SMEs and micro firms sinking together with south Eurozone

(L-to-R) Fernando Medina, Vice-Mayor of Lisbon, Alexandre Lourenço, the Portuguese child that won the Galileo Drawing Competition, Nuno Crato, Portuguese Minister for Education and Antonio Tajani, Vice-President of the European Commission in charge of Industry and Entrepreneurship. The Commissioner travelled to Lisbon to help Portuguese SMEs emerge from the downturn and help kick-start the Portuguese economy. He was accompanied by the representatives of about 150 European companies, who participated in more than 1800 bilateral meetings with Portuguese SMEs. The results will be felt, if at all, in the distant future. (EC Audiovisual Services 29/11/2013).

Only 0.2% of the non-financial companies are large (more than 249 employees), the rest are either micro firms (up to 10 employees, 92.5%) or small and medium enterprises (10 to 249 employees, 7.3%). Eurostat, the statistical service of the European Union, regularly publishes data on enterprises broken down by size classes, which provide information on the situation of SMEs within the EU’s non-financial business economy.

It found that nearly 40% of persons employed by non-financial enterprises in the EU28 worked for SMEs in 2011 creating an equal percentage of total turnover. The majority of EU28 enterprises were micro enterprises accounting for 30% of persons employed and 17% of turnover, while only 0.2% were large enterprises with 33% of persons employed and 44% of turnover.

Unfortunately, the business environment favours, in every respect, the large business groups and more so when it comes to finance. According to another survey conducted in the euro area by the European Central Bank (ECB) on the access to finance of small and medium-sized enterprises, the availability of bank loans deteriorated between April and September 2013 and the SMEs reported in net terms an increase in their need for bank loans.

In need of loans

In detail, the ECB stated that “Euro area SMEs reported a marginal deterioration in the availability of bank loans (-11% of respondents, in net terms, after -10% in the previous round). The survey results point to slightly increased rejection rates for euro area SMEs when applying for a loan (12%, up from 11%). The percentage of SMEs reporting access to finance as their main problem remains broadly stable (at 16%)”.

It’s not only that though; the ECB survey results also suggest that financing conditions for SMEs continue to differ significantly across euro area countries and are in general more difficult than those of larger companies. Rejections of loan demands are the name of the game in the worst hit countries. In Greece, Italy and Spain very few SMEs and micro firms dare to go to a bank asking for a loan, and of those that do dare, only a small percentage receive a positive answer.

No future without strong SMEs

ECB found that “in the period from April to September 2013, the net percentage of euro area SMEs reporting a reduction in turnover declined (-3%, compared with -11% in the previous survey period). SMEs in Germany contributed positively to turnover developments, as in previous survey periods, while SMEs in Italy and Spain contributed negatively… A high net percentage of euro area SMEs continued to report increases in labour and other costs (43% and 60% respectively, down from 47% and 69% in the previous survey period). In line with turnover and cost developments, euro area SMEs reported a continued decline in profits in the period from April to September 2013 (-25%, after -33% in the previous survey period) to which SMEs in Italy and Spain contributed strongly”.

As it becomes obvious, SMEs and micro firms in euro area crisis countries are doubly hit. Once by the fall of internal demand, and secondly by the fragmentation of the financial markets, depriving them from bank loans. This is an arrangement that cannot be tolerated any more. The future of those countries depends on the 99.8% of their companies and Germany cannot continue pretending that it’s ‘business as usual’…

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