COVID-19: Grants are needed for business and employees

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MEP Tsvetelina Penkova in the EP in Strasbourg [European Parliament]

Recovery from the unprecedented economic crisis requires not only high-level stimulus for listed corporates and increased funding for government agencies but a focus on the often forgotten engine of the economy and our largest employer – Small and Medium Enterprises (SMEs), writes Tsvetelina Penkova.

Tsvetelina Penkova is an MEP from the group of Socialists and Democrats. She is a member of the Committee on Budgetary Control, the Committee on Industry, Research and Energy, and the Committee on Regional Development. The Bulgarian original of this exclusive opinion article was published with EURACTIV Bulgaria.

The focus should remain on limiting the unemployment rate and not allowing the reduced purchasing power to be at the expense of the consumers’ health

With businesses closed, spending in decline and a consumer fatigued by lockdowns, the pending risk to SMEs is at its highest levels since the financial crisis in 2009.

We are potentially faced with a combined economic and social risk that needs to be addressed as failure will prolong recovery. Insolvency of SMEs will lead to a spike in unemployment, a break down of supply chains and an inevitable decrease in the purchasing power of the population.

SMEs are the backbone of the Bulgarian and the EU economy. In 2018, 99% of the Bulgarian businesses were SMEs, of which 92% are micro-enterprises (employing up to 10 people), forming 62% of the GDP (compared to 50% on average in the EU).

What steps can we take to support the most vulnerable section of our economy, protect jobs and promote growth?

Firstly, we need to understand the unique issues for these businesses, their employees and their consumers. Active communication between governments and SMEs is crucial. EU economic measures in response to COVID-19 should be designed for the needs of the specific industries and not applied on a general basis.

Results of an April 2020 poll, conducted by the Bulgarian Chamber of Commerce, indicate that only 8% of Bulgarian companies would benefit from direct financial assistance offered by the Bulgarian government – the “60:40 measure” (the government committed to cover 60% of the workers’ wages and benefits based on strict criteria).

The “60:40 measure”, implemented as a result of the COVID-19 economic crisis in Bulgaria, should prove useful for the medium and large companies, as it allows them to plan their operations and expected revenues beyond the crisis horizon.

The large enterprises normally have substantial financial reserves and enough experts to reach financial liquidity. These larger companies have resources to temporarily halt operations and to retain qualified personnel given that a possible discharge would carry more costs.

At face value, the broad EU approach, illustrated by the governments in some of the major industrialised economies such as Germany, France and Spain, is oriented towards the needs of their specific industries.

Germany, for instance, expects to provide relief in the form of credit guarantees for the companies with more than 250 employees. Likewise, employers with up to 15 workers will receive €15,000 over a three-month period.

If such a “customization” is developed further and implemented on the EU level, the effects of the economic downturn would be much more acceptable. In many European countries, we are witnessing a reallocation of huge financial resources in order to “stop the spread of the pandemic over the business”.

It is of crucial importance that we overcome the impacts of the crisis swiftly, through sound fiscal policy to minimise long-lasting economic consequences. It is not enough to merely support SMEs by providing credit opportunities and extending tax repayment deadlines to the government.

Steps must be taken to provide grants to businesses and workers in order to stabilize the businesses and in turn the economy, boosting GDP growth, preserving jobs and stimulating consumption. A clear strategy is needed for adequate, timely and appropriate spending of the available state aid and the additional resources that the EU is providing.

Secondly, we need a long term strategy. If one compares the measures implemented in Bulgaria with those of the other member states, it appears that the Bulgarian state offers economic measures to support the business only during the COVID-19 pandemic.

On the other hand, Germany, France, United Kingdom and Greece for example, apply repayment deferrals for up to 6 -12 months and longer if necessary. A national and pan-European strategy is needed.

A coordinated exchange of good practices would play a key role on the EU level. Introduction of uniform standards and protocols, as well as common rules and practices, could be vital.

The post-pandemic stabilisation process is expected to last at least 12 months. There is absolutely no doubt that an immediate return of the economic activity and consumption to the pre-crisis levels is almost impossible.

The hike in the unemployment rates would decrease the demand and consequently, the supply and production levels would fall. To avoid that collapse, support mechanisms offered by the governments must be extended in order to give the business “a breath of fresh air’ and to allow it to recover.

If adequate, timely and long-term measures are not implemented, the primary effects of the decreased demand would have serious reflections in the supply and eventually would result in a new wave of unemployment. The aim is to support the economy and business in the long term, not to temporarily consolidate the situation.

Third, solidarity has an economic value. The reduced purchasing powers and the demand for cheaper products should not result in the consumption of lower quality goods. Given the impending decline in purchasing power, the demand for basic products will increase.

Hence, the most affected by the economic impact of the crisis groups will be exposed to additional health risks when turning to cheaper and lower quality goods. The consequences of this will manifest themselves in time.

Product quality standards must be observed and applied at all times. The double standard in products is an illegal practice that should not be “encouraged” by the inevitable decline in the purchasing power. Lower prices should not be an “excuse” for lower quality.

The quality and the existing requirements for determining food safety must remain high. Products and goods sold on the market should meet the current EU standards. Consumer protection remains a top priority for the entire EU Community.

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