Liikanen outlines conditions for public sector financing of entrepreneurship
EU Enterprise and Information Society Commissioner, Erkki Liikanen, made the case for limited public sector financing of entrepreneurship at a conference in Barcelona on 21 November. Speaking to participants at the 'conference on innovation and entrepreneurship', Mr Liikanen said that the most important task for the public sector is to provide a stable and consistent legal environment in which financial markets can function efficiently. However, the Commissioner also said that no purely market-oriented solution has been found for the problem of financing innovative start-ups 'that have no assets except their brilliant ideas'. 'Because of high risks and overhead costs, banks and risk capital investors are reluctant to invest in start-ups,' explained Mr Liikanen. In this case, public financial intervention is justified as long as it does not distort the market mechanism. Other conditions for public funding state that support must not displace private investors from profitable areas, and that it must be implemented through market professionals and existing financial institutions. The European Commission adheres to these conditions in its Multiannual Programme for Enterprises and Entrepreneurship, which does not stand on its own, but acts as a catalyst for the attraction of private investors to start-up companies, said Mr Liikanen. This initiative has enabled the mobilisation of 450 million euro of private funding over the past five years for enterprises that have potential for rapid growth. During this period, the Commission has also helped European banks grant loans to 130,000 small and medium sized enterprises (SMEs) across Europe, through the provision of loan guarantees. 'The success of our guarantee instruments has led the European Parliament to suggest a considerable increase in the budget of guarantee instruments for 2004,' said Mr Liikanen. Commenting on the implications of enlargement, the Commissioner said that most loans in the new accession countries are going to 'large and safe companies'. To achieve their full growth potential, the new Member States will need to encourage their banks to lend more to SMEs, while the EU budget will help in this endeavour by offering incentives to local banks that lend to smaller companies, said Mr Liikanen. The Commission has also been drafting a 'European Code of Conduct for Banks and SMEs' with European banking and SME organisations. 'Although negotiations are not yet entirely finished, four organisations have already confirmed their willingness to endorse the draft,' commented Mr Liikanen. 'We hope that this code will provide a framework for future behaviour.'