The Chancellor of the Exchequer of the UK, George Osborne, last week stated that his target was to achieve full employment. Earlier on this week, the new Italian Prime Minister, Matteo Renzi, stated that it was unacceptable to have an unemployment rate of 13 per cent in his country, and that his target was to bring it down to 10 per cent. One of the reasons for the vote against the Socialist Party in the French municipal elections was unemployment.

It is the same theme that is affecting all EU countries. The common message is: enough with fiscal rigour, let us have some economic growth for a change. But when it comes to economic growth and employment growth, it is immediately recognised that within the EU there is little or no space left for large enterprises employing thousands of persons.

Mass production has relocated elsewhere. Economic growth and employment growth must come from small and medium-sized enterprises. This explains why I believe that in the European Union there is the need to get really serious about SMEs.

The problem is that given their size, SMEs do not generate growth in one sudden burst but in a gradual manner.

Given their size, SMEs do not generate growth in one sudden burst but in a gradual manner

Moreover, SMEs are the companies that will benefit most from structural reforms in an economy, as bureaucracy and restrictive legislation reduce their nimbleness so much that they end up choking them.

And since politicians are very reticent about introducing structural reforms, no-one takes SMEs really seriously. Yet EU publicity claims that it believes in the important role that SMEs play in the economy and that they should be supported.

In fact, legislation is having the opposite effect. In sectors where there is a strong requirement for compliance with specific rules (such as in areas of financial services), there is little difference between the requirements that larger companies have to meet and the requirements that smaller companies have to meet.

Certain compliance requirements can easily be absorbed by larger companies because they enjoy economies of scale, while in the case of smaller enterprises, there could be a significant impact on costs resulting from such requirements.

Another element of legislation within the EU that is having a negative impact on SMEs is in the area of employment legislation. Such companies are likely to need to use flexible employment arrangements to take account of fluctuations in demand, skills shortages or even supplier shortcomings.

EU legislation has increased labour costs unnecessarily for SMEs by imposing the adoption of certain working conditions that have reduced flexibility. This makes the employment of people on the part of SMEs less attractive, with the result that one gets an attrition of employment opportunities in the long run.

Yet, another piece of EU legislation that militates against SMEs is the new capital requirements directive. Since most SMEs are family-owned, they are very likely to provide property as collateral against bank loans. The capital requirements directive considers such collateral as speculative in most cases and therefore imposes on banks the rule to consider such collateral as more risky.

As a consequence, banks with such a loan portfolio have a larger capital requirement than banks which do not have a portfolio.

The end result is that SMEs may either find the door closed if they ask for a loan or may have to pay a higher interest rate.

The final point I wish to make is about the simplification of administrative processes. Practically all EU countries have a Cabinet minister whose responsibilities include administrative simplification.

But when SMEs come to access EU funds, they find a process that is so cumbersome that it hinders effective participation in such schemes. To this, one can add the processes involving permits, filling in statistical surveys, etc.

Moreover, when public entities at various levels (national, regional, municipal) delay payments because of a lack of funds, the ones that suffer most are not the larger enterprises but the smaller ones.

On the other hand one may claim that the EU has introduced a number of initiatives that are specifically targeted at SMEs.

Yet, when one looks at the whole picture, I strongly believe that the EU and individual member states need to be more serious about SMEs. They are the ones that will drive future economic growth, and not the larger enterprises.

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