Opinion of the European Economic and Social Committee on the ‘Proposal for a Decision of the European Parliament and of the Council amending Decision 2000/819/EC on a multiannual programme for enterprise and entrepreneurship, and in particular for small and medium-sized enterprises (SMEs)’ (2001-2005) (COM(2003) 758 final - 2003/0292 (COD))
Date: 2004-06-30
Institutions: European Economic and Social Committee
Subjects: EU programme, aid to undertakings, entrepreneurship, financial aid, small and medium-sized enterprises

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Official Journal of the European Union

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Opinion of the European Economic and Social Committee on the ‘Proposal for a Decision of the
European Parliament and of the Council amending Decision 2000/819/EC on a multiannual
programme for enterprise and entrepreneurship, and in particular for small and medium-sized
enterprises (SMEs)’ (2001-2005)

(COM(2003) 758 final - 2003/0292 (COD))

(2004/C 302/02)

On 23 December 2003, the Council decided to consult the European Economic and Social Committee,
under Article 95 of the Treaty establishing the European Community, on the abovementioned proposal.

The Section for the Single Market, Production and Consumption, which was responsible for preparing the
Committee's work on the subject, adopted its opinion on 9 June 2004. The rapporteur was Mr Dimitriadis.

At its 410th plenary session of 30 June and 1 July 2004 (meeting of 30 June), the European Economic and
Social Committee adopted the following opinion by 140 votes to one with four abstentions.

1. Foreword

(3)

in particular SMEs,

1.1
The EU has faced and still faces, both before and after
the setting of the Lisbon objectives,: (1) serious problems with
respect to the competitiveness and modernisation of European
companies,
(2) serious inefficiencies and
excessive bureaucracy of public authorities when promoting
entrepreneurship,
lack of coordination between bodies
representing SMEs, public authorities and the Commission in
promoting entrepreneurship, (4) lack of coordination between
national policies to support SMEs, (5) absence of an essential
long-term strategy for SMEs in the Member States, (6) serious
problems with respect to financial support for companies (in
particular SMEs)
from the banking sector and the venture
capital industry, (7) high lending costs owing to the small size
of SMEs and increased risk and (8) lack of a permanent policy
on SMEs.

1.4
The most serious social and economic problem facing
the EU is unemployment, and it has made the creation of new
jobs a primary objective, particularly in SMEs, which constitute
the overwhelming majority of European companies.

1.5
The EU is making a huge effort to boost research and
technology because it knows that making improvements in
these sectors is the only way to guarantee development and
progress, but the proposed strategy does not always produce
the expected results owing to a lack of flexible mechanisms and
to regulatory frameworks that encourage red tape, reduce effec-
tiveness and create undesirable delays.

1.6
In response to the above, the Amsterdam Council (June
1997) and the special Summit on Employment (November
1997 in Luxembourg) laid the foundations for the Growth and
Employment Initiative, while the Council of Ministers — with
Decisions 98/347/EC (3)and 2000/819/EC (4) — laid the foun-
dations for organised and ongoing support for European entre-
preneurship, together with specific programmes to create more
jobs.

1.2
The EU recognises that, while the Single Market has
been completed in terms of legislation and rules, SMEs have
not fully accepted the current system and its potential advan-
tages and are not making full use of that potential.

2. Introduction

2.1 Objectives

1.3
The EU is putting up a tough fight against international
competition, against the considerable economic and political
influence of the US (1), which has achieved very high competi-
tiveness and productivity, and against Japan, the countries of
south-east Asia (2) and emerging economies such as China,
India and Brazil.

(1) Communication from the Commission to the Council, the European
Parliament, the European Economic and Social Committee and the
Committee of the Regions: ‘Action Plan: The European agenda for
Entrepreneurship’, COM(2004) 70 final, 11.2.2004.

(2) Commission staff working paper:

‘ European Competitiveness

Report 2003’, SEC(2003) 1299, 12.11.2003.

The objective of the programme is to promote job creation and
to establish and develop innovative small and medium-sized
enterprises,
as defined in Commission Recommendation
96/280/EC, by increasing the financial resources available and
thereby stepping up investment in SMEs.

(3) Council Decision 98/347/EC on measures of financial assistance for
innovative and job-creating small and medium-sized enterprises
(SMEs) – the growth and employment initiative – OJ L 155 of
29.5.1998.

(4) Council Decision 2000/819/EC on a multiannual programme for
enterprise and entrepreneurship, and in particular for small and
medium-sized enterprises (SMEs) (2001-2005).

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2.1.1
The reason for supporting SMEs is that it has been
demonstrated that they create new jobs more easily because
they adapt well to changing market conditions, make decisions
easily and implement new requirements more quickly within
the company. Moreover, it is often SMEs that have the most
problems setting up (owing to red tape and lack of financial
resources), promoting innovative projects (given their inability
to access funding from banks and, in the new Member States,
the lack of a banking system capable of providing similar
funding) and stepping up international cooperation.

2.2 Description — scope of the programme

The programme consists of three schemes: (i) a venture capital
scheme (ETF Start-up Facility (1)), operated by the European
Investment Fund (EIF),
(ii) a financial support scheme to
promote the creation of transnational joint ventures between
SMEs in the EU (Joint European Venture – JEV), operated by
the Commission, and (iii) a guarantee scheme (SME Guarantee
Facility), operated by the EIF.

both new and existing programmes. The Facility covers part of
the losses incurred under the guarantees up to a predetermined
amount, with particular emphasis on funding the intangible
assets of SMEs.

3. Impact of the programme

3.1
According to the Commission's report, under the ETF
Start-up Facility some 206 SMEs in the high-technology sector
(biotechnology/life sciences and information technology) had
benefited from the programme as at June 2002 (2); they had
also achieved very positive results in terms of job creation. The
SME Guarantee Facility supported 112,000 smaller companies,
which increased employment by over 30 %, while
JEV
supported very few proposals
(only 137 proposals were
accepted).

4. Observations

2.2.1
The budget for the programme was €423.56 million,
made up of €168 million for the ETF Start-up Facility, €57
million for JEV and €198.56 million for the SME Guarantee
Facility. Owing to high take-up of the SME Guarantee Facility,
€30.56 million was transferred to it from JEV. By 29 May
2002, or the end of the period covering the commitment of
budgetary funds, the initial budgetary allocation for the ETF
Start-up Facility and the SME Guarantee Facility was fully
committed by the EIF. For JEV a total of €14.5 million was
available for implementing various projects.

The venture capital scheme (ETF Start-up Facility)
2.2.2
supports venture capital
in SMEs, particularly
during start-up and their early stages of development, and/or in
innovative SMEs, by investing in specialised venture capital
funds.

investment

2.2.2.1
the EU
Under the Joint European Venture (JEV),
provides financial contributions for SMEs to set up new trans-
national joint ventures in the EU.

2.2.2.2
Under the SME Guarantee Facility, the EU provides
funding to cover the cost of EIF guarantees and counter-guaran-
tees to promote an increase in loans to new, innovative SMEs.
is achieved by increasing the capacity of guarantee
This
to
schemes operating in the Member States and relates

The Commission Report (3)on the three schemes is
4.1
based on a very small sample of businesses, which means that
the conclusions drawn carry a high probability of statistical as
well as factual error.

4.2
Over the four-year period from 1998 (starting year) to
2002 (evaluation year), some 206 SMEs benefited from the ETF
Start-up Facility. The EESC considers this number low when
compared with the results of equivalent initiatives in the United
States, where there has been a proliferation of SME start-ups
and flourishing entrepreneurship based on similar measures
backed by high-risk venture capital. Only 31 transnational joint
ventures were set up and 252 new jobs created under JEV, a
result which did not meet expectations. The results of the SME
Guarantee Facility are considered good.

The forecasts made in the report for job creation in
4.3
companies receiving support are based on earlier data (2001 to
mid-2002) and cannot be considered adequate for these three
schemes.

4.4
The EESC does not have definitive, concrete and full
data on the creation of new jobs (1998-2003), which makes it
extremely difficult to assess the situation, and to present posi-
tions and conclusions. The EESC nevertheless points again to
its particular interest in efforts to create jobs, and calls on the
Commission to make this a top priority after adapting the
multiannual programme.

(1) ETF: European Technology Facility, set up by the European Invest-
ment Bank (EIB) in order to generate venture capital for SMEs in the
high technology sector by providing investment funding through
existing venture capital funds.

(2) Report from the Commission to the European Parliament and the

Council – COM(2003) 758 final, of 8.12 2003.

(3) Report from the Commission to the European Parliament and the

Council – COM(2003) 758 final, of 8.12.2003.

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High-risk investment

4.5
is an essential prerequisite for
promoting innovative ideas that will be transformed into busi-
ness ventures and result in successful investment projects. The
phenomenal success of certain ventures like this makes up for
the failures of other innovative ventures which are not taken
up by the market.

The EESC endorses the projects under the three schemes
5.4
and recognises that there is a need for them. However,
it
considers the process by which SMEs access the instruments to
be onerous, bureaucratic and inflexible, since companies often
have considerable problems acquiring information and with
internal procedures.

4.6
The scheme completely ignores the traditional economy.
By constantly referring to innovative activities, it excludes the
possibility of access to funding for small and medium-sized
traditional businesses. Innovation is a very important tool for
modernising the economy and boosting competitiveness. But it
(a) European businesses risk losing
must be stressed that:
market shares permanently to imports of
traditional sector
products from low-cost third countries, (b) if support is not
provided to traditional small and medium-sized enterprises
there is a risk that oligopolies will be created in the trade and
distribution sectors, with knock-on effects
the whole
production process, and a net loss of jobs.

for

4.7
Cutting red tape by setting up one-stop shops respon-
sible for implementing procedures and getting rid of unneces-
sary documents by using modern technology are basic require-
in the programmes
for
ments
concerned.

the involvement of SMEs

5.5
The EESC considers the SME Guarantee Facility to be
particularly useful and calls for this funding to be substantially
stepped up and for every effort to be made to directly include
those countries that have not been covered up until now
(Greece, Ireland and Luxembourg).

5.6
The EESC supports efforts to extend the Guarantee
Facility with a view to accession of the new Member States,
which contain thousands of SMEs that do not have access to
bank loans and are thus unable to invest effectively and create
new jobs.

5.7
The EESC thinks that the budget for the programme
should be reviewed with a view to covering the needs of the
new Member States. The budget currently available was
intended for only 15 and not 25 Member States, and the new
members will certainly have greater needs.

for

creating

instrument

5.8
The EESC calls on the Commission to take the necessary
steps to further enhance the ETF Start-up Facility, since it is an
and
essential
supporting high-risk business ventures, which are necessary for
developing research and technology, as well as other SME
investment schemes that do not come under the high-tech-
nology heading but are of substantial business interest and
must have access to all types of funding means and instru-
ments. The Committee therefore proposes that:

innovative

SMEs

to Decision

a) guarantees be provided for all

legal

forms of company,

regardless of their type of activity,

5. Conclusions

The EESC endorses

5.1
2000/819/EC proposed by the Commission.

the

amendments

The Committee agrees with the Commission's view that
5.2
the full impact of the three funding instruments can only be
evaluated after a considerable time lag, but it believes that
enough time has elapsed since they were introduced to draw
conclusions with a view to making certain adjustments, and
that in the current fiercely competitive globalised economy
time is of the essence, since business trends and outlooks are
constantly changing.

b) funding be made available through ETF Start-up to all types

of companies,

c) more support be given to innovative, high-risk initiatives,

d) in all cases there should be a progressive increase in start-up
capital (ETF) based on jobs, or increase in employment and
innovation,

5.3
The EESC realises that during 2001 and 2002 the inter-
national business environment was unfavourable and that there
was a reduced supply of venture capital in the EU and a reluc-
tance on the part of large banks to lend to SMEs. In 2002
demand for guarantees in Europe rose substantially, as large
banks started to request additional security in view of the high
risk and high cost associated with loan management. In this
situation, the EESC considers the instruments, especially the
Guarantee Facility and the Start-up Facility, to still be very
useful. It also suggests strengthening cooperation with specia-
lised small banks which work mainly with SMEs and have flex-
ible communication systems.

e) the banking system should be involved in distributing infor-
mation and supporting funding and guarantee programmes,

f) the possibility should be considered of the interest rate for
beneficiary companies being negotiated on the basis of a
central agreement between the guarantee facility and banks,

g) the possibility should be considered of supporting national

initiatives through the guarantee facility.

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ventures between SMEs so that it is possible to achieve this
important goal, without the excessive red tape that puts a
strain on the JEV programme and was a reason for its failure.

5.15
The EESC believes that after the experience already
gained with the Sixth Framework Programme for Research and
Technological Development small-scale programmes should be
reintroduced for SMEs,
since such programmes are not
currently part of the concept of the multiannual programme.

costs

low-level

involved in implementing

The EESC recognises that there are heavy administra-
5.16
tive
funding
programmes and that there is therefore a tendency to limit
them substantially. However, it notes that cutting back on such
programmes removes access for SMEs, which are unable to
benefit from high-level funding programmes. For these reasons,
the EESC agrees with the European Parliament and urges the
Commission to be particularly careful with regard to reducing
or abolishing these programmes, especially since they mani-
festly meet actual needs of SMEs. The Committee considers it
necessary for the Commission to work together with business
organisations to this end.

The EESC considers the European Charter for Small
5.17
Enterprises adopted at the European Council in Feira (19 June
2002) to be a particularly important initiative and has drawn
up many opinions on this matter. The Committee would
reiterate the need to implement the provisions of the Charter
in practice on the basis of clear legal rules.

5.18
The EESC endorses the funding objectives set out in
Annex I (description of spheres of action) for the SME Guar-
antee Facility (Annex I, point 4(a)(i)), but it believes this could
be further broadened after serious and sustained dialogue with
the representative organisations of SMEs (e.g. quality systems,
environmental studies, quality studies, technical and technolo-
gical support, technology transfer).

the Commission must

The EESC believes that

take
5.19
more decisive and effective action to strengthen innovative
SMEs and cut the degree of red tape in programmes (e.g.
getting rid of unnecessary documents, speeding up procedures,
etc.) as this has negative consequences and causes unnecessary
delays.

The EESC is pleased with the way the programmes
they will continue to be

5.20
have developed and hopes that
supported and improved.

The President

of the European Economic and Social Committee

Roger BRIESCH

5.9
The EESC considers private and public capital available
in the EU for RTD to be inadequate to cover the greater needs
of SMEs in the information, new technologies and biotech-
nology sectors. The Committee calls for substantially increased
funding to be found in order to cover those needs.

5.10 Where necessary, the fast-track, flexible systems set up
and operated very successfully in the US should be considered,
evaluated and used. There should also be more scope for coop-
eration with specialised venture capital funds, wherever and
whenever investment interest exists (1). The EESC calls on the
Commission to take the initiative on this matter.

The EESC thinks that more effort should be made to
5.11
inform SMEs about the existence and functioning of the Guar-
antee Facility and to find better ways of accessing and commu-
nicating with the EIF and the ΕΙΒ. The survey carried out
showed that a majority of SMEs are unaware that the EU has
set up a formal support system for them. It is therefore neces-
sary to directly involve business organisations (chambers of
commerce,
small and
trade associations, organisations of
medium-sized enterprises, etc.) so as to improve information
provision and make communication with SMEs more direct
and more effective, and to solve more quickly the practical
problems that arise when the programme is implemented.

5.12
The EESC thinks that soon after the accession of the
new Member States a special assessment should be carried out
to establish take-up of the facilities, since although account is
being taken of the problems currently being experienced in the
accession countries, it is certain that: a) the actual situation will
prove less favourable than reported, b) substantial
levels of
support will be needed that cannot now be estimated, and c) a
period of adjustment will be required that will entail serious
risks for SMEs.

5.13
The EESC agrees with the Commission's proposal to
phase out the JEV early, bearing in mind its present criticised
structure. However, the EESC would like to emphasise that it
also continues to support transnational joint ventures because
it believes there is a substantial lag in transnational projects
and business ventures in the EU and that barriers to business
must be removed in Europe.

It will also be necessary to consider the possibility of
5.14
re-introducing the JEV programme or a programme based on a
similar principle,
if and when after enlargement possibilities
arise for creating transnational ventures within the EU and the
EEA. Thus there should be a policy to support transnational

Brussels, 30 June 2004.

(1) Communication from the Commission to the Council and the Euro-
pean Parliament on implementation of the risk capital action plan
(RCAP), COM(2002) 563, 16.10.2002