The European Commission has published its opinion on the second annual report of the European Observatory for SMEs. The European Observatory for SMEs was set up in December 1992. It forms one of a number of initiatives by the Commission in the SME sector. In its opinion, the Committee commends the suggested ways of involving SMEs in efforts to overcome unemployment in general, and in the SME sector in particular. The Committee suggested that the financial resources allocated to the network should be increased so that each of the twelve members involved in the Observatory can assign one or more of their specialists to the work on a full time basis. The Committee also considers that the choice of subjects to be examined each year should take greater account of the opinion of SME representatives. On the subject of innovation and diffusion of technology, the report cites the fact that in 1991 the four largest EU economies took up 88% of total R&D expenditure. The Committee points out that this figure may not be accurate. Statistics do not reflect the effort of SMEs, which are constantly seeking to innovate and seeking new products and manufacturing processes. The main obstacles to research and innovation are high risk, cost, lack of financing and skilled staff, and poor knowledge of the market. The Committee recommends that in order to encourage research, closer intra-EU links should be promoted, not only between businesses, but also between businesses and EU universities and research institutions.