NEWS WIRE: United Kingdom: Disagreement Over €100m European Union Microfinance Fund

Source: EurActiv.com.Original article available online.

LONDON, September 17 – A proposed EU microfinance fund, set up earlier this year to stimulate job creation in recession-ridden Europe, has provoked sharp disagreements. Two experts, one from a social NGO and one from a European chamber of commerce, spoke to EurActiv about the scheme’s chances.

Ben Butters (BB) is director of European affairs at the Association of European Chambers of Commerce and Industry (Eurochambres).

Patrick de Bucquois (Pdb) is president of CEDAG, a European umbrella group for non-profit organisations.

They were speaking to Olof Gill.

Can you explain why you believe the EU’s new microfinance facility will be a success or a failure, and what factors will contribute to it being so?

BB: I think the factors which will determine the microfinance fund’s success or failure are fairly straightforward. It will succeed if it genuinely reaches the would-be entrepreneurs – and it seems to be specifically targeting those who have lost or are liable to lose their jobs in the crisis – and if from those it identifies people who have entrepreneurial aspirations and the attributes necessary to succeed, and then gets the money to them.

But there are a lot of “ifs” there. It’s a challenging process, and there’s presumably a lot of intermediary layers in getting [the funding] from the ESF down to these individuals.

There are a lot of details we need clarification on before we know whether it’s going to succeed or not.

PdB: First of all, just to explain the process, the EU’s budget is roughly 1% of national budgets – peanuts if you compare it to the US federal budget, for example.

Within this overall budget, you have a very small amount which is devoted to fostering social protection, exchange of experience, social services and so on.

One of the aspects of this budget is a so-called ‘progress programme’, which helps to foster EU citizenship and helps people to understand how social services are dealt with in other EU member states. This is a very small piece of the overall budget.

The EU’s plan is to take approximately 140 million euros away from this budget and give it back to the member states to invest in microfinance facilities. The message to the member states is that we have a financial crisis, and as we have enough money at EU level, take this to strengthen your own economies.

This message is completely wrong! There is not enough money at the European level to do this, and if they do want to do more, it is precisely at the European level that it should be done.

Structurally, how do you expect the fund to operate? Will it move from EU level to the entrepreneur at the national level via national banks?

BB: Presumably it’s going to be managed at member-state level if it’s European Social Fund funding. And then how are member states going to get the funds to these would-be entrepreneurs – is it going to be via banks? We’re really unclear precisely how that’s going to work.

The concept is to be welcomed, but the methodology has to be clarified. We’ve heard so many different stories at the national level about efforts to provide guaranteed funds to businesses that aren’t working in the current climate because of a breakdown in the chain.

This initiative could fall foul of the same problem if we’re not careful.

It’s a communication issue as well as a procedural issue – some studies in my home country the UK have shown that in many cases, banks aren’t aware of government initiatives aimed at businesses.

So, of course, if the financial institutions aren’t familiar with the microfinance fund, for example, it’s not going to be much help to the businesses they’re supposed to be passing them on to.

PdB: Our criticism concerns the way this has been built and elaborated. It simply will not deliver. They say they want to help people finance their microenterprises, and they claim that it will also provide jobs in the social economy.

But if you ask the organisations in the social economy sector, they will tell you they’re not in favour of this, as they’re not working with self-employed people. Rather, they are trying to make sure that people have decent working conditions.

I fully understand that the Commission is under pressure to deliver in this crisis, but even some SME lobbying groups are not very optimistic that this tool will deliver.

Furthermore, there are a number of position papers being formulated by NGOs and the social sector at the moment, and all of them argue that this is not the kind of tool we need.

Many in the social sector claim that the financing of the new fund is an inappropriate redistribution of EU monies, for example diverting funding away from social programmes, which they argue are essential safety nets for the recession. What is your take on this?

BB: Clearly you do need social protection during a time of economic recovery, but to us – and this could be a question of semantics – creating new businesses is in itself a positive social measure during a time of crisis. It means creating new jobs, it means getting people off social welfare, and while it may not fall under the usual definition of a social protection measure, to us it’s a constructive way of going about things.

A successful business can have significant knock-on effects creating jobs for other people. So we’re very positive about the objectives in place.

PdB: Our central point, which I think echoes a more fundamental concern, is that we are now talking about the renewal of the Lisbon agenda for the next ten-year period.

The European Commission seems to recognise that it was probably a mistake to put so much emphasis on competitiveness, but I’m not sure whether they really believe this was a policy mistake, as opposed to a communication mistake. Probably the latter.

So this time around, they want to move the focus from competitiveness to responsibility, which is fine in theory. But this is exactly where the problem lies: [according to this new emphasis] if you are unemployed, that’s your responsibility, we’ll provide you with finance, and if you don’t succeed, tough luck, you had your chance.

So the criticism of this shift questions whether it’s the right tool to allow people to take their responsibilities in an environment of confidence, of legal certainty, and whether the basic protections exist.

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