Hermes cover

Hermes cover is a common way of referring to an export credit guarantee (ECG) by the German Federal Government. It is also referred to as a Hermes Deckung in German.

These guarantees are an important part of German foreign trade policy and protect German companies in the event of non-payment by foreign debtors.

Type and volume of export promotion in the form of Hermes Cover

In 2005, the German state made guarantees for orders totaling EUR 19.77 billion (USD 25 billion), which is about 2.5 percent of total German exports. About 90% of the cover was accounted for by exports to developing countries and states in central and eastern Europe, including CIS countries. These guarantees only result in expenditure by the state if the customer does not pay.

Management of the scheme

The management of the guarantees is in the hands of Euler Hermes Kreditversicherungs-AG (which is the lead) and PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft. Decisions on matters of principle and the underwriting of large export transactions are made by an inter-ministerial committee comprising representatives not only of the German Federal Ministry of Economics and Technology but also of the Federal Ministry of Finance, the German Foreign Office and the Federal Ministry for Economic Cooperation and Development.

Cost

The charges for these export credit guarantees include an application fee, a policy-issuing fee, a risk-dependent commission, a duration-dependent commission, and an additional charge.The costs depend on the type, size, and duration of the transaction and on the risk assessment for the importing country. In the case of a claim, there is an excess paid by the exporter, generally between 5 and 15 percent.

Economic importance

These guarantees enable exporters to cover themselves against economic risks (customer risks) and political risks (country risks). The federal guarantee is necessary because it is not possible to obtain adequate cover from private insurers, particularly against political risks for exports to non-OECD countries.

The purpose of Hermes cover, from the point of view of the German state, is the promotion of exports and helping to provide German jobs. ]

Environmental aspects

The environment is an important issue when approving Hermes guarantees. When appraising the application, the environmental effects of projects are an important criterion, both in terms of their worthiness and the tolerability of the risk. As stated by the ECA, it is the aim of the German government not to support any projects that have serious negative ecological, social, or developmental consequences. Since January 1 2004, the OECD "Recommendation on Common Approaches on Environment and Officially Supported Export Credits" [cite web | url = http://www.oecd.org/dataoecd/26/33/21684464.pdf | title = Recommendation on common approaches on environment and officially supported export credits | accessdate = 2007-01-28 | format = pdf | publisher = OECD | quote = ] have been applied. cite web | url = http://ec.europa.eu/environment/etap/pdfs/roadmaps/germany_en.pdf | format=pdf | title = Germany's Environmental Technologies Action Plan : Speeding up innovation – protecting the environment | accessdate = 2007-01-29 | publisher = German Federal Ministry for the Environment, Nature Protection and Reactor Safety| quote = International cooperation between the export credit insurers in industrialised countries of the OECD focused in 2005 amongst other things on the adoption of a new consensus text on flexibilised payment terms for project financing and structured finance and for export transactions in the field of renewable energies and water projects, which has been in force since 1 July 2005. The OECD Member States have agreed to extend the maximum repayment term permissible in the renewable energy field and for water and waste water projects to 15 years. Experience gained with the expanded OECD environmental guidelines, which entered into force on 1 January 2004, will be taken into account in the 2006 review process. ] The procedure laid down there reflects international developments regarding the appraisal of environmental aspects by export credit agencies. The "Common Approaches" are a set as international obligatory rules for the environment and export credit guarantees, so they cannot take account of all national peculiarities; for this reason, the German national environmental guidelines of 26 April 2001 are applied in some areas.

References

External links

* [http://www.ecologic.de/download/projekte/1800-1849/1809/1809wcd_ecas_en.pdf The Use of Environmental and Social Criteria in Export Credit Agencies’ Practices] , by Markus Knigge et al. Published in 2003 by the [http://www.gtz.de/en/ Deutsche Gesellschaft fuer Technische Zusammenarbeit - GTZ]