What impact had the COVID-19 pandemic on EU small and medium sized enterprises (SMEs) and how did national fiscal policies help mitigate this impact ? This was the topic submitted by the European Investment Fund to five students (Alia Fariza, Francisco Alessandri, Arjun Rawal, Yanan Zhang, Maria Viñas Llovet) from the London School of Economics’ Master of Public Administration (MPA) in the framework of a Capstone programme.

To support SMEs who represent 99% of the EU corporate population and protect the economy, policymakers deployed unprecedented fiscal measures at both national and EU levels. Focusing on national policies, emergency lifeline measures, mainly loans and credit guarantees, generally reduced bankruptcies compared to past trends. However, younger firms (0-2 years old) experienced an increase in bankruptcies. More worryingly, firm creations declined, leading to a decrease in EU SME population of 0.9% between March 2020 and the end of 2022. This is equivalent to around 430,000 “missing” SMEs compared to past trends. National fiscal policy responses hence did not fully address the uneven distribution of the COVID-19 impact, and did not benefit younger SMEs as much as older firms.

The report suggests that EU policymakers should i) devote recovery funds to promote entrepreneurship and firm creation to revitalise the EU’s entrepreneurial ecosystem ii) improve the take-up of fiscal policies by start-ups; iii) enhance monitoring and evaluation to target the most vulnerable countries, sectors, and firms in order to mitigate the uneven impact of economic shocks; and  iv) find a balanced approach between safeguarding firms from bankruptcies and implementing policies that promote firm creation.

This is the 15th Capstone project conducted by the EIB Group (EIB and EIF) with students of the LSE’s MPA Programme.

As part of their curriculum, students are required to undertake a consultancy project on a selected topic relevant to a client organisation (a Capstone project). A number of international organisations such as the World Bank, EBRD, OECD and the UK Government are regular participants in the MPA Capstone programme.