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The German government has unveiled a package of measures to boost the scope of its export credit agency Euler Hermes, with banks praising more relaxed local content requirements and a friendlier stance on defence exports.

In January, Germany’s economy and climate minister Robert Habeck revealed a series of reforms to help support the country’s industrial base, which in recent years has been squeezed by soaring energy costs and competition from countries such as China.

In one reform, Euler Hermes is set to introduce a “flex&cover” strategy that will overhaul its local content rules and allow it to adopt a more flexible approach when assessing export credit applications.

Previously, companies needed to source at least 49% of goods from German suppliers to qualify. Under the new framework, the export credit agency (ECA) will instead consider companies with a broader “footprint” in Germany, taking into account “the international business and sourcing models of German companies in foreign trade”, it says.

The changes will “provide more flexibility, better conditions, faster processes”, Euler Hermes’ head of transportation Manuel Dircks tells GTR. “The aim is to strengthen the competitiveness of German exporters, secure their industrial jobs at home, and also to facilitate more exports.”

Germany is one of the largest providers of export credits in the world, covering transactions worth US$12.5bn in 2023, according to US government figures.

Even still, Germany’s trade sector is under immense pressure. In January, the government forecast that exports would decline by 0.3% this year due to weakening competitiveness as well as geopolitical and trade tensions. Such effects have been felt acutely by major automotive exporters VW, BMW and Mercedes-Benz.

The new package – which also includes greater support for German defence manufacturers and an increase in counter-guarantee limits to €120mn – has been welcomed by banks, who say it will help bolster Germany’s global competitiveness.

Kathrin Eich, global head of structured export and trade finance at Commerzbank, says in a LinkedIn post that the package is a “milestone for German export financing” and is adapted to the needs of the German export industry and banks.

Klaus Mai, a senior advisor within UniCredit’s infrastructure and export finance team, says flex&cover is a “real paradigm shift” for Euler Hermes.

Mai tells GTR it is a move away from a “very strict” documentation approach and towards a an interpretation of German exports that also prioritises the country’s “national interest”.

“[This] scheme has been in discussion for some time across various expert groups. The new flex&cover approach represents a highly significant move for Germany’s export industry,” he says.

German exporters and banks were previously required to collect “detailed documentation” for each export transaction, in order to prove compliance with Euler Hermes’ “49%-plus” concept. In practice, however, the agency had been known to consider a lower amount of German content on a case-by-case basis.

But according to Mai, “it seems like many of those transactional checks will now disappear”.

Instead, German exporters will be judged on other metrics, such as employment, research and development, investment activity, tax contribution and whether or not they are headquartered in Germany.

“In the past, there was a clear difference between Euler Hermes and other ECAs, such as France’s BPI or the Nordic ECAs, which have actually applied national interest considerations,” Mai tells GTR.

In the coming months, export finance banks and Euler Hermes will likely discuss the finer details of the flex&cover approach and how it will be implemented in practice.

Mai hopes it will be gradually available to banks by the start of Q2 2025 and notes the flexible content approach will be important for German exporters in all sectors and varying sizes, including large multinationals, mid-caps and SMEs.

“I expect a lot of customers will apply for the flex& cover exporter passport, which will be valid for three years with a chance to extend further,” he says.

“In light of the 2025 export promotion measures announced by the German government and Euler Hermes, we can expect to see more deals popping up, increasingly involving international suppliers. The measures clearly underline that Hermes cover is an alternative to other European ECAs.”

 

Defence pivot

The revamp also heralds a shift away from Germany’s historically ultra-conservative approach to granting export credit guarantees to the country’s defence sector, by making it easier for exporters to obtain cover for a wider range of goods and destination countries.

Previously, every defence deal had to be individually discussed with the defence ministry, which authorised exports for only a small number of countries with strict conditions attached. In practice, export credit cover was only given to naval deals.

“If you look back the last couple of years, the volumes that we cover were not that high,” says Dircks at Euler Hermes. “In the past, many of those companies and also financial institutions have regarded us as restrictive” because of the government’s policy.

The reforms reflect a new national security and defence strategy launched by the German government last year, which aims to boost Germany’s defence capabilities following the Russian invasion of Ukraine.

Instead of case-by-case approvals, Germany now has a standard coverage policy for defence deals and can support long-term financing for more destinations. Application processing will be streamlined for deals involving Nato members and other key allies.

“This is a major challenge for us, a great opportunity for German companies and a strong signal for Germany as an industrial location, Dircks says. “Now we have to spread the word that this change has happened and that we are now more open to support defence deals.”

 

Other measures

Elsewhere, Euler Hermes made tweaks to its counter-guarantee product by growing its limit from €80mn to €120mn.

In recent years, there have been strains in the counter-guarantee market with banks unable to fully meet demand from manufacturers – especially in the wind sector – prompting state intervention. In late 2023, the European Investment Bank unveiled a €5bn counter-guarantee scheme for wind manufacturers and Denmark’s export credit agency has also sought to plug such gaps.

As part of the January package, the agency says it will also simplify its “shopping line” product with a view to helping German firms – notably SMEs – access large foreign procurement programmes.

Established about a decade ago, shopping line cover draws together multiple German export transactions to form one or more credit tranches. Financing banks can then obtain cover from Euler Hermes for a credit facility extended to the foreign buyer.

In 2016, India’s Reliance Industries secured a €950mn credit facility with nine banks under the shopping line scheme. But experts say activity has been minimal for much of the past decade.

In addition, Euler Hermes is expanding its forfaiting guarantee, for the first time including trading companies, alongside medium-sized manufacturing exporters, to make it easier for them to sell their receivables. The ECA is also streamlining its internal processes to accelerate environmental, social and human rights assessments.