Part 6 - Export promotion Flashcards
Which institution is the most important institution in Germany that provides export credit guarantees?
Euler Hermes is the most important institution in Germany that provides export credit guarantees.
Export credit guarantees:
An export credit guarantee protects an exporter against a non-payment (or default) of an importer insurance against export risk, especially political risk.
Export created guarantees are often provided by…
so-called public Export Credit Agencies (ECAs):
Export Credit Agencies (ECAs):
• ECAs present in almost all countries of the world, mainly founded after the Second World War.
• Historically criticized due to potential subsidies in insurance fee charged from exporters risk insurance too cheap.
• Some examples for public ECAs:
− Austria: Österreichische Kontrollbank (OeKB).
− France: COFACE.
− Germany: Euler Hermes.
− United States: Export-Import Bank.
Summary on public export credit guarantee in Germany:
- German firm wants to export to a risky country.
- Application: German firm (or its financing bank) applies for an Euler Hermes export credit guarantee.
- Decision on guarantee: If this Hermes coverage is granted, the German exporting firm has to pay an insurance fee to Euler Hermes.
- Default (part I): In case that the importing firm in the risky country is not repaying its debt, the German firm (or its financing bank) can claim the full payment (minus a deductible of usually 5%) from Euler Hermes.
- Default (part II): Euler Hermes and the German government seek to gather this international outstanding debt also through diplomatic means one advantage over private insurers.
Statutory cover limit:
Maximum amount stated in the Federal Budget Act up to which liability in the form of issued export guarantees may be accepted. It is the upper limit for potential losses to be covered by the German government.`
Political risk:
The origin of political risks is to be sought in measures or events originating in the sphere of state authorities. In the case of cover for amounts due for payment, such risks are political circumstances which cause the insured accounts receivable to become uncollectible, especially the general political cause of loss, which includes legislative or regulatory actions and so-called chaos events such as war, civil unrest or revolution in foreign countries.
What were the main reasons for the Heavy losses for ECAs during the 1980s and the early 1990s?
Latin America debt crisis - started by the Mexican government.
What is the reason for heavy losses for ECAs?
Importing firms either go bankcrupt or importing firms cannot convert their domestic currency into foreign currency to repay their debt vis- -vis an exporting firm.
Why it is sometimes called the „lost decade“ for Latin America?
It is sometimes called the „lost decade“ for Latin America, since the resolution of this sovereign debt crisis took many years and the overall economic growth for this decade as region is close to zero no economic growth for a decade.
What happened as a consequence of the heavy losses caused by ECAs?
governments started to regulate public ECAs more strictly and several international agreements were concluded, such as: The World Trade Organization’s Agreement on Subsidies and Countervailing Measures (SCM), the so-called Knaepen Package and also the EU took a third regulatory action by restricting ECA’s activities to non-marketable risks (in contrast to marketable risks).
The communication from the European Commission (Dec. 19, 2018) lists the following countries as marketable risk:
- All 28 EU-member countries except for Greece.
- Australia, Canada, Iceland, Japan, New Zealand, Norway, Switzerland and the United States of America.
- As a consequence of the European Debt Crisis, the exception for Greece has existed since 2013 due to„a lack of sufficient private capacity to cover all economically justifiable risks.“
- This extension for Greece is approved till the end of 2019.
EU members, public export credit agencies are only allowed to provide insurance for exports to low risky countries. TRUE OR FALSE?
FALSE»_space; for EU members, public export credit agencies are only allowed to provide insurance for exports to “risky” countries.
If Euler Hermes indeed promotes German exports, we would expect that our empirical estimations yields…
a positive β3-coefficient.
What a β3-coefficient is positive means?
it indicates that Euler Hermes guarantees, holding other factors in the regression model fixed, increased German exports during the sample period.
