German SMEs turn noses up at new EU strategy

German SMEs were left non-plussed by the EU strategy. [Kzenon/Shutterstock]

Ursula von der Leyen’s European Commission is the first to propose a small and medium-sized enterprise (SME) strategy. While it promises to make these businesses fit for the future, many representatives of German SMEs are not too fond of it. EURACTIV Germany reports.

After being delayed for about one week, the Commission published a comprehensive strategy package on Wednesday (11 March), which includes a separate strategy for SMEs for the first time.

As German SMEs represent the backbone of the German economy with around 3.4 million companies as of 2017, they were very keen to see what the package looked like.

Matthias Bianchi, the head of the Public Affairs Department of the German Association of Small and Medium-Sized Enterprises (DMB), explained to EURACTIV why he only gave the strategy the German school grade of “three-plus,” the equivalent of slightly above average.

Medium-sized companies are not all SMEs. The Institut für Mittelstandsforschung (IfM) defines SMEs by “unity of ownership and management,” with the classic example being family businesses.

The SME sector makes a significant contribution to German economic growth: In 2017, they generated around 35% of the total national turnover and provided 57.9% of all jobs subject to social insurance contributions.

“Too many details, accessories, and nice-to-haves”

Typical for the EU, the strategy is full of big headlines and promises. It aims to help SMEs navigate the digital and sustainability transitions as well as improve access to data, finance and information. Cutting red tape should make life easier for entrepreneurs, while market access in third countries should be included in future free trade agreements.

“This is an ambitious thing with a few weaknesses,” said Bianchi. In addition to sensible ideas for reducing bureaucracy, he sees “too many details, accessories, and nice-to-haves” in the important areas of digitisation and sustainability in particular, without any clear direction or targets. The DMB is particularly disappointed about the chapter on financing.

The EU wants to make the promise of easier access to finance a reality through an initial public offering (IPO) fund. The idea is to use public money to support SMEs in their first IPO, and an “anchor investment” is intended to attract private money.

“Start-ups are the SMEs of tomorrow”

This may work for start-ups that want to bring investors on board, but the middle class traditionally finances itself through loans – partly because ownership and management thus remain in one hand.

This has become more difficult since the financial crisis because the subsequent Basel regulations require high equity ratios for loans, which SMEs often do not have. For this reason, Holger Schwannecke, secretary-general at the German Confederation of Skilled Crafts, criticised the SME strategy:

“In terms of financing, the Commission focuses too much on highly innovative companies and start-ups.”

Bianchi believes that “start-ups are the SMEs of tomorrow” and need to be supported, but he found it “very annoying” that the Commission does not want to simplify credit financing.

“One could have been more specific about the Basel regulations,” he says. In addition, the EU could have provided funds for SME financing in the short- to medium-term, which “would have been a good sign.”

Öttinger in talks to be SME envoy

The other major challenge for these companies is bureaucracy.

Here, Bianchi welcomed the fact that the strategy promises to reduce bureaucracy in principle, although he would have liked to see more concrete proposals.

For example, the “1-In-2-Out” principle would have been helpful, under which two old regulations are removed with every new regulation, as well as an extension of the “SME test” for new laws. At present, only 30% of all EU regulations have to be tested for effects on SMEs.

However, such a test should be handled by a new EU official. According to the strategy paper, the ‘SME envoy’ is to ensure that “new legislation is SME-friendly”.

Bianchi expressly welcomed this, but it remains to be seen who gets the role and how quickly this person can take action. According to a Handelsblatt report, the German ex-Commissioner Günter Öttinger is being discussed, but he denies being approached by the Commission.

The “strategy spoiled” middle class

In the field of digitalisation, Bianchi saw “nice little stories”, such as small lessons for employees or centres for digital innovation.

Germany is already further ahead than other member states in this area, so these measures will bring little added value to local companies. In the SME sector, there is a “huge gap” between digital and analogue companies, but to close it, entrepreneurs must be shown the benefits of digital technologies.

This is even more important than digital infrastructure or access to data because many – especially older – entrepreneurs are not yet willing or able to use these technologies.

In general, German SMEs are currently “spoilt by strategy.”

The Commission has also presented strategies for digitalisation, data, AI, industry and recycling in recent weeks. Bianchi suspects that the Commission’s tactic is to ‘shoot out an awful lot in the first 100 days’. It still appears to be a patchwork quilt, but much is moving in a positive direction.

However, he was quick to emphasise that “any strategy is only as good as its implementation.”

[Edited by Zoran Radosavljevic]

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