Yesterday the third leading Spanish export insurer announced it would no longer insure exports destined for Italy, Greece, and Portugal. This was not a front page item but is nonetheless an important one as policymakers try to curb contagion resulting from the EU sovereign debt crisis.
The news makes it more difficult for exporters to protect against accidents, spoilage, and non-payment. Contracts typically specify that ownership of goods is not transferred until they reach their shipping destination. Exporters can pass along 50% of the potential liability to an insurer.
One could see this development driving up prices for insurance - and hence the prices for goods - and forcing companies to cut back on exports. Goods with high spoilage rates could be particularly affected, which is is relevant for Spain as the EU's leading exporter of fruits and also a significant exporter of dairy products.
The magnitude of the news is not excessive. Coface is responsible for only 10% of the Spanish export insurance market and the three countries account for 16.6% of Spanish exports. Furthermore, contract terms vary so not all exports are affected. Still, this is yet another example of the kid of corporate contagion governments are keen to prevent at such a critical juncture in the Euro's survival.