What is the EU SME Policy?

Small and medium sized businesses in the EU: An Overview

Business operations play a central role in the European Union. In fact, since the moment when the EU was first created, one of its main objectives has been to promote economic development in all its member states. Some important steps that have already been taken in this direction include the creation of the European single market in 1997 and the establishment of a single currency across member states in 1999.

The role of small and medium sized businesses has recently come to the fore in terms of European policy. According to an article published by The Economist in May 2009, small firms have fared reasonably well during the economic crisis, especially when compared to the troubles experienced by large multinational companies. Whereas the German economy as a whole shrank by 6 per cent in 2009, SMEs in that country experienced a contraction in their sales figures of only 2 per cent. Likewise, more than 50 per cent of all French SMEs stated that they expected their revenues to remain stable or to increase. In the United Kingdom, a study carried out by the Federation of Small Businesses revealed that 50 per cent of small firms were doing as well or better than before the crisis.

Across the European Union, small and medium sized businesses provide jobs to more than 88 million people, and together they constitute two thirds of the private sector in the continent. However, the facts mentioned above do not mean that small and medium sized businesses are not vulnerable, as changes in the global economy have forced many small companies across Europe to close down. Due to this reason, and considering the crucial role played by these companies at European level, the EU has recently started to devise a set of policies aimed to strengthening and supporting SMEs across the continent. In this article we look at the main features of EU SME policy.

Defining the scope of European SME policy

As of July 2013, there are 28 nations that are part of the European Union. Business practices vary from culture to culture, so companies wishing to take part and thrive in the global economy must adapt their way of conducting business when interacting with clients or customers in other countries. The main objective of drafting a standard European SME policy was to lay out some basic guidelines regarding what constitutes good business practice.

In doing so, the European Commission has highlighted the importance of taking a collaborative approach to business policies, as local SME associations in different European countries are encouraged to exchange ideas on how to excel in the business world. To sum up, European SME policies are being drafted in an effort to capitalise on the variety of business cultures of the continent and to promote the cross fertilisation of business ideas.

The beginning of joint SME EU policy: the European Charter for Small Enterprises

The first step taken by European institutions in order to draft a joint SME policy took place in June 2000. During a conference held at the European Council, which gathered nearly 400 policy makers and business organisations, the representatives of the relevant member states agreed to implement a new framework that would govern the business practices of small and medium sized companies across Europe.

The Charter outlined a series of guiding principles in 10 main areas of business practice, which included finance and tax-related matters, the development of technology and its supporting role for small businesses, reducing start-up costs, trading in the single market, complying with European legislation, promoting entrepreneurship, the creation of representative bodies that could further the interests of SMEs in European institutions, business practices and the Internet, making the most of the European skills pool, and strengthening the business models applicable to SMEs at European level.

About the Small Business Act of 2008

In June 2008, European policy makers took a step further in the development of a comprehensive SME policy with the implementation of the Small Business Act. The Act was adopted by member states in an effort to extend the benefits offered by the Charter approved in 2000. The Act of 2008 is still current and its contents can be summarised in one sentence: "think small first". With this approach, EU institutions confirmed their commitment to support small and medium sized enterprises in their efforts to succeed in the European market.

Some of the highlights of this policy Act include measures to support young entrepreneurs and those who have experienced bankruptcy, making information relevant to SMEs more widely available, simplifying the procedures required in order to apply for funding, the revision of the European Late Payments policy, and streamlining the start-up requirements across all member states.