Export credit insurance is a key means through which businesses can develop supply chains for overseas exports, essentially by protecting against unpaid invoices by importers. It therefore creates secure conditions for trade growth.
However, in times of economic stress, which we find ourselves in at the moment, private trade credit insurers tend to withdrawing or reduce coverage, and in doing so depriving businesses of liquidity when cash flow is already under pressure. With international trade faced with many new barriers and previously stable economies looking increasingly risky, this has been a serious problem for European exporters over the last two months.
To tackle this issue, a number of European countries have developed export support schemes:
- Denmark: has provided an “Export Insurance Cover Guarantee scheme”. With funding of €4 billion this is a re-insurance scheme, provided by the state to private trade insurance companies. Essentially the state assumes part of the credit insurer’s risk of loss on insurance and in return private credit insurance companies agreed to maintain insurance capacity in the market. While this export insurance cover guarantee applies to all sectors and all trade, domestic and international, it is limited to businesses with credit times of up to 180 days in 2020.
- Germany: has a similar have an export credit insurance protection scheme for 2020, with funding of €30 billion. The associated leverage effect ensures the hedging of a business volume of approximately €400 billion.
- France: has a €10 billion reinsurance/guarantee schemeand it has also provided €2 billion in short-term aid as part of a package to help French exporters with credit insurance.
- Netherlands: has an Export Credit Guarantee Scheme to re-finance banks providing export insurance. Additionally, there it operates a state Export Credit Insurance, provided directly by the state to businesses- this was in operation pre COVID-19.
- UK: Announced a trade credit guarantee scheme on 13th May. Exact details, including funding, are still unclear.
- Belgium: has developed a Loan Guarantee Scheme for companies for which exports represent at least 30% of their turnover. The scheme is funded to the tune of €500 million. The loan is not contingent on export activities or contracts but can be used as general finance with the aim of supporting liquidity for internationally focused companies.
With Irish dairy exporters, which are the central drivers of our rural economies, faced the increased risk of default from international as well as European suppliers and cash flow already under pressure due to low market return and high exporting costs over the last number of months, there is an urgent need for the government to step in with similar support, if we do not wish to exacerbate the damage done to our economy as a result of the COVID-19 crisis.
Alison Graham – European Affairs Executive
29 Jun 2020
29 Jun 2020