By contrast, bankruptcy can often be brushed off and put down to experience in the highly competitive United States.

What is more, opinion polls have shown that Europeans overwhelmingly prefer the security of working for someone else - just 45 per cent of EU citizens would like to be their own boss, compared to 61 per cent of Americans. This has to change, and I believe that Europe's entrepreneurial potential can only be unlocked if national, regional and European authorities coordinate their efforts to bring about change.

The EU needs more entrepreneurs and those willing to embark on this road should be assisted and appreciated.

What specifically deters would-be entrepreneurs in many EU countries is that the tax burden is prohibitively high, regulation is overly burdensome, social security benefits are inferior to those enjoyed by employees, and the costs of eventual bankruptcy are far more unpleasant and definitive than in many other OECD economies. The balance of risk and reward needs to be changed, and entrepreneurship must be promoted and demystified, if we want more people to start their own business.

As the Commission carries forward its ambitious SME policy and helps member states to improve and coordinate their own efforts, we also hope to improve our interaction with the people in whom we are investing so much hope. Many Entrepreneurs still tend to be poorly informed about the EU and its activities, and we know that many of them are inclined to have a negative view of it.

That we must change even if it will be difficult since successful entrepreneurs are usually busy which makes communication a challenge.

Nevertheless, the European Commission wants small firms to know that it has put entrepreneurship firmly at the heart of its agenda: Europe is now finally moving from words to deeds.

Mr Vergeugen is the European Commission's Vice-President.