European SMEs caught in balance sheet recession - Vince Farrugia

Numerous small business in Europe have fallen into "balance sheet recession" as their assets and consumers have strongly decreased in value while liabilities have risen, Vince Farrugia, the director general of the Malta Chamber of SMEs (GRTU) told a Brussels meeting on Tuesday.

Representing UEAPME, Mr Farrugia was addressing the Restructuring Forum plenary session in Brussels.

He said SMEs in general have maintained the employment levels while their services, production and sales have dropped. For enterprises, this is resulting in lower propensity and possibility to invest, at a time when SMEs desperately look for new opportunities and seek innovative restructuring.

In the first phase of the economic recession EU governments expanded their public consumption and financed a number of schemes and new projects that helped to balance the dramatic fall in private consumption, but this is now changing rapidly, Mr Farrugia warned.

Governments are in a rush to introduce austerity programmes that dramatically effect expenses which, directly or indirectly, reach many businesses operating in the community, while failing to address the serious structural problems that the "balance-sheet recession" has inflicted on the vast majority of SMEs and households.

Governments are also putting tremendous pressure on the banks and other financial institutions to buy government bonds and this is resulting in further reductions in bank loans to businesses.

Mr Farrugia emphasised the question now is whether the Commission and member states want a quick recovery and renewed economic growth through a revived and restructured SME sector or whether they have resigned themselves to sluggish growth. The asset base of enterprises is essential for firms to have the necessary access to additional finances from banks. In spite of all the talk by politicians about assistance and supportive schemes for SMEs to find new means of financing, finance for business still is, essentially, a question of how strong the asset value of a company is.

"Restructuring means understanding the prime structural problems and seeking practical solutions to the identified problems," Mr Farrugia said while appealing to the Commission to identify the need to bolster the asset value of firms through appropriate schemes.