Greek insurance coverage terminated by Euler Hermes
In a significant move, Euler Hermes, a leading provider of trade credit insurance, has announced that it will not cover any new shipments to Greece until further notice due to the ongoing eurozone crisis and political uncertainties. This decision could have far-reaching implications for trade and export finance in Europe.
The decision by Euler Hermes comes amidst a slowdown in the world economy in the second half of 2011, which has led to a decline in corporate insolvencies losing momentum, according to Euler Hermes. The company's report released in late May revealed that the eurozone crisis is leading to increased business insolvencies across the globe.
The potential introduction of a new Greek currency could result in a 50% or more currency depreciation, affecting all foreign outstanding debts and receivables held by Greek buyers. This added risk has led Euler Hermes to protect its clients from the increased risk of Greek companies failing to pay their invoices as a result of Greece potentially exiting the eurozone.
The decision by Euler Hermes could lead to reduced export confidence among exporters, potentially decreasing trade volumes between Greece and other European countries. Without export credit insurance, exporters may face higher costs due to increased risk premiums or require additional guarantees, making exports to Greece less competitive.
The lack of export credit insurance could also make it more difficult for exporters to secure financing for trade with Greece. Banks and financial institutions may be more cautious in lending without the security of credit insurance, leading to financing challenges. Exporters might seek alternative forms of financing or risk mitigation strategies, such as private insurance or factoring, which could be more expensive or less comprehensive.
Southern European countries, particularly Greece, are suffering from rising insolvencies, with business failures reaching record levels. If similar decisions are made by other credit insurers, it could create systemic risk within the eurozone, affecting overall economic stability and trade dynamics.
While Atradius is reviewing its exposure to Greek risks on an individual basis and will continue to cover Greek risks for now, other trade credit insurers are tentatively watching developments in Greece in the run-up to the new elections in mid-June and potentially looking to review their exposure to the country.
The eurozone crisis has already imposed economic constraints on several member states, including Greece. Reduced trade and investment due to lack of export credit insurance could exacerbate these challenges. Economic forecasts do not point to any improvement in 2012 for southern European countries, with high risks of contagion if the debt crisis is not resolved.
In conclusion, the decision by Euler Hermes to cease coverage of exports to Greece highlights the ongoing challenges in the eurozone and the potential impact on trade and investment decisions across Europe. The EU is urged to establish a dedicated unit for export and development finance to mitigate these risks and support economic recovery.
The decision by Euler Hermes to halt coverage of exports to Greece could potentially increase the risk of critical minerals supply chain disruptions within the industry, as Greece is a significant supplier of various critical minerals.
Moreover, the lack of trade finance availability due to Euler Hermes' decision could negatively affect businesses involved in the export of critical minerals to Greece, as they might face higher costs and challenges in securing financing for these transactions.
