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The EU is weighing the launch of an export credit facility that could reinsure member state export credit agencies (ECAs) and refinance commercial loans, as it seeks to arrest the relative decline in exports from the bloc to key overseas markets.

The European Commission, parliament and member states are now in talks to devise a strategy on export credits following the publication last week of a feasibility study which recommended several steps the EU could take in the next three years.

Policymakers are seeking to harness the financial might of ECAs and export-import banks across its 27 countries by aligning them to key EU strategies such as transitioning to green energy, overseas investment and competition with China and the US.

The feasibility study, authored by independent consultants and launched by the Commission last year, lamented a 5% drop in the EU’s share of merchandise goods exports to high-risk third countries in the decade to 2020, and double-digit declines in the share of EU contractors in business in Africa, Asia and the Middle East. Exports to third countries prop up some 38 million EU jobs, according to the study.

ECAs are widely used by contractors to insure and lower the cost of financing capital-intensive infrastructure projects in what are deemed to be high-risk markets for credit, which include major developing economies such as Turkey, Vietnam, South Africa, Nigeria and Pakistan.

The study lays part of the blame for Europe’s export underperformance on struggles faced by exporters to gain competitive financing, with firms consulted by the authors identifying a lack of cover for large, medium-to-long-term (MLT) transactions, uncompetitive terms faced by banks to refinance their loans, and competition with overseas exporters who can tap government concessional finance schemes.

In addition to greater co-operation between member state ECAs, the study suggests that the situation could warrant the creation of a function to reinsure cover extended to businesses and banks by ECAs and state export-import banks, “to expand their risk capacity and address the gaps that exporters and their financiers face in accessing the insurance they require to undertake exports or arrange financing for buyers overseas”.

Such facilities, it says, would help ECAs overcome exposure limits to particular countries, sectors or obligors and would primarily help get financing over the line for large projects with long maturities and located in high-risk countries.

Assuming such a facility took on 10% of the combined MLT portfolio of EU ECAs, its gross risk exposure would be around US$30bn, the study finds.

The study also proposes the creation of a refinancing facility for ECAs and banks providing commercial export finance loans, allowing them to reduce their cost of funding and provide cheaper credit to exporters and their overseas buyers. Exports aligned with the EU’s strategic goals, and those sourcing from multiple member states, would be prioritised.

The European Investment Bank is identified as a top contender to manage this facility. The bank did not respond to a request for comment.

Direct lending, “for example to serve exporters in member states where commercial or public banks are unwilling to provide export credits or are unable to do so on competitive terms”, could be considered at a “later stage”.

The feasibility study will inform both the Commission’s internal thinking and the “extensive discussion” with the member states, through the European Council’s working group on export credits, a Commission spokesperson for trade tells GTR.

“Discussions have started and the Commission is steering the work in that context around several topics, including access to finance and sustainability for instance,” the spokesperson says, adding that it is also cross-checking the feasibility study’s recommendations with exporters and ECAs “to develop a view and concrete ideas where EU action would be warranted”.

 

Getting serious about export credits

The Commission first floated an EU-wide strategy on export credits in early 2021, citing “harsh competition” in key export markets. Heavyweight economies such as China, India and South Korea are not party to the OECD Arrangement, a so-called gentlemen’s agreement which includes pricing floors and other standards for official export credits by rich nations.

The issue has gained prominence as the EU increasingly finds itself locked in trade battles and other geopolitical tensions with not only with rising powers but also the US.

In another sign that the EU lawmaking apparatus is paying closer attention to the role of the continent’s export finance industry, the European Parliament’s international trade committee commissioned a related study to make recommendations on how ECA activity could hew more closely to broader EU economic and foreign policy goals.

That review, published in early June, says “there is a case to align existing ECA business activities” to policies such as the EU’s so-called Green Deal.

“In a general sense, I think it’s great that export credit is continuing to grow in prominence as a tool for strategic economic impact, particularly in areas such as climate and development policy objectives, which really require a joined-up approach to financing,” says Paul Heaney, secretary general of the Berne Union, whose membership includes global ECAs. “This kind of study is a reflection of that growing prominence.”

The Commission’s feasibility study says most of its recommendations, both on better co-operation between ECAs and the mooted facilities, could be executed within three years.

“Some of the options could be implemented rather quickly, others might take longer,” a spokesperson for Austria’s ECA OeKB tells GTR, nominating cover for Ukraine as “one of the most urgent examples where such a facility could provide an immediate benefit and without much additional bureaucracy”.

“In our view, it is important to take the peculiarities of the individual ECA systems into account and build upon the expertise of the ECAs when implementing possible measures,” the spokesperson adds. “When we were consulted by the authors of the study, we pointed out that a facility for additional risk capacity in difficult markets could be very helpful.”

A spokesperson for Atradius Dutch State Business, the Netherlands’ ECA, says: “We welcome the initiative of the EC to explore options to further support and enhance the competitiveness of EU businesses in a rapidly changing world, in addition to and in concert with what member states currently offer on the national level”. The agency will engage with the Commission on next steps, they add.