Vince Farrugia warns EU against 'balance-sheet recession'

“This is the situation that many SMEs in Europe have fallen into as the assets of enterprises and consumers have strongly decreased in value while their liabilities have increased,” Farrugia lamented, as he was speaking as representative of UEAPME, at the Restructuring Forum plenary session in Brussels.

He explained how SMEs in general had maintained the employment levels “while their services and production as sales dropped. For enterprises this is resulting in lower propensity and therefore possibility to invest, and this at a time when SMEs desperately look for new opportunities and seek innovative restructuring,” the GRTU Director-General said.

In the first phase of the economic recession, EU governments expanded their public consumption and financed a number of schemes and new projects that helped to balance the dramatic fall in private consumption, but this was now “changing rapidly. Governments are in a rush introducing austerity programmes that dramatically effect expenses which, directly or indirectly, reach many businesses operating in the community, while failing to address the serious structural problems that the balance-sheet recession has inflicted on the vast majority of SMEs and households."

Governments, Farrugia explained, were also putting “tremendous pressure on the Banks and other financial institutions to buy government bonds and this is resulting in further reductions in Bank loans to businesses”.

The question now really was “whether the EU Commission and Member States want a quick recovery and renewed economic growth through a revived and restructured SME sector or whether they have resigned themselves to sluggish growth,” Farrugia warned.

The asset base of enterprises was “essential” for firms to have the necessary access to additional finances from banks. “In spite of all the talk by politicians about help and supportive schemes to help SMEs find new means of financing, finance for business still is essentially a question of how strong is the asset value of a company,” Farrugia said.

“Restructuring means understanding the prime structural problems and seeking practical solutions to the identified problems,” the GRTU Director-General insisted. Farrugia also appealed to the Commission to “identify the need to bolster the asset value of firms through appropriate schemes".