With the European Union at a crossroads to address slowing productivity and growth alongside rising global competition, former Italian Prime Minister and former head of the European Central Bank Mario Draghi published his report "The future of European competitiveness". The report highlights the need for the EU to innovate, develop new technologies and close productivity gaps in order to sustain economic growth whilst protecting European values and ensuring prosperity in an increasingly volatile world. 

As stated throughout the report, SMEs play a critical role in ensuring Europe remains competitive. At the heart of the European economy, small and medium enterprises (SMEs) represent 99% of businesses in the EU. SMEs are crucial to local, regional, and national industrial ecosystems across the continent, embodying a major source of innovation and job creation.   

Following Russia's aggressive invasion of Ukraine in 2022, Draghi also indicates the critical need toreduce international dependencies and strengthen the Union’s defence sector. Given the rapidly evolving geopolitical landscape, the report highlights that the key to ensuring Europe’s collective security is to integrate SMEs into the defence sector, particularly as many commercial technologies being increasingly used for defence applications.  

The report also identifies several challenges SMEs are being heavily affected by. First, national transpositions of EU regulations often result in additional requirements, disproportionately affecting smaller businesses. Meanwhile, the compliance costs are higher for SMEs, making it harder for them to navigate the regulatory environment compared to larger companies. SMEs often struggle to adopt advanced technologies, like AI, due to fragmented markets and higher costs associated with scaling up across EU countries. 

Mario Draghi outlines in the report a series of recommendations to support SMEs in the path towards the digital and the green transitions, such as the need to simplify the regulatory environment by reducing administrative burdens and streamlining compliance. SMEs, often burdened with higher compliance costs, would benefit from a 50% reduction in reporting obligations. Moreover, increasing access to the European Investment Fund would provide SMEs with enhanced funding opportunities, contributing to the SMEs’ growth and innovation and securing larger amounts of capital, enabling them to scale up and compete globally. 

With the report holding the potential to influence the future of the European economy, the role of SMEs remains vital to ensuring prosperity, competitiveness, and resilience across Europe. The SME Assembly in Budapest, hosted by the Hungarian Presidency of the EU between 18 and 20 November 2024, will feature high-level panels and interviews, workshops and masterclasses in order to open a dialogue on shared challenges and opportunities faced by SMEs across Europe, and to equip them with the necessary tools for a sustainable and digital transition. 
 
Dive deeper into Mario Draghi's report on the future of European competitiveness.