The latest meeting of the Steering Committee on Business Financing: key outcomes

At its meeting today, the Steering Committee on Business Financing (Lenkungsausschuss Unternehmensfinanzierung) focused on measures to avoid a potential credit crunch in the coming months. Dr. Karl-Theodor zu Guttenberg, Federal Minister of Economics and Technology, stated: "In response to my suggestion, the Steering Committee today decided to provide government guarantees for trade credit insurance and to improve the supply of credit to German companies through global loans from the KfW. In this way, we want to ensure that small and medium-sized businesses in particular have enough financing at their disposal to carry out important projects, even during difficult economic times. This sends out a crucial signal that we are boosting small businesses, jobs and employment in Germany."

The issues of credit insurance and global loans formed the centrepiece of the Steering Committee's deliberations. Since autumn 2008, the availability of credit insurance has declined as a consequence of the financial and economic crisis. In order to mitigate the impact of this development, the Steering Committee has decided to implement a "top-up" model to enhance credit insurance coverage. Under this model, the government will assume a portion of the risk of non-recovery that private credit insurers will not cover due to the crisis. The "Business Fund Germany" will earmark 7.5 billion euros for this purpose. The maximum additional coverage to be provided by the government is the amount equal to the coverage provided by the credit insurer. In other words: if the credit insurer reduces its coverage from 100% to 50%, the government can provide 50% additional coverage, and if the insurer reduces its coverage to 30%, the government can provide 30% additional coverage. Furthermore, currently existing structures and processes will be utilised to the greatest possible extent in order to ensure that applicants have the simplest possible access to these instruments. Before this programme is launched on the market, the German Bundestag's Budget Committee must be consulted, and certain organisational and contractual questions need to be clarified as well. As a result, it is anticipated that the programme will be launched in October or November 2009. Further details will be published in the near future.

In addition, the members of the Steering Committee agreed that the supply of credit to businesses should also be enhanced through the issuance of KfW global loans to banks. The "Business Fund Germany" will earmark 10 billion euros for this purpose. Global loans give banks greater flexibility and are comparatively simple in terms of processing. The KfW has long issued these types of loans - as part of its promotional loan programme and in accordance with specific criteria - to Land-based financial institutes and commercial banks, which in turn supply businesses with individual investment loans. This instrument will now also be put into action as part of the KfW's Special Programme. The aim is to improve bank liquidity.

The Steering Committee has also appointed a working group that is tasked with the speedy development of additional options for indemnification that will then be submitted to the Steering Committee for decision.