Europe‘s 500 Growth Policy Martin Schoeller, President Europe‘s 500

Europe‘s 500 Growth Policy Martin Schoeller, President Europe‘s 500

Europe's 500 Entrepreneurs for Growth • Average E’500 company • 177 € mill Revenues p.a. • 796 Employees • 48% 3-year growth • Total increase in employees in 3 years • 130.0000 • Objectives: • Networking and • Contribute political ideas • Awareness for Entrepreneurship • Activities • E’500 Awards, • E’500 Conference, • European round table

Activities Europe‘s 500 Europe‘s 500 Conference for Growth annualy Generates ideas for Growth Selects Top Growth Entrepreneurs Proposals for Improvement Europe‘s 500 Listing annualy European Round Table For Growth 1-2 per year Better Conditions for Growth Generate more Growth Entrepreneurs

Europe‘s 500 Growth Policy • Growth financing : risk insurances • Fiscal Incentives for Innovation: for Business Angels and R&D • Entrepreneur education and awareness • 4. Part-time job incentives • 5. Trade policy: incentives to stimulate demand in developing countries

Gap between Bank Loan and Private Equity Cost of capital Private Equity 20 – 40 % Bank loan 4 – 8% Predominant number of German medium-sized companies Decreasing credit rating Increasing risk

Problems of Growth Companies < € 50 Mio Bank Loan Alternative financing . . • Venture Capital  30% • Mezzanine  too small • Loan programmes  • 50 – 80% • more work, less success • 20 – 50% • bank quota required, • but banks are reluctant • to finance the rest Rating Margin . . . . Source: CRE Center for Risk & Evaluation

Crack in Logic with Basel II Example medium risk low risk 100% Bundesverband deutscher Banken (Januar 2003) „…Kapitalmarktprodukte vorantreiben, die es ermöglichen, Risiken aufzuteilen und denjenigen anzubieten, die bereit sind, diese Risiken zu tragen.“ EVCA (22.10.2003) “There is a risk that instead of fulfilling its original purpose of providing stability to banks and thus sustainable growth, the accord in its current form risks impeding innovation and opportunities for businesses willing to finance European growth companies.“ 2% Margin 1% Loss =1% Net margin 50% 3% Margin 2% Loss =1% Net margin 8% 16% After Basel II banks operating at medium risk willearn substantially less than those banksoperating at low risk - assuming an equal net margin Conclusion

Response Citigroup to CP3 New Basel Capital Accord Capital is mistakenly defined to cover both Expected and Unexpected Losses “The New Accord sets capital requirements to cover both Expected Losses and Unexpected Losses without differentiating between the two. However, the definition of capital is not changed to reflect the provisioning that supports Expected Losses and the margins that act as additional buffers against losses. ….. A further regulatory capital charge would double count this exposure.” Todd S. Thomson, CFO Citigroup, 31.07.2003

Credit – Crunch in Germany Source: Deutsche Bundesbank

Growth Financing at adequate Risk All medium sized companies up to Rating XI (97% of all German companies) obtain loans at a pricing of:  enabling increasing growth again

Loan Growth generates higher GDP growth

Loan Growth generates higher GDP growth Growth GDP 2005 Spain Italy France Germany Growth Loans 2005

A possible Solution Entrepreneurs can rent guarantees at a price that correlates to their risk (rating) and borrowing capacity e.g. up to 4.5 x EBITDA No risk participation of commercial bank required EU does not restrict this because of „true cover“ and recommends a guaranty renting system to the member states

Tax Incentives for Innovation Capital gains for Business Angels should be tax free (like capital gains on shares) Instruments in R&D should give tax benefits for SME, as long as it is connected in IP generation

Entrepreneur Education and Awareness Increase Entrepreneurship as a discipline at Business Universities (Teach the Teachers) The annual Award Listing, Ceremony and Conference of Europe‘s 500 would like to apply for EU sponsorship Europe‘s 500 is capable of organizing top 50 events in various European countries. This could also be organized in cooperation with the Commission.

Net Employment Rate adjusted Part Time Jobs reduce Unemployment/social Charges Unemployment rate UER Non wage labour costs UNDERPERFORMERS (GE, FR, IT, ES, BE) 11% 30% 51% UER 9,2% 9% 60% SCANDINAVIA (SW, FI, DK) 7% TOP PERFORMERS (UK, NL) 20% CH, AU UER 6,8% 57% 68% 5% UER 4,7% UER 4,2% 3% 10% 40% 30% 20% 10% Part-time rate Source: Eurostat

Incentives for more Part-Time Jobs leads to less unemployment fills a need for more part-time jobs allows substantial cut of non wage labour costs improves competitiveness and adaptability of enterprises

The Problem…… Economic policy made simple

Relocation and Outsourcing to low Wage Countries reduces jobs and purchase power in Europe quite often does not increase wealth in the exporting developing countries we import much more from Asia, Latin America, Africa than we export to them

Fair wages – Net foreign trade Balance EU 15 -23 74 -8 -26 -71 -11 -35 Source: Eurostat

A possible improvement Exporters to Europe are required to gradually lift minimum wages as well as environmental and social standards fight poverty creates growth of internal demand protects environment Incentives and restrictions in order to enforce it

Summary of Europe‘s 500 Suggestions • True cover credit insurance for growth Entrepreneurs 2. Tax incentives for Business Angels and R&D 3. Entrepreneurship chairs and growth Entrepreneur Awards • Part time jobs with much less non wage labour costs across all levels 5. Low-wage countries: incentives to increase minimum wages

Europe‘s 500 Growth Policy Martin Schoeller, President Europe‘s 500