eu4journalists

Growth and Jobs

4. Promoting business

Supporting SMEs

Increasing Europe’s attractiveness as a place to invest and work in the years to come means the EU and Member States need to more effectively support small and medium-sized enterprises (SMEs) which constitute 99 percent of all enterprises and two third of employment with the Union.

Europe’s small and medium-sized enterprises are the motor of the European economy and the main drivers for achieving sustainable growth and more and better jobs. Across the EU, there are around 23 million SMEs accounting for about 75 million jobs. In some key industries, such as textiles, construction and furniture-making, they account for as much as 80 percent of all jobs.

But whilst the importance of Europe’s SMEs, in economic terms, is widely recognised, there are simply not enough entrepreneurs and SMEs growing and creating new jobs. There are two major reasons for this: first, not enough EU citizens are attracted to the professional challenges and risks of starting or running an SME; and second, legislation and regulation complicates the work of SMEs and/or adds to their costs, not least in respect of taking on additional employees.

A linked issue here is that in Europe, despite progress in the last few years, there is still insufficient risk capital available to start up innovative young businesses and current tax rules discourage the retention of profits to build up equity.

The EC is also pressing Member States to simplify their tax systems, improve access to finance, and modernise bankruptcy laws. These would all contribute to creating an entrepreneurship-friendly environment.

The EU has an information portal for SMEs providing access to information on the whole spectrum of EU policies, legislation, programmes and initiatives relevant to Europe's small and medium-sized enterprises.

The Single Market

The principle of the European single market (also known as the internal market) is the free movement of people, goods, services and capital.

For individuals, the single market means the right to live, work, study or retire in another EU country. For consumers, it means a wider choice of products and services at lower prices. For business, it means a common set of rules - instead of 27 different sets - and access to a domestic market of 500 million consumers.

Over the period 1992-2006, the estimated gains of the single market amount to 2.2 period of EU GDP and 2.75 million extra jobs. But the single market is a long way from complete. It can create much more prosperity.

Delivering a better single market is a cornerstone of the Lisbon Strategy in two main ways.

First, many EU level Lisbon initiatives aim to improve the legal framework for the single market. The adoption of the Services Directive in November 2006 is the most important recent step forward. Second, National Reform Programmes, and the country specific recommendations proposed by the Commission and adopted by the Council, give a high priority to opening markets within Member States, which in turn boosts cross-border competition.

The European Commission recently published a strategic vision for the single market of the 21st century as part of its Single Market Review.

Cutting red tape

To create growth and jobs, Europe needs to reduce the legislative and administrative burden on its companies. Some regulations make life for firms unnecessarily hard and require substantial economic costs. This red tape is particularly burdensome to SMEs.

In response to this, the EC has put forward a proposal to reduce administrative costs by 25 percent, a measure which should increase GDP by 1.5 percent - the equivalent to about €150 billion.

As part of its strategy of Better Regulation the Commission is also committed to initiating better laws, by constantly assessing their impact on enterprises and holding consultations. In this way, European business can find alternatives such as, the example of co-regulation. The existing rules should also be simplified and this can be achieved by withdrawing unnecessary regulation, recasting, repealing and codifying the laws.

The Commission says that Member States, which are largely responsible for red tape, need to establish systems to better regulate the business environment. Many have already set ambitious targets to reduce administrative costs, but significant efforts are still needed to carry out regular impact assessments, develop simplification programmes and enforce stakeholder consultations.

Other EC priorities for business

Completing the single market in financial services is a crucial part of the Lisbon strategy. In the long run, a fully integrated financial market could increase the EU’s GDP by 1.1 percent and employment by 0.5 percent. Much progress has been made in integrating financial markets, thanks to the Financial Services Action Plan. Nevertheless, more practical implementation of the agreed measures is now needed, Brussels says.

A single market means that Europe's economies are closely inter-connected. Modern and sustainable infrastructures are essential to create growth because when people, goods and knowledge travel free and fast, the benefits are considerably greater for all parties involved. In 2004, the EC decided to invest €600 billion into Trans-European Network projects, which is expected to increase EU GDP by 0.3 percent and create up to one million jobs. This target will be achieved with the aim of preserving the environment, by reducing congestion on roads and favouring non-polluting means of transport such as rail and waterways.

Delivering the growth and jobs needed in the EU means a more competitive Europe on the global market. EU business needs to trade freely on the world markets. The new European trade strategy focuses on removing barriers, - particularly non-tariff ones - protecting intellectual property rights, concluding bilateral trade agreements, and building a fair partnership with China. Not only will Europe make sure other markets are open to trade with it, but the EU will also further its fight against protectionism. Restarting the WTO Doha negotiations after their suspension in July 2006 remains Europe’s top priority.