The Leveraged Buyout of the GDR

Until the European Central Bank purchased a call option on the future assets of the Greek government (which remains out-of-the-money), the largest leveraged buyout of a sovereign state had taken place in 1990, when the West German government acquired the German Democratic Republic (GDR), thought at the time to consist largely of liabilities. By most accounts the Bonn government paid over the odds for East Germany, estimated to have cost the West more than $1 trillion.

The resulting peaceful unification of Germany has been one of the great achievements of postwar European integration. In recent months, Germany has faced the opportunity for another buy-out of a European neighbor, this time of Greece, but it has showed little appetite for the purchase. Does East Germany provide a model for the Greek bailout? ,

To take stock of what the West Germans got for their investment, my son Charles, aged 16, and I recently biked around the principle cities of the East—Dresden, Leipzig, Weimar, Potsdam, and East Berlin—that for a long time fell on the dark side of the Iron Curtain.

Berlin is unified and elegant, Dresden is a restored cultural monument, and Leipzig (where J.S. Bach lived) is a city of vast commercial and artistic ambitions. If our bike ride along the ragged edges of the Iron Curtain taught us anything, it was that the GDR was worth the money.

To get to Dresden, we loaded the bikes onto an overnight express from Basel to Prague and slept until the train joined the River Elbe, historically the frontier between Western and Eastern Europe. In the last days of World War II, American and Russian armies met on its riverbanks at Torgau, just north of Dresden.

At the end of the Cold War, the city synonymous with World War II fire bombings was a tired European backwater, with only a fraction of its royal splendors rebuilt and a trickle of Bulgarian tourists.

Starting with the main railroad station in the early 1990s, the German government has transformed Dresden into a showroom for tourists and industry. The station is elegant and grand, a hybrid of the classical and the new, and Charles and I toured an ultramodern Volkswagen plant where the VW Phaeton, a bourgeois saloon car, is assembled largely by hand.

We steered our bikes around the revived cathedral square, rolled past the elegant opera house, and wandered around the grounds of the royal palace. The city museum—like Kurt Vonnegut’s novel Slaughterhouse Five (a reference to his prisoner-of-war location, from which he witnessed the February 13, 1945 bombings)—tells how the city was engulfed in fireballs, the effect of detonating explosives detonated at an altitude of 2000 feet, which then sucked the air and life out of Dresden.

To get to Leipzig, we biked northwest along the River Elbe, through industrial suburbs, apartment complexes, shopping centers, and finally a pristine landscape of orchards, villages, and river scenes. Only occasionally did we see the remnants of the GDR, the crumbling concrete so synonymous with the central committee’s five-year plans. Otherwise, the East has been gentrified.

The 1989 revolution that brought down the Berlin Wall and the East German government started in Leipzig, with vigils in front of the Stasi headquarters and with larger rallies at the St. Nikolai Church.

The Stasi building has been preserved as a memorial to its victims. The display cabinets are arranged around the offices of the secret police, complete with exhibits of wigs, tape recorders, phone taps, uniforms, typewriters, metal desks, maps, shoe phones, and devices suitable to steam open letters.

Were its practices and legacies not alive and well in Homeland America, I would consign the Stasi to some dead-letter file, to be archived with Hitler’s SA in the dark nights of German history. The Stasi museum had the feel of an amateur theater production that had opened in East Germany and, after 9/11, moved to Broadway.

From the museum director, I bought Anna Funder’s memoir of the GDR, Stasiland. She writes: “In Hitler’s Third Reich it is estimated that there was one Gestapo agent for every 2000 citizens, and in Stalin’s USSR there was one KGB agent for every 5830 people. In the GDR, there was one Stasi officer or informant for every sixty-three people.”

In the U.S., the ratio of Homeland Security employees to the general population is one for every 1500 citizens.

Weimar is the path not taken in German history—toward representative government and the celebration of intellectual enlightenment over what Bismarck called “iron and blood.”

Charles and I found the assembly hall that lent its name to the post-World War I governments that were wiped away in the 1923 currency inflation. We rode to the houses of the poets Goethe and Schiller, each of whom found artistic freedom in the city that has the feel of a small university town, with libraries and parks. Nevertheless, the choreographers of Nazism and Communism arranged their own Weimar stage sets to tell the story that democracy leads to weakness, chaos and bankruptcy.

Potsdam and East Berlin are monuments to vanished empires. Prussia’s Hohenzollern dynasty settled on Potsdam for its imperial palaces and amusements (one ballroom we saw is lined with thousands of seashells), and East Berlin was the people’s court of Stasiland.

Funder writes of her visit to the condemned East German parliament: “Like so many things here, no one can decide whether to make the Palast der Republik into a memorial warning from the past, or to get rid of it altogether and go into the future unburdened of everything, except the risk of doing it all again.”

Riding along the remnants of the Berlin Wall, which is preserved as an art gallery in several sections, I was curious about “ostalgie”—nostalgia for the simpler ways of the GDR, absent unified Germany’s cult of material ambition.

Funder quotes a conversation about the Wall’s legacy: “It was an historical necessity. It was the most useful construction in all of German history! In European history.... Because it prevented imperialism from contaminating the east. It walled it in.”

The highlight of the ride came between Leipzig and Weimar, where we spent much of our time exploring the Napoleonic battlefields of Jena and Auerstädt, where in 1806 France doomed Prussia to the fate of a second-rate European power until Bismarck redeemed the nation in the 1870 Franco-Prussian war.

In tracking down the routes of Napoleon’s marshals, we rode through farm villages, towns, and small cities, many of which are rebuilding town squares or repainting important buildings—all part of the East German renovation. When Erich Honecker was the East German party chief, buildings were only painted up to the first floor, allegedly because that’s all he could see from the backseat of his limousine.

It was just up the road in Leipzig where Napoleon lost his empire, in the 1813 Battle of Nations. It was perhaps the first attempt at a European Union. But Austria, England, Prussia, and Russia all decided that Napoleon was a nuisance on the continent, and sent him packing to Elba—even if they had to repeat the exercise at Waterloo.

A similar coalition has tendered its offer to keep Greece in the grand alliance. Having East Germany in the money should give the EU confidence in its convictions, proof that it can be more cost effective to buy a nation than to put one through liquidation.

Photo by Matthew Stevenson. Near Leipzig, formerly in East Germany, a railroad station that will soon be renovated.

Matthew Stevenson is the author of Remembering the Twentieth Century Limited, a collection of historical essays. He lives in one of the wine regions of Switzerland. His next book is Whistle-Stopping America.