A4-0090/99

Resolution on a communication from the Commission on Risk Capital: A Key to Job Creation in the European Union (SEC(98)0552 - C4-0496/98)

The European Parliament,

- having regard to the communication from the Commission (SEC(98)0552 - C4-0496/98),

- having regard to the communication from the Commission of 30 September 1998 on promoting entrepreneurship and competitiveness (COM(98)0550),

- having regard to the communication from the Commission on Fostering Entrepreneurship in Europe: Priorities for the Future (COM(98)0222),

- having regard to the Conclusions of the Extraordinary European Council on Employment (Luxembourg, November 1997) and to the Conclusions of the European Council meeting in Cardiff in June 1998,

- having regard to the communication from the Commission on European Capital Markets for Small and Medium-Sized Enterprises: prospects and potential obstacles to progress (COM(97)0187 - C4-0433/97) and to its own resolution of 17 September 1998 on this communication ((OJ C 313, 12.10.1998, p. 195.)),

- having regard to the communication from the Commission on the feasibility of the creation of a European Capital Market for smaller entrepreneurially managed growing companies (COM(95)0498) and its own resolution of 4 July 1996 on this subject ((OJ C 211, 22.7.1996, p. 40.)),

- having regard to the Commission's White Paper on Growth, Competitiveness, and Employment - The Challenge and Ways Forward into the 21st Century (COM(93)0700 - C3-0509/93) and its own resolution of 9 March 1994 on this subject ((OJ C 91, 28.3.1994, p. 124.)),

- having regard to the report of the Committee on Economic and Monetary Affairs and Industrial Policy and the opinion of the Committee on Employment and Social Affairs (A4-0090/99),

A. whereas the EU's policy for employment creation is of very high priority; whereas small and medium-sized enterprises (SMEs) form a crucial part of this priority policy area because of their high growth and job-creation potential; whereas SMEs in the European Union face a crucial lack of risk capital investment,

B. whereas the Commission's Communication is a welcome synthesis of many of the issues surrounding the urgent need for the provision of a greater amount of risk capital within the European Union, the problems faced by SMEs due to an incomplete Single Market, and the problems arising from the lack of a genuine pan-European risk capital market,

C. whereas measures should be taken to facilitate the exploitation of the comparative advantages of SMEs over large-scale enterprises, such as their flexibility and capacity to adapt swiftly to changes in conditions,

D. whereas the Commission's Communication is correct to draw attention to the ability of increased risk capital to stimulate the development of, and job creation in, SMEs, which is a critical aspect of expanding employment opportunities in the European Union,

E. whereas SMEs in high-technology sectors have particularly high needs for risk capital, but are potentially also the most successful in employment creation,

F. whereas the Commission's Communication rightly sets out some of the key areas where urgent attention is required to remove or reduce the remaining barriers to the enhanced provision of risk capital for SMEs; whereas many of these barriers are of an institutional and regulatory nature at both Member State and EU level,

G. whereas the Commission's Communication draws attention to one factor inhibiting the provision of risk capital, namely that European insolvency and bankruptcy laws often preclude the possibility of a second chance; whereas, however, one important task of legislation and administration is to prevent criminal activity while on the other hand offering a second chance to those who, acting in good faith, have undergone business failure, as part of the learning process of business; whereas, that being so, the legal provisions restricting or prohibiting the starting up of businesses by such persons must be revised as a whole, looking at both points of view,

H. whereas the structure of the Commission's Communication is such as to provide a valuable framework for analysis, permitting both supportive and critical comments,

I. whereas the Commission¨s Action Plan sets out a welcome package of measures in progress and actions to be undertaken in both the short and medium term to remove the barriers to the development of risk capital in the European Union; whereas the Action Plan is already in operation,

1. Welcomes the Commission's emphasis on the need to mobilise risk capital in the service of entrepreneurship, thereby stimulating the creation and development of SMEs and their ability to create employment;

2. Notes especially that, when compared to the United States, the European Union lags far behind in the provision of risk capital and in the growth rate of SMEs; notes that these problems are particularly acute in high technology sectors;

3. Agrees that the fragmentation of capital markets across the European Union is a contributing factor to the relative shortage of risk capital provision and mobility;

4. Emphasises that cultural factors, among those supplying capital to SMEs (such as banks), among managers of SMEs, and in national administrative and legal systems are as much to blame as structural factors for the risk capital problem;

5. Recognises that the establishment of the Single Currency provides a unique opportunity to tackle the risk capital issue in the European Union; believes that the introduction of the Euro will bring benefits to SMEs in the form of, for example, lower trading costs and thus will make the risk capital investment climate more favourable;

6. Is of the opinion that the non-participation of the United Kingdom in the Single Currency will be of detriment to the development of a pan-European risk capital market because the United Kingdom is currently the Member State with the most developed venture capital culture; nevertheless welcomes the priority which the British Presidency gave to the issue of access to finance for SMEs;

7. Notes that in the US there are estimated to be 250 000 active individual investors investing in 20 to 40 times more businesses than formal venture capital, and that of formal venture capital in the US there is substantially less investment in management buy-outs than is the case in the European Union, and that US pension funds invest a higher proportion of their funds as venture capital than is the case in the European Union;

8. Notes that the geographical clustering of entrepreneurs, technology, and financial and producer services of all kinds takes place on a much larger scale in the US, with many more such clusters than in the European Union;

9. Agrees that there are some positive signs of change in the risk capital markets within the European Union;

10. Welcomes the Commission¨s focus in the Action Plan on the need to create a European equity market similar to NASDAQ in view of the success of NASDAQ in providing a quality market and easy access to capital for young, fast-growing companies, especially in hi-tech sectors, and in view of the impressive record NASDAQ has in generating wealth and employment in the US economy;

11. Agrees with the Commission that priority needs to be given to combating barriers to the generation of a venture capital investment culture in Europe, examples of such barriers being the lack of a harmonised approach to institutional investor participation in venture capital, and the lack of a common fiscal environment for new ventures;

12. Agrees strongly with the Commission, however, that the cultural barriers identified are among the most severe inhibiting factors to the development of SMEs;

13. Stresses that the development of an enterprise culture and a willingness to assume a greater level of risk in business calls for education and training measures which are geared to the needs of SMEs and to their personnel;

14. Believes that the following three broadly interacting aspects represent the priority areas to be tackled to improve the provision of risk capital to SMEs, and its utilisation by them:

a) the lack of a 'risk culture' in the productive sectors of the economy, both among those providing finance for businesses, particularly the banking sector, and among many SMEs themselves who either do not wish to grow or where 'risk' projects are inadequately thought through;

b) the absence at national level of adequate legal, administrative and fiscal frameworks enabling the creation and development of SMEs to take place, with excessive bureaucracy characterising some countries¨ administrative and legal structures;

c) the absence of fiscal and other supportive mechanisms at Community and Member State level to mobilise private and institutional savings into SME investments;

15. Argues that in tackling these three areas any Action Plan should take account of the different size groupings of SMEs which do not all have the same requirements;

16. Suggests that high-technology product businesses represent a special category requiring different treatment only in so far as funding institutions are unfamiliar with technology market assessment and hence view such markets as high risk;

17. Calls upon the Commission to give priority to encouraging the Member States to implement the Action Plan within their areas of responsibility, and to tackle especially regulatory barriers, the simplification of regulatory provisions, improvement of market structures and taxation harmonisation;

18. Believes that the Action Plan could be enhanced by the incorporation of:

a) measures to change risk culture in order:

i) to promote separate industrial and commercial banking institutions, dedicated to financing businesses, small and large;

ii) to encourage such organisations, by tax incentives and state guarantees if necessary, to provide long-term capital in the form of loans, secured against both tangible and intangible (e.g. debtors' lists) assets of the companies;

iii) to provide investment grants and/or guaranteed loans for technical innovation projects of small companies;

iv) to provide financial support for managers of micro-businesses and small companies when they are considering the development of products or of markets, or the expansion of productive facilities;

v) to provide financial support for advice and support schemes for micro businesses' expansion, via firms of accountants who are close to the businesses and are trusted by them;

vi) to encourage the use of partnership arrangements between small companies and larger companies to enable the former to engage in cross-border trading, with reduced costs and administrative effort, and to encourage the commercial development of SMEs via supply chain development;

vii) to encourage the use of electronic trading and the facilities offered by the information society for SMEs through grants and pilot schemes;

b) measures to mobilise savings into investment in SMEs by:

i) encouraging private individuals to invest in SMEs, via the provision of tax shelters (like those, for example, in the Netherlands known as 'tante Agaath' facilities, which enable SMEs to be granted loans at lower interest rates because individual investors are granted tax exemption on the interest earned) and legal protection (e.g. general partnerships) and new national and/or regional agencies;

ii) encouraging the development of EASDAQ, and similar European national equivalents of the US NASDAQ, to allow medium-sized companies access to equity markets;

iii) encouraging the development of the European corporate bond market as an option to equity markets for medium-sized companies.

iv) removing excessive restrictions on the type of investments permitted for pension funds;

19. Expresses its support for the new initiatives announced by the Commission during 1998 relating to access to finance for SMEs, and in particular the three programmes: European Technology Facility Start-Up, the Joint European Venture, and the SME guarantee facility;

20. Instructs its President to forward this resolution to the Council, the Commission, the European Investment Bank, and to the European Venture Capital Association.