Definition and Legal Classification of the Federal Guarantee
Die Federal Guarantee is a special form of public-law guarantee, under which the Federal Government acts as a guarantor for the liabilities of third parties towards their creditors. It is a central instrument of state risk protection in the fields of economic development and crisis intervention. The legal basis for the federal guarantee is primarily found in the federal budget regulations as well as a variety of special laws and ordinances.
Legal Basis and Framework Conditions
Statutory Basis
The provisions for the assumption of guarantees by the Federal Government are specifically anchored in Section 39 of the Federal Budget Code (BHO) . According to this provision, the Federation may only assume guarantees, warranties, or other forms of surety in principle on the basis of a law or with special authorization from the Federal Ministry of Finance (BMF). This measure serves clarity and truth in budgeting by making possible default risks transparent and subject to parliamentary control.
Principle of Subsidiarity
The granting of federal guarantees is generally subject to the Principle of Subsidiarityprinciple of subsidiarity. This means that a federal guarantee is fundamentally only granted if an economic project is of significant public interest and financing through private collateral is not possible or only under uneconomic conditions.
Promotion and Purpose Limitation
Federal guarantees are mostly used to promote particularly significant economic projects, especially in the areas of foreign trade, major projects, and crisis measures. Typical areas of application include export credit guarantees, large guarantees for companies of structural importance, or special support programs in times of economic crises.
Forms of the Federal Guarantee
Individual Guarantee
Die Individual Guarantee refers to a single loan or specific liability of a beneficiary, e.g., for a particular investment project or an export transaction.
Framework Guarantee
Framework guarantees are guarantees issued for a multitude of similar legal transactions within an agreed limit. In particular, this allows for flexible coverage of multiple contracts, especially with export credit guarantees.
Establishment and Procedure
Application and Review
A federal guarantee is issued upon application by the potential beneficiary. The application must generally be accompanied by comprehensive documentation on the financial situation, the project, and the existing liabilities. The decision on whether to grant the guarantee is usually made by the Federal Ministry of Finance, often with the involvement of other ministries and after assessment by public development banks or expert institutions.
Conclusion of Contract
The federal government’s guarantee statement is issued in a formal deed . In addition to general provisions, it contains in particular information on the amount, conditions, and scope of the guarantee liability, the collaterals, and the guarantee terms.
Documentation and Monitoring Obligations
The guarantee beneficiary is required to regularly report on the economic development and the secured claim. In addition, the Federation has comprehensive control rights and may demand additional collateral or revoke the recognition of the guarantee if significant changes occur.
Legal Consequences and Scope of Liability
Accessory Nature of the Federal Guarantee
Like any guarantee, the federal guarantee is accessory; it exists only as long as and to the extent that the secured principal obligation is valid. In the event of default by the principal debtor, the Federal Government is liable as guarantor and payer in accordance with the contractually agreed terms (direct liability guarantee).
Maximum Amount Guarantee
The liability of the Federal Government is often limited to a specific maximum amount . Only in exceptional individual cases can an unlimited guarantee be given. Exclusion and limitation clauses may further restrict liability.
Recourse by the Federation
If the Federal Government is called upon under a federal guarantee, it has a statutory right of recourse (recourse claim) against the principal debtor pursuant to Section 774 BGB. To secure these claims, collateral (e.g., land charges, third-party guarantees) is regularly required.
Economic and Budgetary Significance
Impact on the Federal Budget
Federal guarantees constitute contingent liabilities as payment obligations arise only in the event of a loss. Under budget law, these risks must be comprehensively documented and recorded in the federal budget as guarantee volumes to prevent potential burdens on public finances.
Implications under State Aid Law
Federal guarantees may constitute state aid within the meaning of European competition law (Art. 107 TFEU) and therefore require, in some cases, approval by the European Commission, if they might distort competition in the internal market.
Special Cases and Examples
Crisis Measures
During economic crises, such as the COVID-19 pandemic or the financial market crisis, the Federal Government has established extensive guarantee programs to protect companies and financial institutions. These guarantees served mainly to stabilize systemically important companies and to maintain the provision of credit.
Export Credit Guarantees (“Hermes Cover”)
A traditional field of application for the federal guarantee is the coverage of export transactions via so-called Hermes Cover, under which the Federal Government assumes the risk of payment default on exports, particularly to politically or economically unstable markets.
Differences from Other State Guarantees
Federal guarantees must be distinguished from other forms of state guarantees such as federal warranties or federal indemnities . While the guarantee represents a subsidiary obligation in the event of a third party’s default, a warranty may become due regardless of default. Federal indemnity, in turn, is a direct liability of the Federal Government without the prerequisite of prior recourse to a third party.
Literature and Legal Sources
- Federal Budget Code (BHO), in particular Sections 39, 49 et seq.
- Law concerning the assumption of guarantees (e.g., export credit guarantees)
- European State Aid Law (Art. 107 TFEU)
- German Civil Code (BGB), Sections 765 et seq. (general provisions on guarantees)
Conclusion
The federal guarantee is a complex legal instrument for risk hedging and economic promotion. Its assumption is tied to strict budgetary, state aid, and procedural requirements. The appropriate design and control of federal guarantees serve both the protection of the federal budget and the targeted promotion of projects of macroeconomic relevance.
Frequently Asked Questions
Who is legally entitled to apply for a federal guarantee?
A federal guarantee can only be applied for by natural or legal persons with a registered office or place of business in Germany, provided they meet the legal requirements according to Section 1 of the Federal Guarantee Guidelines (BürgsRL Bund). This includes, in particular, companies with an economic interest in carrying out an eligible project and whose solvency is secured by an additional guarantee from a credit institution by means of a federal guarantee. Public enterprises may also be eligible in certain cases, provided no EU state aid rules are violated. The guarantee application is generally to be submitted to the mandated lead bank or consortium, which reviews creditworthiness and eligibility before forwarding the application to the responsible approving authority of the Federal Government.
What legal obligations arise for the applicant for a federal guarantee?
By applying for a federal guarantee, the applicant enters into several legal obligations. First, the applicant undertakes to submit all documents required for the examination of the guarantee application completely and truthfully. Subsequently, if the guarantee is granted, the applicant becomes a contractual partner to the guarantee agreement (usually in a tripartite relationship: guarantor/Federal Government – creditor/credit institution – principal debtor/applicant) and is thus bound by all conditions of the guarantee. These include, in particular, the payment of guarantee fees, compliance with specific reporting requirements, and the prompt notification of significant changes in the financial situation. Additional secondary conditions may apply, such as requirements regarding equity capital or collateral. A breach of these obligations may result in the revocation or termination of the guarantee by the Federal Government.
In which cases does the liability of the Federal Government under a federal guarantee become legally effective?
The liability of the Federal Government arises exclusively when the borrower as principal debtor fails to meet their payment obligations under the underlying loan agreement to the credit institution and all contractually agreed collateral has been unsuccessfully realized. The prerequisite is first the existence of a formally and materially valid guarantee agreement, including delivery of the guarantee deed. Thereafter, the creditor (the bank) must provide evidence to the Federal Government, under the relevant provisions, that enforcement and realization of all customary bank collateral has been unsuccessful. Only after such recourse does the Federal Government verify the legitimacy of the claim and settles the outstanding amount within the guarantee amount. Recourse against the principal debtor always remains reserved.
What legal consequences arise in the event of abusive recourse to the federal guarantee?
If a federal guarantee is abused, for example as a result of incomplete, misleading or untruthful information in the guarantee application or during the subsequent procedure, significant legal consequences may result. This includes the immediate reclaim of any amounts already paid by the Federal Government as well as the termination of the guarantee relationship with immediate effect. In addition, criminal investigations for fraud (Section 263 of the German Penal Code), subsidy fraud (Section 264 of the German Penal Code), or false information provided to authorities (Section 156 of the German Penal Code) may be initiated. Furthermore, the Federal Government has a claim for damages against the applicant. The affected individual or company may be excluded from future grants (negative entry in funding databases).
Which specific legal provisions must be observed in connection with the transfer or assignment of a federal guarantee?
The transfer or assignment of claims arising from a federal guarantee is subject to legal restrictions. In general, assignment by the beneficiary (for example, the credit institution) is invalid without the express written consent of the guarantor – in this case, the Federal Government. The relevant guarantee conditions, referring to Sections 398 et seq. of the German Civil Code (BGB), stipulate a prohibition of assignment in order to safeguard control over the chain of claims and the protection of federal political interests. An exception applies if the transfer is strictly necessary in the context of a refinancing measure and the competent federal ministry (usually the BMWK) consents. Without such approval, the assignment has no legal effect against the Federal Government.
How is legal control and supervision conducted during the term of a federal guarantee?
During the term of a federal guarantee, the principal debtor and the beneficiary credit institution are subject to strict control and supervision obligations. By law, at least an annual report on the financial situation and compliance with any conditions is required. Furthermore, the federal guarantor—represented by the relevant federal ministry—is entitled to inspect books, statements, and other relevant documents at any time. In the event of violations, such as insufficient proof or non-fulfillment of conditions, the Federal Government may exercise its special right of termination and terminate the guarantee prematurely (Section 314 of the German Civil Code by analogy). Supervision also extends to compliance with national and EU state aid regulations.
