Forget about growth without a level playing field for all SMEs

Discussion between Angela Merkel, German Federal Chancellor, on the left, and José Manuel Barroso President of the European Commission, 2nd from the right, in the presence of Mark Rutte, Dutch Prime Minister, on the right, and Herman van Rompuy President of the European Council. Barroso and several heads of states or governments of the EU discussed on a report entitled "Cut EU red tape", published by the British Government on 15/10/2013, which presented 30 priority recommendations of EU regulations. During the joint final press conference José Manuel Barroso outlined discussions which took place on access to finance for SMEs and the regulatory fitness. (EC Audio-visual Services)

Discussion between Angela Merkel, German Federal Chancellor, on the left, and José Manuel Barroso President of the European Commission, 2nd from the right, in the presence of Mark Rutte, Dutch Prime Minister, on the right, and Herman van Rompuy President of the European Council. Barroso and several heads of states or governments of the EU discussed on a report entitled “Cut EU red tape”, published by the British Government on 15/10/2013, which presented 30 priority recommendations of EU regulations. During the joint final press conference José Manuel Barroso outlined discussions which took place on access to finance for SMEs and the regulatory fitness. (EC Audio-visual Services)

Less than 24 hours after a widely advertised Press conference held by Barroso, Rehn and Andor, where all of them were talking about “strengthening the recovery”, recovery in Eurozone was reported as fading away, being one decimal point away from total freezing that is zero, or numerical death. It is as if reality wanted to play an ugly game to the European Commission. Unfortunately for the three, Eurostat, the EU’s statistical service the next morning (yesterday, Thursday) published a flash estimate of the overall economic growth in Eurozone at 0.1% during the third quarter of 2013, after an anaemic 0.3% in the second quarter. The EU was in recession for three years in a row, constantly losing parts of its GDP until the second quarter of this year.

In detail, last Wednesday José Manuel Barroso, President of the European Commission (EC), Olli Rehn, Vice-President of the EC in charge of Economic and Monetary Affairs and the Euro, and László Andor, Member of the EC in charge of Employment, Social Affairs and Inclusion, gave a joint press conference on the European Semester 2014 the presented EC’s ‘Annual Growth Survey’. Their message was “The biggest challenge now facing Europe’s economy is how to sustain the recovery that is now underway”. To be fair to them, one has to recognise that they spoke of ‘biggest challenge’, but they would have been much less exposed to criticism as being overoptimistic or even misleading, if they had omitted the totally out-of-place phrase ‘the recovery that is now underway’.

Playing with decimal points

This newspaper has repeatedly stressed, that the 0.3% rise of GDP in the second three month period of this year didn’t signal the beginning of a growth period. Many other indicators keep emitting negative messages like the always increasing unemployment, the increasing difficulties of the SMEs, the stagnating retail sales and consumption and the fact that more than half of Eurozone is still cut off from the core financial markets.

Turning to numbers, the Press release issued yesterday by Eurostat is debilitating. Despite the announcement of this 0.1% increase of Eurozone’s GDP on a quarter to quarter basis, the EU’s statistical service also noted that, “Compared with the same quarter of the previous year, seasonally adjusted GDP fell by 0.4% in the euro area in the third quarter of 2013, after a 0.6% fall in the previous quarter”.

Yes, in the second quarter when a lot of people, including the Commission, had rejoiced with the increase of GDP by 0.3% on a quarter to quarter basis, growth was in reality negative by more than half a percentage unit on a yearly counting. Yet a lot of people in Brussels then started talking about Eurozone being ready to leave the recession period for good, entering a new growth period, albeit a weak one and things like that.

Lying about GDP

Some people still cannot understand that growth and more jobs can only materialise from the SMEs, because the giant European multinationals have already transferred their production to China and elsewhere in the world. These same people keep forgetting that the SMEs constitute 95% of all businesses and create 85% of all new jobs. Unfortunately, the SMEs in most Eurozone countries are in bad shape, while in the south they are facing existential challenges.

Yesterday also, the Commission published a survey entitled, “2013 SMEs’ Access to Finance”. This study was requested by the Directorate General for Enterprise and Industry of the EC, in cooperation with the European Central Bank. The main finding of that is that, one out of three SMEs cannot find finance. No finance, means no investments. No investments in new projects, means no new jobs and after some time even the employer becomes unemployed.

No healthy SMEs, no growth

According to the relevant Press release issued by the Commission yesterday “Access to finance is still among the top concerns of the EU’s small and medium sized enterprises and younger and smaller firms are the most badly affected, according to the “Access to Finance” survey released today by the European Commission and European Central Bank. About one third of the SMEs surveyed did not manage to get the full financing they had planned for during 2013 and 15% of survey respondents saw access to finance as a significant problem for their companies. Companies believed that bank financing conditions worsened during 2013, with respect to interest rates, collateral and required guarantees”.

Understandably, the situation is much more discouraging in the crisis hit countries, like Greece, Italy, Slovenia, Spain and Ireland. There are problems, however, even for the SMEs in Holland. The fewer problems are reported by the small and medium enterprises of Germany and Austria. Access to finance was mentioned as the most pressing problem by “40% of SMEs in Cyprus, 32% in Greece, 23% in Spain and Croatia, 22% in Slovenia, 20% in Ireland, Italy and the Netherlands, compared with 7% in Austria, 8% in Germany or 9% in Poland”.

Killing fragmentation

As for the rejection rates of loan applications, the horizon is also divided in two, the rainy and the sunny parts. Highest rejection rates of loan demands were recorded in “Greece and the Netherlands (31%), followed by Lithuania (24%). Ireland (16%), Greece and Cyprus (15%) also accounted for the highest share of companies who were so discouraged that they didn’t even apply for a bank loan”.

If this killing financial fragmentation of the euro area is not reduced to the level warranted by structural differences, and the SMEs of the entire Eurozone are not offered the same loan options for similar business risks, then, noticeable overall growth has to be totally forgotten. Eurozone would have to make do with decimals. Even those are unevenly distributed, negative in the south, a bit positive in the north. All that until the day the south will seek to return to the good old days of some inflation and the competitiveness-restoring monetary devaluations of the lira, the drachma, the peseta and the escudo.

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