Historical Debts Pre-War Bonds May Cripple Leipzig Budget

Two 500 dollar bonds, sold by the city of Leipzig in 1926, could spell bad news for the municipality's finances. The bonds' owner says they are now worth about 200,000 euros. If her bid for payment succeeds, it could set a precedent that costs Leipzig more than half a billion euros.


The eastern German city of Leipzig could face claims running into hundreds of millions of euros from an international bond issue that it launched in 1926 and never repaid.

A woman who recently discovered two bonds that had been held by her family for generations has demanded that the eastern German city repay them.

They each have a nominal value of $500. Because the bonds were due to be repaid in gold, and unpaid interest has accrued since 1945, the two bonds amount to a liability of $202,000 or €187,400, Andre Sayatz, the lawyer for the bondholder, told SPIEGEL ONLINE.

The 20-year bonds expired in 1947 but were never repaid because Leipzig became part of communist East Germany, which did not sign up to the 1953 London Agreement on German External Debts. Under that treaty, West Germany agreed to be liable for part of the foreign debt issued by Germany before World War II, but only under new terms favorable to the government.

City Checking Bonds

"The city of Leipzig has said it will check the claim and respond by the end of October," said Sayatz, who works for the law firm Büsing, Müffelmann & Theye. He said that if Leipzig refused to pay, he will advise the bondholder to pursue the claim through a US court.

Meanwhile administrators at the city of Leipzig say they need more information before it can check the claim. "We have no basis to review the claim because no documents were sent to back it up," Steffen Jantz, the city's spokesman, told SPIEGEL ONLINE. "We have asked for the documents and they are being sent to us."

"There are a lot of open questions regarding this, including whether the matter falls under the statute of limitations," Jantz added.

The Leipzig bonds were issued in New York. Between 1926 and 1930, when Germany had just recovered from its hyperinflation and hadn't yet entered recession, it was common for German municipalities to issue international foreign bonds to get hold of cash. But investors got a raw deal because Hitler stopped bond interest and principal payments in the 1930s. And post-war Germany refused to repay them in full, if at all.

Legal Action In New York

"The Leipzig bonds were issued in New York so it would make sense to take legal action there," said Sayatz. "There are international agreements that ensure such legal claims can be enforced in other countries."

If Leipzig were held liable for all of its outstanding bonds, which have a nominal value totalling €3 million, it would face a repayment of at least €500 million. Another eastern German city, Dresden, has so far managed to fend off similar bond repayment claims in German courts by arguing that it is not the legal successor to the city of the 1920s. That case is now being deliberated by the European Court of Justice.

Lawyers, speculators and bona fide owners have sought for years to secure massive repayments on German public debt issued during the 1920s. The legal situation is unclear. The London Debt Agreement of 1953 sought to absolve Germany from having to redeem bonds in gold and resulted in investors only getting part of their money back.

Soviet Army Stole Bonds

Anyone who opted not to present their bonds for repayment under the reduced terms could hold on to them and retain their claims. Past German governments have said they would not consider creditors who are unwilling to recognize the London agreement until the final payments -- as mandated by the agreement -- had been made. Germany issued its final payment in 1994, and Chancellor Helmut Kohl's government also announced the completion at that time.

The German government has also tried to avoid bond claims in another way: it argued that the Soviet army seized hundreds of thousands of numbered bonds from the safe of the Reichsbank central bank after they marched into Berlin in 1945, and that many bonds in circulation were therefore stolen property. It passed a law requiring anyone claiming repayment to prove beyond doubt that their bond was held abroad before Jan. 1, 1945. However, it is impossible to tell which bonds were in the Reichsbank vault in 1945 because the registry of bonds held there also went missing.

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