40. Jahrgang | Jahr 2014 | Heft 1
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Two days after the former German Democratic Republic (‘East Germany’) became part of the Federal Republic of Germany in October of 1990, the German Debt Administration announced that it would issue a new set of bonds. An observer might have thought that the new bonds were to pay for investments to upgrade the former East Germany’s crumbling infrastructure or for some other purpose related to the integration of the two economies. But these new bonds were to repay obligations Germany had incurred as long ago as the 1920s. This fact should puzzle: The Nazi regime had effectively defaulted on that debt. And in any case, why should Germany, in 1990,
start repaying debts incurred so long ago? The simple answer is that these repayments were required under the 1953 London Debt Agreement, which reduced the outstanding debt by more than half, and which marked the end of Germany’s isolation from international capital markets.[…]