Financial Crisis and SMEs in Europe

On September 13th, 2011, Posted by author

Last modified: October 26, 2015

SMEs or Small and Medium Enterprises are those companies with around 250 employees. In the case of the European SMEs, where they occupy 95% of the total companies share, it is stipulated that their turnover should be less than €50 million.

Because of their pervasiveness, they employ about 75 million workers and are also dynamic in creating new employment opportunities. Also, SMEs are responsible for more than half of the European Union’s Gross Domestic Product. As such, it can be seen why any effect of the economic downturn on them would affect the economy of the Union as a whole.

Because of factors like their importance and contribution of the SMEs to the economic growth, creation of new employment and support in sustaining the development of the domestic manufacturing and services sectors, governments are waking up to the problems being faced by the SMEs. With the addition of the former socialist countries into the Union, globalization, and advanced technological innovations the prospects for the further growth in this sector is considerably brighter. The OECD countries are almost completely dependent on SMEs as 95% of the companies belong to this category.

But SMEs in Europe are facing problems on three fronts: less demand of for their products /services, difficulties in access to financing and solvency. A study on the SMEs in Finland by the Confederation of Finnish Industries illustrates the trends in Europe: (see graphs).

 Most of the SMEs are experiencing credit crunch, banks are persisting with more severe loan terms even though the companies are facing constantly declining sales while their customers delay their payments. These factors are forcing SMEs into liquidity problems and even facing closures.  European Chambers of Commerce attribute the solvency problems to the denial of credit by the banks. Commercial banks that are the main source of loans for smaller businesses are becoming more disinclined in granting new loans and are also stricter and more demanding on the loan conditions. All these issues were the results of the present economic crisis prevalent in Europe. The SME companies are also anxious about the latest capital adequacy directive, the Basel II, which could further complicate sanctions of even loans less than €100,000.

Globalisation has also a part to play in the other problems that beset SMEs such as their difficulty in taking advantage of technology, reduced competences in management, low efficiency and regulatory policies.

Entrepreneurship development is one of the most important items in the all the OECD member countries, especially in the transition, emerging, and developing economies. Innovation, skill development and capital growth are seen as the basic qualities of entrepreneurs are the catalysts of growth, combining capital, innovation and skills. Swift and positive action is the need of the day to provide the SMEs with the necessary financial and infrastructural aids. Better and less harsh regulations, like the reduction in the VAT rates, would go a long way in reducing the burdens of the SMEs. The government, at the Union level and at the domestic level must frame proper policies so that the ill-effects of globalization are reduced. They must remember that a more vibrant SME sector would benefit all economies in the European Union, their failures and bankruptcies would equally affect the economy and the people of all the countries.

The financial crisis has a deep impact on many fronts in Europe and other countries. This is an investigation of its effect on a part of the business sector in Europe. Students of Economics and Management need to research on such current and relevant topics for writing a term paper. We make your work easy – just go through our research paper topics or order a essay online. The expert writers in our professional writing service would also be glad to help you with custom essays written on your selected topic.

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