Latest News

European Economic Recovery Plan for Growth and Jobs

The European Commission’s major response to the developing global financial crisis, the Economic Recovery Plan, adopted on 26 November, combines additional money to prime Europe’s economy with coordinated national action and EU policy measures.

Many of the measures aim to increase the momentum of initiatives already under way, the Lisbon Strategy for Growth and Jobs, and the Small Business Act for Europe (SBA) adopted in June 2008.

In addition, the plan includes a coordinated fiscal stimulus of about €200 billion or 1.5% of the EU’s GDP. Of that sum, the Commission proposes that €170 billion, or 1.2% of GDP, would be injected by Member States into their own national economies. Another €30 billion, about 0.3% of GDP, will come from EU funding and will enhance access to financing for SMEs.

Loans for SMEs

The European Investment Bank (EIB) has put together a package of €30 billion euros for loans to SMEs to be distributed through commercial banks in the Member States from now until 2011. The sum represents an increase of one-third over the sums previously devoted by the EIB to lend to SMEs.

About €15 billion of the loans will be made via commercial banks during 2008 and 2009. They will be distributed via a new lending formula called ‘EIB loan for SMEs’. The new arrangements are designed to be simpler, more flexible and more transparent so as to benefit more SMEs.

The EIF will also bring forward the implementation of the financial instruments within the EU's Competitiveness and Innovation Programme, and a separate micro-credit fund for very small enterprises. The EIB will also add €1 billion a year to its lending package for mid-sized corporations, another key sector of the EU’s economy.

Mezzanine financing

Additionally, the EIB will offer intermediary banks more sophisticated risk-sharing products designed to reach SMEs in market segments that they have deemed to be too risky in the past. It is developing proposals under which it would either share the risks of a loan with the partner bank or provide mezzanine financing to SMEs. An additional €1 billion will be made available through the European Investment Fund (EIF), an EIB subsidiary, for mezzanine financing.

Under mezzanine financing arrangements, the EIF provides a participating loan, which would be converted into shares only if the SME is unable to repay the loan. The mezzanine financing will target high-growth SMEs. Such participating loans increase the ability of high-growth SMEs to obtain bank credit.

Structural reforms

The fiscal stimulus will be combined with proposals to speed up structural reforms under the Lisbon Strategy and measures to help SMEs proposed under the Small Business Act.

For example, the Commission will simplify the rules and speed up decision-making on state aid approvals, particularly in relation to SMEs. For a temporary period, the Commission will make it easier for Member States to grant certain types of aid to SMEs, such as loans for investments in manufacturing of environmental protection products.

In addition, the economic recovery plan contains specific measures to reduce the administrative burdens on SMEs, promote their cash flow and help more people to become entrepreneurs. The new measures build on the Small Business Act, adopted in June this year (seeEnterprise & Industry magazine, July 2008). Amongst the new measures are:

• Removing the requirement on micro-enterprises to prepare annual accounts (for estimated savings of €7 billion per year) and limit the capital required to set up a European private company to one euro;
• Requiring public authorities to pay invoices for supplies and services within one month and accept e-invoicing in place of paper invoices (for cost savings estimated at up to €18 billion a year);
• Ensuring that starting up a business can be done anywhere in the EU within three days at zero cost and that the formalities for hiring the first employee can be fulfilled via a single access point;
• Accelerating the adoption of the European private company statute proposal, so that from early 2009 it can help SMEs operate across borders and to allow them to work under a single set of corporate rules across the EU; and,
• Reducing by up to 75% the fees for patent applications and maintenance and halve the costs for an EU trademark.

Reducing social charges and VAT rates

Another proposal under the economic recovery plan will benefit all companies. The Commission calls on Member States to reduce the social charges employers pay for those with lower salaries. The Commission also wants the Council to adopt a proposed Directive to permanently reduce VAT rates for labour-intensive services, and will soon present a parallel proposal for reduced rates for green products and services in the buildings sector.

The level of the stimulus in the economic recovery plan is balanced, said Commission President José Manuel Durão Barroso. On the one hand it is sufficient to be effective in limiting unemployment and pulling millions of SMEs through the crisis. On the other, the plan avoids levels of lasting debt that could undermine Europe's economic base in the long-term and lead to mass unemployment in future.

"The recovery plan can keep millions in work in the short term,” Barroso said. “It can turn the crisis into an opportunity to create clean growth and more and better jobs in the future.”