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Before asking others to pay, Germany should honour its own debts.


Avrm HadjiGiovannis

THE DISPUTE originated in the 1920's when Germany issued series of bearer bonds in the USA for revitalition of its economy following the devastating effects of WWI. Acting as trustees, financial institutions such as JP Morgan and Lee Higgins & Co. produced and sold bonds in America raising funds that would be invested in Germany.

These bonds corresponded to Agricultural Loans signed by 14 German banks and guaranteed by the German government. Of these 14 banks four are still active and are part of the troika mechanism.

From 1933, Germany defaulted on interest repayments to Bondholders, as the new Nazi leadership considered the debt that Germany faced following WWI as illegal and issued a moratorium on bonds owed to foreign investors.

In 1952 following years of German debt crisis, the London Debt Agreement restructured Germany's debt to be sustainable by the agreement of its creditors.

The way this deal would function was to provide the option to the bondholders of German debt, to either accept the repayment terms of the LDA, or to forego attempts to claim their debt until 1993. The rationale being, that you can cash in today from a weak Germany, or wait for a full settlement after 40 years of German growth and development.

Assenting Bondholders: For bondholders who wanted to cash in their bonds immediately, they could receive partial payment, and new bonds, with a discount on the value of their bonds (depending on the issue, between 20% - 60%). For this to be implemented correctly, a procedure of Validation was set up to ensure that anyone presenting bonds for payment, could prove that they were indeed the beneficial owner. This would guarantee that all of the disbursements paid went directly to Germany's creditors in the correct manor.

Non Assenting Bondholders: For bondholders who chose to wait for full settlement by their next generation in the future, their course of action was to maintain the debt instruments (the bonds) safely, and not request a settlement until the 40-year grace period had expired.

Validation boards were established in the three US states (where the bonds were initially sold) to carry out the compliance requirements for the bondholders who chose to accept the option presented in the LDA. Having performed their role, these boards were subsequently closed a few years later.

By 1993 the German government had succeeded in revitalising its economy and began to respond to requests for payment. Unfortunately, they chose not to honour their debt. To the surprise of many bondholders, Germany would receive payment applications with the physical bonds attached, perforate the bonds, and stamp them as invalid.

The reasons given by the German Government and its subsidiary bodies are: Germany has compiled a list of Bond serial numbers that Germany considers stolen, and hence invalid. The procedure of validation must be complied with.

The German government claims that during WWII Russian soldiers looted the Reichsbank vault, where many bonds were kept, and that these bonds were reintroduced into the market for payment. The simple problem with this claim is that the only bonds that were in the German vault, had already been paid off or pledged, for which there is a public record, and no active bondholders had their bonds physically in Germany. Furthermore, the building which housed the Reichsbank had been completely destroyed, the contents of which had been removed by Germany before the arrival of Russian soldiers to Berlin.

The bonds were "bearer" instruments, and bondholders would cut off the coupons from the papers for their interest repayments. This claim however, was acceptable in the few years immediately following the war, as it was obvious bondholders would not be able to recover their principal or interest at the time, and was the reasons for the Validation Procedure outlined in the London Debt Agreements.

The so-called 'Validation Procedure' which was intended to apply to bonds that would be submitted for payment in 1952 added additional security requirements for the bondholder to comply with. Not only was it clear in the legislation that this only applied to Assenting Bondholders in 1952, subsequently indicated by the closure of the Validation boards, but it would be simply impossible for any bondholder to comply with them 40 years later.

When bondholders and creditors have asked to see this list, the German government categorically denied access, stating that it is not in their national interest, and has classified this list as a "national secret".

What followed was a series of lawsuits in the US where German legal defence has never denied the liability for its debt, but has systematically used technical issues and delayed court cases, to the point that many bondholders have paid millions more in legal expenses. Many of these claims continue today, by some of the surviving bondholders, and the acquirers of that debt, and will be making appeals to the European Courts in the near future.

There is no question in the minds of the many experts in banking and law, with substantial knowledge of international financial instruments, that these bonds represent unpaid debt of the German government and its subsidiary bodies.

We, as a Cypriot company, have spent much time and resources acquiring, not only the bonds, but the wall of evidence surrounding the sovereign and national debt of Germany and the impressive ability of a great state to escape its obligations. For over three generations the same sovereign debt has been postponed and avoided. The inheritors and purchasers of this debt have been obliged to adopt expensive and cumbersome avenues, to force the German government's hand to respect and honour its obligations, a fundamental of our modern European society.

German economic historian Albrecht Ritschl argued in an interview with Spiegel in 2011 that Germany was 'the biggest debt transgressor of the 20th century'. "During the 20th century, Germany was responsible for what were the biggest national bankruptcies in recent history. It is only thanks to the United States, which sacrificed vast amounts of money after both World War I and World War II, that Germany is financially stable today and holds the status of Europe's headmaster. That fact, unfortunately, often seems to be forgotten," he said.

The undeniable truth is that authenticated bank bearer bonds worth $9,750,000,000, that's nine billion seven hundred and fifty million US dollars according to the gold price of today, owned by a Cypriot company, issued on the back of German sovereign debt that remains unsettled.

Copyright Cyprus Mail 2013

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Publication:Cyprus Mail (Cyprus)
Geographic Code:4EUGE
Date:Apr 17, 2013
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