The latest version of EU´s Communication on short-term credit insurance which has regulated the short-term export credit market since 1997, will expire at the end of 2012. And the temporary frame work adopted by the European Commission in 2008 in order to support access to finance during the financial crisis will expire at the end of 2011. In this connection, the public is encouraged to offer feedback as to how the rules have been working so far and what should happen to the rules after 2012. Furthermore, the European Commission wishes to know what the member states and stakeholders in the area think about the performance of the market for medium and long-term export credits.
The Communication from the Commission to the member states pursuant to Article 93(1) of the EC Treaty applying Articles 92 and 93 of the Treaty to short-term export credit insurance, also called the short-term Communication, has regulated the short-term export credit market since 1997. Short-term export credits are defined as credits with credit periods less than 2 years. The purpose of this Communication, which has been changed and extended four times, is to make sure that the public export credit agencies like for instance EKF in Denmark do not outmatch the private credit insurance companies in the market for short-term export credit insurance. The market for medium and long-term credit is not covered by the Communication as the private export credit insurers hardly operate in this market.
The temporary framework adopted by the European Commission in December 2008, shortly after the outbreak of the financial crisis, allows the public export credit agencies to cover short-term risks under temporary and special conditions. This is due to gaps resulting from the financial crisis in certain parts of the short-term credit insurance market.
A number of the subjects in the consultation document cover the possibility of state involvement in the short-term export credit market. An example of the significance of short-term Communication for the scope of financial solutions in the member states is the escape clause in the short-term Communication which has recently allowed Denmark and EKF to offer export credits to small and medium sized companies within the EU/OECD in connection with transactions involving credit periods between 181 days and 2 years. The approval was given after EKF had documented gaps in the market and will apply until the end of 2012. Read European Commission approves new offers to SMEs
The on-going public consultation is held in order for the European Commission to obtain the public's opinion as to whether the short-term Communication should be maintained in its present state, should be modified or simply be allowed to expire? At the same time, the Commission wishes to know more about export credits granted in other forms than insurance, for instance in the shape of state loans, and about the situation in the market for medium and long-term export credits.
The public consultation will take place from 18 July 2011 to 23 September 2011.
EKF´s experience with EU´s legislation on short-term credit insurance
EKF and Denmark will express our point of view on the legislation regarding the short-term credit insurance market to the European Commission through an official hearing statement. In this document you can read about EKF´s experience with the current legislation and the preliminary wishes for a new set of rules. EKF is only one out of several national participants who get together to prepare a joint official hearing statement.
EKF´s contribution to Denmark´s official reply to the EU consultation on the review of the short-term Communication is based on our experience and work with the short-term credit insurance market and the rules within the area. Here is an overview of parts of EKF´s experience with the current set of rules and some preliminary thoughts about changes in the rules which EKF thinks could be expedient to incorporate into a future revised version of the short-term Communication.
EKF´s experience with the current set of rules
> The banks tightened their credit terms during the financial crisis and obtaining financing for exports still poses a challenge, especially concerning exports related to SMEs.
> The private credit insurance companies tightened their insurance conditions during the financial crisis. The credit insurance capacity has improved, but is not quite back to the level before the financial crisis.
> The private market for credit insurance of single buyer contracts with credit periods between 6 months and 2 years is extremely limited in Denmark.
> It has turned out to be unnecessarily troublesome to make use of the escape clauses in EU´s short-term Communication and the temporary framework. The documentation process has been extensive and non-transparent.
> EU´s short term Communication and the temporary framework have not ensured uniform conditions for the export companies in all the member states.
EKF´s preliminary wishes for a revised set of rules
> The export credit agencies in the EU are the only ones in the Berne Union (the International Union of Credit and Investment Insurers) who encounter strong, formal restrictions on their short-term activities. In the end this can be damaging to European exporters in the competition with exporters from countries outside the EU. Future rules should aim at establishing a level playing field for export credit agencies within and outside the EU.
> The purpose of EU´s short-term Communication is to prevent competition between public and private credit insurers and a future revised short term Communication should therefore make sure that the public export credit agencies do not compete with the private providers of credit insurance.
> The regulation of the market for short-term credit insurance must not, however, prevent the exporters from access to coverage of acceptable risks. Thus, a future set of rules ought to be more flexible than the present one and ensure that this situation is avoided.
> The definition of short-term credit insurance need to be modified to reflect the actual capacity of the market, allowing public export credit agencies to cover export credits related to single buyer contracts with credit periods as short as 180 days for markets within the EU/OECD.
> A revised short-term Communication ought to be simple, transparent and operational as well as allowing for state involvement in the short-term market, to the extent and during those periods where the private market does not possess the capacity. A revised set of rules should encourage greater cooperation between the public and the private providers of credit insurance, for instance in the form of reinsurance.
Comments will be welcome
In case you have any comments to EKF´s experience with the current short-term set of rules and our preliminary wishes for a future revised set of rules, we would be glad to hear from you. Contact Carl-Johan Mortensen (email@example.com, +45 35 46 26 45) or Lars Smed Jensen (firstname.lastname@example.org, +45 35 46 26 54).