Financial Markets

© BDI

Export credit guarantees from the federal government (known in Germany as “Hermes covers”) are a central part of foreign trade promotion.

And zhey are an important instrument of economic stabilization policy in the current financial and economic crisis . In the face of an export downturn of 18% in 2009, shrinking financing options and increased insecurity in the markets, these financial instruments are in special demand at the moment. The federal government offers coverage possibilities of varied duration and with diverse risks, so that exporters and banks involved in export financing can guard themselves against politically or economically evoked payment deficits. So far only a small share of German export business (2-3%) had been insured by the federal Hermes credit guarantee. Private credit institutes assumed the majority of export insurances. In 2009 the coverage volume of the “Hermes covers” grew to about 8% (22 billion euros) year-on-year. The number of applications also increased in the first half-year by 50%. “Hermes covers” were particularly utilized by medium-sized businesses; on the average their coverage volume was around 73% (2004-2008). Up till 2008 around 90% of all export credit guarantees were allotted to export trade with emerging and developing countries; through the financial and economic crisis, however, the share of government-protected exports to industry countries rose by 30%. The existing instruments must be further adapted in order to meet the challenges of the current crisis. The BDI has already engaged in various forms of facilitation. Together with the Association of German Banks, the BDI promoted the standardization and lowering of costs for supplier credit coverage and letter of credit confirmation insurance, the allocation of aval guarantees as bond facility, the extension of the Development Loan Corporation (KfW) refinancing program for Hermes-covered export credits till the end of 2010, Hermes-covered protection of short-term businesses in EU and OECD countries over and beyond 2010, and the recovery of the KfW / European Recovery Program (ERP) export financing program.

It must now be the duty of the federal government to optimize the instruments of export financing and protection in such a way that companies can use them effectively in a difficult setting. In doing so the federal government must see to it that facilitation programs of private banks will be passed on to the exporters. Only then will the improved “emergency instruments” of the federal government be applied and can guarantee effective promotion of the German export industry under problematical conditions.