Publication

This paper describes the main features of European small and medium-sized enterprises (SMEs), including their financial behavior and the policies recently put in place to support them. The SMEs need the support because 1) they are structurally more leveraged than large firms; 2) they are charged higher interest rates; and 3) their ability to raise funds has taken a serious beating in recent history, specifically because of the financial and Euro crises. In response, the EU has sought to create a more favorable environment for SMEs financing, including the launching of a Capital Markets Union. At the national level, most European governments have provided added financial guarantees and enhanced the role of national development banks. Nevertheless, gaps remain. Innovation-centered SMEs need more funding; legal and regulatory frameworks need improving; and overall financial transparency remains a work in progress.