Toespraak eurocommissaris Kroes (mededinging) over staatssteun en het midden- en kleinbedrijf (en)

SPEECH/07/690

Neelie Kroes

European Commissioner for Competition Policy

"European state aid reform: what's in it for SMEs"

"European SME Policy - Challenges Ahead" conference on SME Policy Dialogueco-organised by the EPP-DE and UEAPME

Brussels, 8 th November 2007

Dear Dr. Rübig, Dear President Toifl, Honourable Members of Parliament, Ladies and Gentlemen,

Let me congratulate the EPP-ED Group and the European Association for Crafts and SMEs (UEAPME) for organising this high-level SME Policy Dialogue at the European Parliament. And my particular thanks for having invited me to speak about state aid reform and SMEs.

As some have said, Small and Medium Enterprises (SMEs) "turn good into gold". They are the body and soul of our European economy. 99% of all European companies are SMEs - the driving force for growth and innovation in all sectors, with many a small company growing into a real giant over time thanks to its innovative potential. At the same time, SME's have local roots and a human face, which make them all the more popular - and necessary - as anchors of human trust, social responsibility and sustainability in this age of globalization.

But precisely because of their size, SMEs often face difficulties. This is why SMEs sometimes need support from policy makers - just as policy makers need their input to shape the right policies.

Unlocking the business potential of SMEs was rightly identified as a priority area by last year's Spring European Council. In response, but also building on our long-term commitment to designing the right approach in this vital area, the Commission has developed a modern SME policy: delivering simpler and better rules which take account of the specific needs of SMEs; setting up EU guarantee programmes to improve SME's access to finance; and promoting entrepreneurship in general.

The state aid reform I launched in 2005 is playing a key role in helping unlock the growth potential of Europe's millions of SMEs.. And in fact, all the instruments delivered under the State Aid Action Plan have a strong focus on SME development to help them embrace change and reap the benefits of today's marketplace: the Regional Aid Guidelines, the Risk Capital Guidelines, the R&D&I Framework and the new de minimis regulation all include specific SME support measures and generally simplify rules for SMEs. So too will our forthcoming General Block Exemption, Environmental Aid Guidelines and Notice on Guarantees.

But before I talk about these instruments, let me flesh out the guiding principles of our SME State aids policy.

I think it was Mark Twain who said: "A banker is a fellow who lends you his umbrella when the sun is shining and wants it back the minute it begins to rain".

This is a nice way of putting a problem which is unfortunately all too familiar to many SMEs. SMEs have problems in accessing finance, especially if they are young, small and innovative. Without appropriate funding - whether it is traditional loans, equity, guarantees or innovative mezzanine financing - SMEs will often not 'make it'. And we all know that even the most successful start-ups will need quite a bit more cash if they are to break out of their home market and go European or global. But their home banks may not readily provide this cash at affordable conditions.

The European definition of an SME is based on three features: a limited number of employees [less than 250 for medium-sized companies]; a limited balance sheet [less than 43 million euros] -which also means little collateral for the bank - and limited turnover [less than 50 million].

Since it is these limits which define SMEs, it is only logical that such companies have more difficulties in accessing funding, resources and qualified personnel and in penetrating new markets. Because of their size, SMEs are also disproportionately more affected by the costs of red tape than larger companies. And they cannot afford the luxury of legions of lawyers, accountants, advisors - and yes, lobbyists - to help them through the bureaucratic maze, or even better, shape it to suit their needs.

State aid policy has long recognised these facts. Not just because we think that small is always beautiful. Our state aid policy is based on sound economic analysis. This provides very real evidence of the specific problems and needs SMEs face. This has justified our previous SME rules, and underpins our current reform.

Economic analysis reveals that our policy must be based on two pillars. First, it is fully - economically and politically - justified to be more generous towards SMEs than towards larger companies. Since SMEs are more severely affected by market failures, we must give an extra boost to help them overcome the gaps. Second, we also need to cut as much red tape as possible for SMEs. Because small companies do not have the same means as larger firms to cope with legal and administrative obligations, our reform delivers rules that are easy to understand and simple to apply. Of course, better regulation should benefit everyone. But SMEs should benefit from it more than others.

So how are we applying these principles on the ground to give SMEs the more favourable deal they need and deserve? If you look at what has been delivered since I took office, you will see clear improvements in the treatment of SMEs, and a much greater focus on their specific problems.

We are delivering on more generous treatment, the first pillar of our reform. In the first place, we have included the principle that SMEs should get larger aid intensities in all of our instruments, from regional aid to environmental protection. On top of this more favourable approach across the board, we have also put forward specific aid measures to specifically target SME problems.

The first instrument I would highlight in this context is the Risk Capital Guidelines which we adopted last summer. Access to equity can be a real problem for SMEs, so the Guidelines allow public equity and quasi-equity injections into SMEs up to a threshold of one and a half million euros, fifty percent more than under the old rules. Public money may thus be used to pull in private capital to address the "equity gap" market failure, subject to clear conditions on public/private partnerships. Aid for risk capital should therefore allow Member States to better support the creation and expansion of the fastest moving, innovative SMEs.

But the set-up and growth of SMEs is only one key to fostering a more competitive Europe. Getting SMEs to do more and better research and innovation is another key objective.

Of course, the most important way to stimulate innovation is effective competition in free and open markets, since this pushes firms to innovate, to improve and differentiate their products and ultimately to succeed.

But we must recognise that in some cases markets will not deliver optimum levels of research and innovation - especially in SMEs. So our new Framework for Research, Development and Innovation contains a whole list of measures specifically targeting typical SME market failures: aid for covering industrial property rights costs; aid for innovation in services (developing new organisational models); aid for innovation consulting services (technological assistance); aid for young innovative start-ups; and aid for hiring highly qualified [academic] personnel.

And this is not all: our forthcoming new rules for environmental protection will also privilege SMEs, for example through higher aid intensities and through measures facilitating the uptake of new environmental norms.

And, turning to the second pillar of our reform, we are delivering on making the life of SMEs easier by reducing their bureaucratic burden.

Our new de minimis regulation allows Member States to grant up to two hundred thousand euros to SMEs without any pre-imposed objective and without needing prior Commission approval. That's twice as much as under the old rules. We have also created a "safe harbour" for guarantees: up to one and a half million euros are considered de minimis, which gives Member States - and in particular regional and local authorities - an essential margin of flexibility to implement tailor-made SME policies.

Of course, de minimis means just that - there is a limit as to what may still be considered as not being state aid. This rule therefore cannot address all the market failures concerning smaller companies.

This is why the draft General Block Exemption we proposed last spring sets out clear areas where Member States can grant more state aid to SMEs without prior notification, provided that certain conditions are met. This will be the cornerstone of our future State aid architecture. It regroups into one single text all existing - and quite a few new - State aid measures which are exempted from the notification requirement, again with a particular SME focus.

The SME bonus has been standardised and increased for small companies; certain risk capital measures for SMEs will be exempted for the first time, as will certain environmental aids; and all the generous existing SME measures - investment aid; R&D aid; training aid; employment aid; and regional aid - will be exempted with simplified rules and often increased thresholds. This really is better regulation in practice: cutting 'Brussels' red tape and ensuring predictability and legal certainty, both for business and granting authorities!

Our draft was broadly welcomed by Member States and stakeholders; it also got some constructive criticism. We will now look closely at your comments and publish an amended proposal by the end of this year. The final product should be in place by next summer. This is one I truly look forward to - and so, I think, should you!

But that is not all we have in hand! Public guarantees are sometimes essential to help SMEs get access to commercial credit. But a level playing field demands that we know just how much aid is contained in a guarantee. This depends on risk - which sometimes requires a detailed economic assessment. And that may not be easy for SMEs, because assessing their creditworthiness is both costly and complex.

This is why, "thinking small first", the Commission has recently published a draft Notice on Guarantees - with two simplified assessment methods for SMEs. First, a "safe harbour table" indicates, per individual rating category, the minimum premium which needs to be paid for a guarantee to be considered aid-free. For example, a guarantee for a company whose rating is BB+ and which would pay a yearly premium of 2,2% would be declared aid-free.

Second, if a public guarantee scheme for SMEs is self-financing and provides individual guarantees up to one and a half million euros per beneficiary, this will be considered in line with market principles and hence again not involve State aid. These two simplified methods will allow Member States to set up guarantee schemes for SMEs without unnecessary red tape - but of course, Member States may also design their guarantee schemes without these simplifications, notably if they have more favourable data series.

Ladies and Gentlemen,

I think I have demonstrated that, with our State aids reform, we are developing the right framework for SMEs. Our rules are becoming more generous, and we are reducing the bureaucratic burden. However - to use an ecological metaphor - our State aid measures only provide the greenhouse, a fertile environment in which plants can be grown. In order to produce beautiful bouquets that will support small and beautiful companies, it is Member States who actually need to sow the seed, grow the plants and pick the flowers - to put all these possibilities to best use!

Unfortunately, experience shows that Member States do not always give SMEs priority. It is often the large firms that reap most of the cash. According to the statistics we get from Member States, only 12% of all State aid granted by Member States is for the sole benefit of SMEs. 12% for 99% of all companies! And in our largest Member State, the figure is only 4%.

Maybe our Member States do not report everything they do for SMEs. Maybe support to SMEs is given under 'de minimis' and not reported. Or maybe more money is actually made available to SMEs than aid statistics reflect. After all, many horizontal schemes are open to companies regardless of their size - and I very much hope that part of these funds at least will go to SMEs!

But even if this were so, I fear that SME's low share of overall State aid points to a real problem in getting information about available support to those who need it most - or ensuring SMEs effective access to national granting authorities. This is where SME organisations like UEAPME, and like-minded partners in the European Parliament, are so very precious. The greenhouse and all its potential is there. It's up to you to make sure it is put to good use!

I sincerely hope that, if only we explain it well enough, our Member States will take advantage of the new State aid framework. So let's spread the good news together and get Member States to take up the good cause - the cause for Europe's SMEs.

Thank you!