Loans worth 30 billion euros form part of a raft of measures being proposed to prevent the meltdown of the European economy, according to a document obtained by Radio Netherlands Worldwide which shows that fears of a severe recession lie behind the move.
The measures to support the ‘real’ economy come after EU governments last month announced bailout plans for banks worth around €1.8 trillion. Small and medium-sized enterprises (SMEs), which include everything from bakeries through gyms to furniture makers, account for 99 percent of the European economy and are especially vulnerable in a downturn.
"In the current exceptional circumstances, access to finance is a major business concern," the draft document says. And it does on to stress the urgent need to "increase cash flow" and "reduce administrative demands."
Outline of the EU-rescue package
- Lower VAT "to provide impulse to support consumption"
- Lower labour tax to boost employment
- Easier access to financing for small and medium-size businesses
- Less strict rules on state aid and budget deficits
- Less bureaucracy for businesses and entrepreneurs
- Bigger role for the European Investment Bank (EIB)
- All measures to be reversible after two years
- All measures to promote structural reforms, such as sustainability
But how will this be funded?
‘No cash means no business’
News of the measures was welcomed by workers at WOCON, a construction firm housed in an elegant, turn-of-the-century building on the outskirts of Brussels.
"Sometimes it takes a crisis to get things moving," said business manager Kristel Wouters.
"It’s noticeably harder now to obtain loans and credit. Banks will only finance firms with a good past record, so that excludes new businesses. We’ve also noticed that new work is slow coming in, and payments are even slower. Even some local authorities are taking up to 100 days to pay up."
Wouters adds that her company was forced to take out a loan to cover these late payments: "We managed to get a loan. Thousands of others are not that lucky."
A helping hand
According to Rym Ayadi, a senior economist at the Centre for European Policy Studies, it was about time that Brussels extended a helping hand.
"Small businesses are the backbone of the European economy, they provide millions of jobs," said Ayadi. "They are streamlined and innovative, and drive entrepreneurship. And they need a constant cash flow to keep going."
She also, however, voices concern at the limited amount of money being released. "You have to compare the figure to the huge amount of cash that’s been thrown at banks and the financial system. Now that the financial crisis has clearly spread to the real economy, it’s not clear whether this 30 billion will be enough."
Cutting red tape
The move to support small businesses is being accompanied by measures to boost employment and cut red tape. These include a significant reduction in bureaucracy and the guarantee that public authorities will pay their bills.
The drive to slash red tape, which actually began this summer, addresses the long-standing complaint that business is being stifled by too many administrative demands, says Kristel Wouters. "We need to get rid of all the paperwork," she said.
"If a customer doesn’t pay, for instance, you have to do all the paperwork yourself to start legal proceedings. For many small businesses, that’s just a bridge too far. They can’t afford the time it takes."
The support to small and medium-sized businesses is the less controversial part of the rescue package. Measures include a proposal to pump a reported €130 billion into national economies, slash value-added tax (VAT) across the EU and relax budget deficit rules.
Barroso hopes to get his plans rubber-stamped during a EU summit in Brussels in two weeks’ time, though countries such as Germany have already raised objections to the plan.
Where will the money come from?
- Financial injections to be paid by member states
- Coordinated by all 27 states, as they did for the bank rescue package
- 30 billion euros for SMEs through the European Investment Bank
- Expenditure from European Social Fund to be ‘re-programmed’
3 December 2008