WRITTEN QUESTION E-2414/01

by Christoph Konrad (PPE-DE) to the Commission

(3 September 2001)

Subject: Restrictions on subsidies for SMEs

1. What grounds does the Commission have for limiting the business activities of equity investment companies for SMEs and of guarantee associations by means of its communication on State aid and risk capital, particularly bearing in mind that, in Europe, additional jobs and training places are mainly created in SMEs?

2. Why does the Commission recognise market failure only in the case of SMEs in areas receiving assistance from the Structural Funds?

3. What view does the Commission take of the fact that equity investment companies for SMEs display a commitment to assisting the development of the economy even though the return on their investment is likely to be small? Why does it assume that equity investment companies which receive public funding distort competition and displace potential investors from the market, when the economic reality is that, particularly in the case of SMEs and when new businesses are being set up, other potential investors are often not interested because they anticipate little return on the investment?

4. Why does the Commission intend to limit existing refinancing and liability indemnity programmes for equity investment companies for SMEs?

5. Why does the Commission prohibit guarantees for food-retailing SMEs which do not process agricultural products into new products and yet not assistance to restaurants? What grounds does it have for the far-reaching prohibition on assistance to SMEs in the transport industry?

6. Does the Commission intend to limit guarantees for SMEs in the export trade?

Answer given by Mr Monti on behalf of the Commission

(5 November 2001)

1. The Commission is given the task, under the EC Treaty, of controlling State aid to enterprises in order to ensure that competition in the common market is not unduly distorted. The reasons for controlling State aid apply as much to aid in the form of equity injections as to other forms of aid such as grants or subsidised loans. However, the Commission also recognises the role played by small and medium-sized enterprises (SMEs) in the economy, as well as the difficulties they may face, particularly in terms of access to finance. For this reason, the Commission has always allowed higher aid intensities for SMEs than for large enterprises. The Commission also recognises the importance of risk capital in the financing of new and growing businesses. It has observed that public authorities have developed ways of promoting such financing which fall within the definition of State aid but do not fall within existing rules on the type of State aid which can be found compatible with the common market.

The new communication1(1) on State aid and risk capital represents the Commission's response to these various factors. The communication represents a widening of the type of State aid measures which can be found compatible with the common market, rather than a limitation.

2. In order to be found compatible with the common market under the new communication, the Commission requires that a measure should address a market failure. It is not the case that the Commission recognises such market failure only in the case of SMEs in areas receiving assistance from the Structural Funds. The Commission has made clear that it will automatically accept the existence of market failure for smaller transaction sizes, namely transactions below 500 000, rising to 750 000 or 1 000 000 in areas eligible for regional aid in recognition of those areas' particular difficulties. Above those levels the Commission would require evidence of the existence of such a market failure, but does not exclude such a possibility.

3. The fact that the expected return on an equity investment is below the level acceptable to a private investor indicates that the investment may represent State aid. All aid is likely to be motivated by a concern on the part of public authorities for the development of the economy. However, this cannot alter the advantage which the company's competitors may not have and which it would not otherwise have obtained. Competition is thus distorted. The Commission does not assume that such an investment normally will displace potential investors from the market, although the risk of such displacement exists and the Commission has received anecdotal evidence of this occurring.

Where the lower levels of interest shown by private investors in a particular type of investment can be attributed to market failure then this may provide a justification for State aid. However, a low return on investment may also indicate a lack of viability, in which case the case for public intervention is reduced.

4. The Commission and Member States are bound, under Article 88(1) of the EC Treaty, to keep under review all systems of aid existing in those States. This review necessarily involves the reassessment of such measures against State aid rules as these rules and the economic environment evolve.

5. The Commission is not aware of such a differentiated treatment between restaurants and food-retailing SMEs which do not process agricultural products into new products. As long as the general rules for State aid in the form of guarantees are respected, such food-retailing companies may benefit from them.

As regards the transport industry, in view of the over-capacity of tonnage in most of the main freight transport sectors and economic problems which arise as a result, the Commission is very cautious when assessing aid for the purchase of transport means. It therefore decided that such aid has to pass the Commission's close scrutiny by way of State aid procedures and may not be subject to an exemption from notification.

6. The field of export credit is regulated by the (OECD) Consensus for officially supported export credits, Council Decision 93/112/EEC of 14 December 1992 extending the Decision of 4 April 1978 on the application of certain guidelines in the field of officially supported export credits2(2), which has been implemented into Community law. In addition, general rules relating to State aid (namely, Articles 87 and 88 of the EC Treaty) are applicable. Export guarantees have to be analysed and evaluated according to these instruments, in order to verify their compliance with Community law, irrespectively of whether they relate to SMEs or to other undertakings.

(1) OJ C 235, 21.8.2001.

(2) OJ L 44, 22.2.1993.