Creating a level playing field
The Export Credit Guarantees of the Federal Republic of Germany are subject to a number of international agreements. The regulatory objectives of these agreements are to prevent unfair competition in international trade and avoid crowding out private insurers.
The OECD Consensus is one of the crucial sets of rules and regulations governing officially supported export credits. The signatory states, including the European Union, already agreed in 1978 to apply certain standards to the national trade promotion. This was to guarantee that competition is driven by the exported goods’ and services’ price and quality and not by the scope and conditions of state support. The Consensus defines, for example, what financing conditions (amount of a down-payment, length of the credit period, amount of local costs to be financed, etc.) may be offered or how high the premium to be charged has to be. Since the business world is constantly evolving, the Consensus is regularly revised. Only transactions with repayment periods of two years or more are governed by the Consensus.
Short-term business (credits with repayment periods of less than two years), such as, for example, the Wholeturnover Policy, is subject to the European Community law on state aid. According to that the Federal Government must not assume guarantees for so-called “marketable risks”. These normally include exports to other EU countries and some OECD member states, in respect of which there are sufficient facilities available on the private credit insurance market.
Besides, Euler Hermes is a member of the Berne Union (BU). In the BU, both state and private (such as Allianz Trade), national export credit insurers share experiences and information.
Within the framework of the Paris Club, Germany, together with other creditor countries, negotiates rescheduling agreements with heavily indebted countries. This may affect also transactions for which the Federal Government provided cover.
In the event of substantial foreign supplies, in particular if the threshold of 49% of the contract value is exceeded, or in the case of transactions involving a particularly high risk, the Federal Government sometimes resorts to taking out reinsurance. The Federal Government negotiated reinsurance treaties with many foreign export credit agencies (abbreviated ECA). Reinsurance means that part of the risk is passed on to another ECA. This other ECA shares the risk in accordance with the amount of the supplies sourced in its home country. For example, CESCE, the Spanish ECA, would assume the risk in respect of goods and services sourced in Spain for a German export transaction. Reinsurance enables the Federal Government to cover more big-ticket transactions and foreign supplies. For you as exporter or bank, Euler Hermes continues to be your contact.
There are some countries with which there exist no reinsurance treaties either because there was not need so far or because the systems differ too much. Nevertheless, Euler Hermes maintains relations with most other ECAs in order to facilitate a cooperation in individual cases.
Apart from reinsurance, which is by far the most important instrument for providing cover for transactions involving a high amount of foreign content, joint insurance and parallel insurance also come into question when such transactions need to be covered. Which model will be used in the individual case, depends on the contractual arrangements of the respective export contract (see the diagram below).