Executive Vice-President Valdis Dombrovskis

Keynote speech at the ECGI conference: SMEs, families and capital markets

Brussels, 19 June 2020

Ladies and gentlemen

First of all, I would like to thank the organisers – the Stockholm School of Economics  and the European Corporate Governance Institute - for inviting me to address such a distinguished audience.

The coronavirus has swept through every European country.

It has damaged people’s livelihoods and pushed many companies to breaking point.

The European Union has entered the deepest economic recession in its history. Now, as countries start to ease their lockdowns, we see a slow return to normal economic activity. Still, it will take a long time for businesses to recover.

Europe’s many small and medium-sized enterprises have felt the most pain, from innovative start-ups down to traditional family restaurants.

Many of them have lost more than 80% of turnover in the last few months.

We all know how important SMEs and family businesses are to the economy. Family businesses make up around 70% of enterprises in Europe, both large and small.

It is especially true in the part of the world that I know best: the Baltic States.

Here, SMEs provide up to 80% of jobs, much higher than the EU average of 67%. This crisis has hit them hard. In Latvia, for example, the food and hospitality industry reports a slump of more than 90% in demand.

So what are doing about it?

How are we helping Europe’s SMEs?

Throughout this crisis, we have done our best to make sure they have enough liquidity, retain productive capacity and keep their employees in a job.

The immediate cash relief has come from both European and national sources.

On a national level, all EU countries have offered some form of deferral or reduction of tax and social security contributions, guarantee schemes to help companies in financial difficulties, wage subsidies, direct loans – all these measures aim to keep cash flowing to SMEs.

On an EU-wide basis, we are using the full flexibility of EU fiscal, banking and state aid rules to tackle the socio-economic fallout. This includes unprecedented flexibility in using EU funds, as well as 100% financing from the EU budget.

As the national schemes show, governments are making good use of this flexibility. It gives them the freedom to support health care systems, and also the economy, workers and businesses.

In terms of specific funding instruments, both the European Commission and European Investment Bank acted quickly to get immediate financial relief to SMEs.

There is a long list of measures, but I will just give you a few of the most significant examples.

To start with, we used existing instruments like the COSME Loan Guarantee Facility and the InnovFin SME Guarantee under Horizon 2020 to support SMEs with liquidity.

Then, we used the EU budget for a guarantee for the European Investment Fund to provide €8 billion of financing to at least 100,000 SMEs and small mid-cap companies. It must be said that this money is already almost used up.

Also with the EIF, the Commission developed a new instrument called Escalar to increase the investment capacity of venture capital and private equity funds.

It should trigger investments of up to €1.2 billion to help start-ups and scale-ups to grow in Europe.

Once again, this is very relevant for the Baltic States.

The EIB has also agreed to set up a €25 billion guarantee fund to scale up its support for EU companies to an extra €200 billion, again focusing on SMEs.

This EIB initiative is one of three safety nets, along with our SURE initiative for workers and the ESM’s Pandemic Crisis Support for Member States.

Together, the package of safety nets amounts to €540 billion. 

Ladies and gentlemen

These and many other measures were necessary as short-term emergency support.

They will be needed for some time.

However, as we move into a phase of longer-term recovery, we are reflecting on our longer-term ambitions.

This is where we focus on rebuilding the economy, strengthening its resilience to shocks and making sure that our economic recovery is as fair, even and inclusive as possible – for all, because this crisis has hit all EU economies badly.

No one should be left behind.

We should use the recovery financing to strengthen the resilience of our economies and societies. And we should use it to invest in the future: in the green and digital transitions.

Given their major input to the EU economy, naturally SMEs have a major part to play. Their first priority is to have access to finance: firstly, to survive the worst of this crisis; and secondly to thrive in the post-pandemic context.

As you know, the European Commission has proposed a recovery instrument called Next Generation EU to support those parts of our economy that need it most. It comes on top of the EU’s multiannual budget for the next seven years.

This recovery instrument will be equipped with €750 billion in financial firepower. The bulk of this will be spent on the Recovery and Resilience Facility.

It includes grants and loans to fund essential investments and reforms aligned with our European priorities – including the green and digital transitions that I already mentioned.

Next Generation EU, when combined with the EU budget, will be worth a total of €1.85 trillion.

So where do SMEs fit into this?

The EU will continue to do as much as it can to maintain credit and cash flow to struggling companies, especially smaller ones suffering from an economic downturn.

Our REACT EU scheme, for example, will provide an extra €55 billion from the EU budget to extend the unprecedented flexibility in using EU funds up to 2022.

This will allow all EU countries to continue supporting their SMEs: preserving jobs, keeping companies afloat and helping the most vulnerable.

The recovery plan is also the EU’s response to the vast investment shortfalls that this crisis has created. We estimate that the investment gaps for this year and next amount to some €1.5 trillion. Most of this falls onto the private sector.

We have proposed doubling the sustainable investment window in the InvestEU Programme and creating a new Strategic Investment Facility.

This will help invest in key value chains that are critical for our future resilience and strategic autonomy, including the green, digital and health sectors.

On top of all the liquidity already provided to companies, we have proposed a solvency support instrument to prevent otherwise healthy European companies going bust due to lockdowns.

This is just the type of immediate support that companies urgently need.

The new instrument can already be put into effect this year to help companies out, but EU governments would first have to agree on it quickly. With a budget of €31 billion, it should unlock €300 billion in solvency support. 

It will focus on the worst-affected sectors, regions and countries, and on where companies cannot secure enough financing themselves through capital markets.

This will also help to protect and rebalance the single market: Europe’s best asset in this crisis. Trade within the single market accounts for supporting some 56 million European jobs, and its economic benefits are estimated at between 8% and 9% of GDP.

It is vital for our collective and rapid economic recovery.

That is why we cannot risk undermining the single market with widening of economic, social and political divergences across countries or regions.

We have to do everything possible to restore its smooth functioning, to improve enforcement of its rules and tackle outstanding obstacles.

To this end, we have set up a joint Single Market Enforcement Task Force, composed of EU countries and the European Commission.

I have often said that SMEs and family businesses would find it much easier to do business around Europe with fewer barriers and obstacles to deal with.

There are many longstanding issues for smaller companies that hold back growth and prevent them from reaching scale.

Late payments is one – and we are acting on this, by enforcing the Late Payment Directive.

Fortunately, just days before the virus struck Europe with full force, we had set out a dedicated plan for helping our SMEs.

The SME strategy is now more relevant than ever.

One of its key elements to find ways of cutting more red tape for SMEs and making it easier for them to access finance.

Here, I would recall that SMEs are one of four policy areas identified in our InvestEU Programme. This starts next year and will play a key role in unlocking public and private investment, helping wider economic recovery.

For SMEs, the Programme will focus on supporting access to debt and equity-type financing, which financial markets either do not provide, or not sufficiently.

This brings me to capital markets, and how vital they will be for our economic recovery.

As we saw in the financial crisis, bank lending cannot provide the real economy with the variety and depth of financial resources for a strong and rapid rebound.

Depending too much on bank credit can also constrain future and long-term oriented investment.

Without stronger market-based financing, our wider economic growth will remain subdued.

Our companies, especially SMEs, need alternative financing sources to complement bank lending, such as crowdfunding, venture capital, private and public equity.

Their need has not gone away with the coronavirus.

It has become even more urgent.

This makes pushing ahead with the Capital Markets Union even more important for the economic recovery, which will rely on supportive financial flows.

We are committed to presenting the CMU Action Plan in early autumn.

Also, given that the final Brexit date will be approaching fast at that stage, this is an opportune time to set out the next stages for this flagship project.

Supporting the development of local and regional capital markets will remain a focus. They are the basis for deeper cross-border capital markets in Europe.

My own part of Europe provides a good example.

The pan-Baltic capital market comprising Estonia, Latvia and Lithuania is a pioneering project that I warmly encourage.

Thanks to a regional stock exchange alliance between Tallinn, Riga and Vilnius, all Baltic companies appear in a joint list with integrated services through the Nasdaq Baltic Market.

This has been of interest to both local and international investors, as well as to companies keen to list their shares on the stock exchange.

Here, I could mention the successful initial public offering by the Port of Tallinn in Estonia and the issuance plans of energy companies in Lithuania.

The three Baltic countries are preparing legal changes to complete alignment of their national laws on covered bonds and securitisation by the end of 2020. They also want leading index providers to reach a single pan-Baltic classification.

These are welcome steps forward.  

The pan-Baltic capital market will allow for a more productive and innovative use of private capital, with more diversified funding for smaller companies.

Fully functioning, integrated capital markets are vital for Europe to speed up its economic recovery and reach sustainable growth. They will also support the green and digital transitions.

However, finance is not the only investment that SMEs and family businesses need.

They need workers with the right skills too.

Increasingly, this means digital skills: with re-skilling and up-skilling as required, such as when employment situations change.

Latvia, for example, faces a major challenge in this area.

It could benefit from continuous investment in life-long learning, especially in making sure that the workforce acquires more digital skills.

However, this is an issue that we see across Europe as a whole – and one that the recovery package also addresses.

Having the right skills is our gateway to staying competitive in the future, and that means investing in human capital.


In the next few weeks, the Commission will present its guidance for this area.

Ladies and gentlemen

Europe relies on its 25 million SMEs and their 100 million employees, and not just for the benefit of the EU economy.

These are people’s livelihoods and incomes.

The European Union acted quickly and decisively to help those businesses most affected by the impact of this virus.

However, this crisis is not yet over.

But there are glimmers of optimism as the weeks pass.

In the meantime, Europe will stand firm and continue to support smaller businesses - and the people who work there too.

Our economic recovery depends on them.

Thank you.