Hermes Cover

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Hermes cover (also Hermes guarantee ) are slang terms for the coverage of a foreign trade risk by the export credit insurance of the Federal Republic of Germany in favor of German exporters and credit institutions .

General

The state export credit insurance is an important part of the German foreign trade promotion . Export credit guarantees protect German companies from payment risks due to non-payments from their foreign business partners: If the foreign importer does not pay , the German state steps in; Hermes Cover only leads to expenses if the customer in question fails. Fees are charged for securing an export credit. By the end of 2014, the federal government had generated a total of 3.874 billion euros with Hermes Cover.

As early as 1949, the federal government commissioned two private companies, today's Euler Hermes SA and PricewaterhouseCoopers GmbH , with the management of the export credit guarantees . Since Euler Hermes is in the lead in this partnership to this day, the term "Hermes Cover" has established itself in the business world.

Criteria and scope of funding

Eligibility criteria are

  • special state interest in carrying out the export business
  • acceptability in terms of risk
  • Creditworthiness of the foreign partner
  • Acceptability of political risks
  • Contract drafting with the usual conditions in foreign trade

There are also budgetary restrictions.

Up to € 165 billion were budgeted for securing export transactions in 2014. This so-called authorization framework is designed to be revolving, i. H. All Hermes-covered transactions are recorded from the start of the cover commitment to the end of the risk period (release from liability). As part of the Hermes Cover, the Federal Government assumed cover for contract values ​​in the amount of € 24.8 billion in 2014. This corresponded to around 2.2% of total German exports. Around 84% of the cover assumed was for exports to developing and emerging countries .

Economical meaning

Hermes Cover protects against payment default for economic and political reasons when delivering to difficult and high-risk markets. This should enable them to open up new markets and maintain existing customer relationships. They are therefore an essential element of the federal government's foreign trade promotion. According to the findings of research institutes, the core objective - securing jobs in Germany - has also been achieved: According to an expert report by Basler Prognos AG commissioned by the BMWi , Hermes Cover ensures between 140,000 and 216,000 jobs in Germany, mainly in the areas of machinery and equipment Plant construction, chemical industry, electrical engineering, other services (planning, development, consulting). The Munich Ifo Institute for Economic Research confirmed these effects in 2011 in a study also commissioned by the BMWi .

According to the Federal Government, federal covers also play an important role for the buyer countries themselves. With their help, less developed countries were given the opportunity to import the latest technology from industrialized countries. More than 76% of the individual covers relate to the shipping, manufacturing, energy and aircraft sectors. Many developing and emerging countries could also finance and implement infrastructure projects with the help of export credit guarantees and thus create the basis for their economic development.

Hermes Cover gives exporters the option of protecting themselves against both economic (customer risks) and political (country risks) risks. The federal government considers intervention by the state to be necessary, since in particular political risks from exports to countries outside the OECD can not be adequately covered by private insurance . Even projects with long-term payment terms would not be taken over by private insurers after a certain period.

Effects on the federal budget

If Euler Hermes acts as a mandate for the Federal Republic, there is a direct relationship with the federal budget because of the state's obligation to cover . According to Art. 115 GG, the assumption of guarantees or other warranties, which may lead to expenses in future accounting years, requires the authorization by federal law. The export credit guarantees of the Federal Republic of Germany are fully integrated into the federal budget and are not included in the annual financial statements of Euler Hermes Germany . Income such as fees, charges and returns are paid to the federal budget. All services and expenses such as compensation and administrative costs are paid for from this. This resulted in a 2014 surplus of 309.3 million euros in favor of the federal budget. The German export credit insurance has not been in deficit since 2006. By the end of 2014, the federal government had generated a cumulative positive total of 3.9 billion euros with Hermes Cover.

As part of the so-called authorization procedure, the total coverage of the state export credit insurance is set annually in the federal budget. Up to a certain amount, Euler Hermes is allowed to carry out the coverage autonomously; in addition, an "Interministerial Committee for Export Credit Guarantees (IMA)" has to decide, in addition to the lead Federal Ministry for Economic Affairs and Energy , the Federal Ministry of Finance , the Foreign Office and the Federal Ministry for Economic Cooperation and Development are represented. The IMA also includes representatives of the mandataries and experts. Maximum liability limits (ceilings) are set for the individual states, up to the amount of which Euler Hermes may undertake federally guaranteed transactions.

Liability case

If the federal government issues a statutory ordinance based on the Foreign Trade Act that revokes, does not extend or denies an export license that has been issued, the liability case arises. Conversely, there is a liability case if the covered economic and / or political del credere risk occurs abroad. Payments for economic and political damage in 2014 amounted to 504 million euros. All risks covered, i.e. the economic and political risk, are subject to liability. Since 2002, no cover has been taken over for economic and political risks from export transactions with a term of up to two years in the core countries of the OECD (these are marketable risks that can be covered by private insurance).

Types of risk

Bad debt losses due to economic risks :

Bad debt losses due to political risks :

  • legislative or administrative measures, armed conflict, riot or revolution abroad (so-called general political damage event )
  • Claims resulting from the impracticable conversion and transfer of the amounts paid in by the debtor in local currency due to restrictions on international payment transactions
  • Loss of claims due to the inability to fulfill the contract for political reasons
  • Loss of goods before the transfer of risk as a result of political circumstances (goods did not arrive at the buyer, e.g. due to confiscation , destruction and the like)

Product types

Since April 2011, the Federal Republic of Germany no longer distinguishes between export guarantees (private debtors) and guarantees (public debtors). The quality of today's export credit guarantees (Hermes cover) remains unaffected.

The following specific products are offered:

Collective cover

Various offers are available for simple, uncomplicated protection of multiple export transactions.

Individual coverages

Export credit guarantees secure individual transactions against payment default.

Special sectoral provisions

Publicly supported export credits through the OECD consensus

Supplementary forms of cover

Special export transactions require special security solutions.

Fees

Fees are charged for securing an export credit. These are structured as follows:

  • Fees such as application, renewal and issuance fees. For manufacturing risk covers as well as special and secondary covers, processing fees are only incurred if a claim cover was not applied for at the same time.
  • Fees

The amount of the fee essentially depends on the country category in which the buyer country is classified. Category 0 means the lowest risk and therefore the lowest premium, category 7 the highest risk with the highest premium. Furthermore, the fee is determined by the contract value covered, the terms of payment (duration of the transaction) and the buyer category - state or private - and, if applicable, the amount of the deductible (coverage rate), which is usually between 5% and 15% depending on the form of coverage . This means that the costs are calculated depending on the type, scope and duration of a transaction as well as the creditworthiness of the foreign buyer and the risk classification of the importing country. In the event of damage one's deductible for the exporter provided.

sustainability

According to Euler Hermes, the federal government endeavors to contribute to global sustainable development in the area of ​​export credit guarantees by promoting socially and ecologically sustainable projects abroad. In addition to the expected positive economic effects of an export business for the German economy, the ecological, social and developmental effects of the business applied for as cover should therefore also be taken into account as important aspects of eligibility.

Particular attention is paid to the points

  • Environmental audit of the export business
  • Promotion of climate-friendly exports
  • Fair competition - corruption prevention
  • Low-income countries - Sustainable lending

During the application review, the environmental impacts of projects are examined both in terms of their eligibility for funding and the justifiability in terms of risk. For the examination procedure revised in the last 2012 environmental guidelines of the OECD, the "Recommendation on Common Approaches on Environment and Officially Supported Export Credits" get the OECD apply. The procedure stipulated there reflects the consensus of the OECD states on the examination of environmental and social aspects by export credit insurers.

criticism

Fundamental criticism of state export insurance

State export credit insurers support domestic export companies by insuring risks that no private insurer can or will take over. You can use them to distort markets and open up a way to influence investment decisions politically.

As with other forms of insurance, there is a moral hazard problem: domestic companies can be incentivized to ignore the default risk of their foreign partners. As with all credit default insurance, there is also the risk of collusion: It can make sense to find a partner who is close to bankruptcy and, in consultation with him, to calculate considerably higher prices that the business partner cannot pay, but which in the event of default will result the Hermes cover will be paid.

Insofar as the level of the fee is subsidized (i.e. the export insurance does not have to generate a return on the capital employed in line with the market), it is unclear whether the role of the state agencies could not be taken over more efficiently by private actors, as these are pushed out of competition by the subsidized fees.

Criticism of individual projects

In recent years, many state Export Credit Agencys (ECAs) have been under increased public scrutiny, as in some cases projects were funded abroad that would not be legally or politically feasible domestically. This is possible because most states have so far only followed a general do-no-harm approach in their bilateral and multilateral relations . Binding extraterritorial state obligations , in particular protection and guarantee obligations , have so far hardly been established, even though they are required by treaty bodies of the United Nations and individual international lawyers.

In August 2012 it became known that the Ministry of Economic Affairs under Philipp Rösler had raised expressions of interest in examining applications for guarantees for the projects Jaitapur in India, Temelín in the Czech Republic, Wylfa in Great Britain and Olkiluoto in Finland. Further inquiries have been received for the Cernavodă nuclear power plant in Romania and the Changjiang nuclear power plant in the Hainan province in China. A spokesman for Rösler emphasized that they are “aware of the particular sensitivity of nuclear projects”, but the nuclear phase-out only affects the domestic market, and that it has no influence on the decision of other countries to use nuclear technology.

According to media reports based on documents from the Wikileaks platform and a request in the Bundestag, guarantees for exports of spyware to the states of Egypt, Iran, Bahrain and Syria were also issued with Hermes Cover.

In September 2012 it became known that Hermes Cover had been given to laying hen farms in the Ukraine where cages were banned in Germany . Among other things, the German exporting company Big Dutchman in Lower Saxony is affected .

The award of Hermes Cover for export for the construction of nuclear power plants in Ukraine is also criticized.

In June 2014, Federal Economics Minister Sigmar Gabriel announced that Germany would not take on any further Hermes Cover for nuclear power generation facilities abroad. Excluded from this regulation are deliveries and services for existing nuclear facilities if they increase safety or are used for the decommissioning, dismantling and disposal of nuclear facilities. Nuclear facilities used for research, medicine or fuel disposal are also not affected.

In connection with the Turkish invasion of northern Syria on October 9, 2019, Vice President of the Bundestag Claudia Roth demanded, as a critical reaction of the federal government, to refuse Hermes guarantees for Turkey or for Turkish business: “What would actually hurt Erdogan is more economic Pressure - especially the refusal of export credit guarantees, so-called Hermes guarantees. Since the invasion of Afrin , the federal government has granted such guarantees amounting to 2.6 billion euros. That has to stop!"

Web links

Individual evidence

  1. ↑ AGA portal
  2. ↑ Hermes Cover Annual Report 2014 ( Memento from June 26, 2015 in the Internet Archive ), page 2
  3. ↑ 2014 Annual Report on the Export Credit Guarantees of the Federal Republic of Germany ( Memento from June 26, 2015 in the Internet Archive ) (PDF; 6.5 MB)
  4. ↑ Inge Weidig; Sönke Jens; Konrad Haker; Henrike Mohr (December 29, 2000). Abstract - Evaluation of job effects of Hermes federal export guarantees (Proj. No. 7/00) (Assessment of job effects of Hermes federal export guarantees) ( Memento of September 27, 2007 in the Internet Archive ) (PDF). Basel: European center for economic research and strategy consultation; Prognos. Original (no longer available). Accessed: January 28, 2007.
  5. ↑ Monika Schilling, The Instruments of HERMES Export Credit Insurance , 2008, p. 12 f.
  6. ↑ Source: 2014 Annual Report on the Export Credit Guarantees of the Federal Republic of Germany ( Memento from June 26, 2015 in the Internet Archive )
  7. ↑ Clemens Büter, Foreign Trade, 2007, p. 358
  8. ↑ Monika Schilling, The Instruments of HERMES Export Credit Insurance , 2008, p. 18.
  9. ↑ AGA portal / products
  10. ↑ Text of the recommendation
  11. ^ The cavalry of commerce in The Economist, April 8, 2009
  12. ^ Estrin et al .: The Economic Rationale for the Public Provision of Export Credit Insurance , ECGD (2000).
  13. ↑ Germany guarantees nuclear power plants abroad. Delicate subject of Temelin . In: Süddeutsche Zeitung , August 11, 2012. Accessed August 12, 2012.
  14. ↑ J. Goetz, J. Yang-Hi Klofta, A. Ruprecht: Report on Tagesschau.de on December 5, 2011: tagesschau.de ( Memento from December 8, 2011 in the Internet Archive )
  15. ↑ Laying hens: Germany finances cage rearing in Ukraine on Spiegel Online
  16. ↑ Government supports poultry cage export ( Memento from November 17, 2012 in the Internet Archive ) on NDR.de
  17. ↑ German double standards on Frontal21
  18. ↑ Welt Kompakt from June 13, 2014
  19. ↑ Focus Online from June 12, 2014
  20. ↑ Semi-annual report Hermes Cover 2014, p. 9 ( Memento from December 23, 2014 in the Internet Archive )
  21. ↑ Daniel-Dylan Böhmer, Frederik Schindler: “Europe must terminate this illegal refugee deal” , Interview with Claudia Roth, Die Welt , October 21, 2019