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Stuffing the system...

Posted by Richard Tuesday, January 11, 2005

The EU commission, having spent the best part of its existence making laws which put small businesses out of business, announced yesterday that it is planning to set up a €36 million financial programme to help small businesses throughout the 10-new member states.

Quick off the mark, the Washington Times, courtesy of UPI – which seems to be a singularly Europhile press agency – is running a long puff extolling the virtues of this initiative, informing us that the programme was "one of many designed to help small to mid-size businesses increase their financial standing".

The commission is offering financial incentive programmes to local banks and credit institutions to increase the number of loans provided to small businesses, allowing the WT to cite Gunter Verheugen, EU commissioner for enterprise and industry, formerly enlargement commission.

He tells us that, "From my experience of EU enlargement…". And with the great experience of being sucked-up to by the great and the good in ten nations, he just knows that "small businesses in new member states are often struggling to obtain financing,"

The commission has already handed out $7.8 million (€6 million) to credit institutions and local banks in order to help fund "technical assistance programmes and capacity building" in countries with low levels of bank lending and now it is doing more of the same.

All of this sounds terribly good until you read on. For the most part, we are told, Small and Medium Enterprises (SMEs) have difficulty obtaining information to bid for contracts. Says the WT:

When they can, they usually end up not having the capacity to take on large-size contracts. Additionally, the cost of preparing proposals usually comes as a disadvantage because costs are often already fixed, which SMEs can rarely afford. They also are bound to have financial guarantees to ensure that projects can be completed without any risk of debt or insufficient funds.
In other words, small businesses have enormous difficulty dealing with the red tape needed to attract paying work. Furthermore, in relative terms, the burden is much great for small businesses than it is the corporate giants, which puts them at a trading disadvantage.

So what does the commission propose? Ah, it is going to make it easy for small businesses to borrow money to pay for the red tape so that it can get the work which will cost them more to do than it should otherwise. Nice one Gunter! Who thought that one up for you?

In any case, from my experience in running a small business, "getting the finance" – i.e., borrowing money – was never the problem. It was paying it back that created the difficulties. That was made a lot easier when we could keep the overheads down, give competitive quotes and make a healthy profit.

On those issues, of course, the commission is silent. That would require it to get rid of some of its 97,000 plus pages of regulations, and that would never do. It is much easier to stuff the system with other peoples' money.