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Hope Springs EternalFrench Bondholders and the Repudiation of Russian Sovereign Debt$

Kim Oosterlinck

Print publication date: 2016

Print ISBN-13: 9780300190915

Published to Yale Scholarship Online: January 2017

DOI: 10.12987/yale/9780300190915.001.0001

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Seeking Other Potential Payers

Seeking Other Potential Payers

(p.139) Five Seeking Other Potential Payers
Hope Springs Eternal

Kim Oosterlinck

, Anthony Bulger
Yale University Press

Abstract and Keywords

Long before the Russian bonds were repudiated, the redrawing of territorial boundaries as a result of wars, annexations, and inheritances had raised the issue of the debt of territories that had either become independent or been incorporated into new nations. This issue was central in the case of the Russian bonds because the Russian revolution led to a division of the empire and the creation of new independent nations. This chapter analyzes the various statements made by successor countries. Many countries acknowledged on paper a form of liability but none ever repaid part of the Russian debt. It further shows that, on top of successor states, bondholders hoped that Russia would ask Germany to repay part of its debts in the framework of World War I reparations.

Keywords:   State succession, Debt partition, Country break-up, Versailles Treaty, World War I reparations

Long before the Russian bonds were repudiated, the redrawing of territorial boundaries as a result of wars, annexations, and inheritances had raised the issue of the debt of territories that had either become independent or been incorporated into new nations. This issue was central in the case of the Russian bonds because the Russian revolution led to a division of the empire and the creation of new independent nations. Some of these sooner or later returned to the Russian fold, usually as new Socialist republics, whereas others enjoyed genuine independence during the interwar period. What was the liability of these new nations toward French creditors? did they have any obligation to repay the former debt? and if so, on the basis of which criteria should the debt be apportioned to each?

Debt and the Succession of States: Historical Precedents

The issue of the succession of states and the apportionment of debt after the succession dates back at least to the Middle Ages. The treaty governing the cession of Dauphiné to the French crown in the first half of the fourteenth century explicitly states France’s liabilities with regard to existing debt (Feilchenfeld 1931, 20–21). In the seventeenth century Grotius, one of the fathers of international law, analyzed the implications of (p.140) the succession of states for sovereign debt in De Jure Belli ac Pacis (On the law of war and peace). That fundamental analysis was followed by an extensive body of international law literature.1 Until the nineteenth century most authors agreed that the successor state was liable for the debt of its predecessor. Hoeflich (1982) describes the reasons put forward at the time. One was the analogy of succession in private law, whereby the successor state, occupying a place similar to that of its predecessor in the community of nations, is bound to assume its obligations. Another reason was the concept of continuity: although states are only legal constructs, the real borrower is the population, which remains the same.

Those legal positions were strongly criticized later, as the reference to private law was challenged. The idea of succession was not rejected, however, since the concept of “unjust enrichment” was invoked to justify the assumption of debt. Hoeflich (1982) showed how geopolitical factors could influence the positions adopted by states. Many states were far from consistent, claiming the succession to be legal or illegal depending on their interests at the time. It is therefore unsurprising that even at the beginning of the twenty-first century the law of the succession of states is still described as “particularly fragile and undecided” (Eisemann 2002).

Succession still applied to sovereign debt in the early nineteenth century. For example, all the former Spanish colonies agreed to assume a portion of the debt of their former colonial master, and Belgium took on some of the Dutch debt when it gained independence (Feilchenfeld 1931, 205–9, 251). Reaching an agreement was almost always a protracted process. For example, following Belgian independence it took twelve years to determine the proportion of the debt to be taken over by Belgium (Collet 2012a). Over the course of the nineteenth century the United States and Britain, out of pure self-interest (Hoeflich 1982), challenged the traditionally accepted concept of the succession of debt. After the acquisition by the United States of numerous territories and Britain’s creation of a vast empire, succession would have put them in the unenviable position of having to repay the debts of the territories they had conquered. When Texas was annexed in the 1840s the U.S. government did assume the Texan debt but only because it considered repayment morally fair!

(p.141) A further step was taken in 1898, when, after the Spanish–American War, the United States refused to recognize Cuba’s debts, which it considered odious. According to the United States, the capital raised by the debt issue benefited not the Cuban people but the Spanish crown and therefore ought not to be charged to Cuba but assumed by Spain. The Belgian and French governments and associations of bondholders in those two countries, where the Cuban debt was held, protested against the Americans’ position (Feilchenfeld 1931, 331). In fact, some bonds were from the onset considered to be odious, as their proceeds had helped crush the Cuban insurrection, whereas others were viewed as more legitimate, as their proceeds had been used for constructive purposes. Collet (2013) exploits the divergences between the various Cuban bonds to show that investors required a premium to compensate for the risk that a bond might be declared odious. Eventually the United States recognized none of the bonds. After lengthy negotiations Spain partially bailed out holders of Cuban bonds but barely.

The concept of odious debt enjoyed some success and is still regularly invoked by countries that issued debt to satisfy the wishes of a dictator. The United Kingdom also invoked odious debt after several of its territories were annexed, and when it did agree to repay debt that act was invariably presented as one of fairness or generosity rather than a legal obligation (Hoeflich 1982). The annexation of some colonies led to the assumption of debts by the conquering state. The colonization of the Congo by Belgium is an example. It seems likely, however, that Belgium assumed the debt above all because doing so was an advantageous financial arrangement for Leopold II (Harms 2005).

Another textbook case of the succession of states, that of the Ottoman empire, must certainly have interested French investors in the early twentieth century. Revolts began in Bosnia-Herzegovina in 1875 and were followed by similar movements in Bulgaria, Montenegro, and Serbia until Russia intervened. Those military events, combined with a financial situation severely weakened by extravagant discretionary spending by several successive sultans, triggered a total default on the Ottoman debts in 1876 (Wynne 1951 [2000], 413–15).

The Russo–Turkish War of 1877–78 ended with the signing of the Treaty of San Stefano on 3 March 1878. The treaty endorsed the cession (p.142) of various territories from Turkey to Russia, the creation of several new nations recognized as independent (Montenegro, Romania, and Serbia) and Bulgaria’s acquisition of newfound autonomy. However, given British and Austro–Hungarian opposition to the treaty, Germany proposed convening a conference in Berlin, to which all the main European powers—Germany, Austria, France, Italy, United Kingdom, Russia, and Turkey—were invited. While the Ottoman debt barely got a mention at San Stefano, it was a central issue at the Berlin Conference (Feilchenfeld 1931, 233–34).

The Berlin Conference ended with the recognition of several states’ partial liability for the management of the Ottoman debt. The discussion of the debt sought to determine the respective liability of each state and the guarantees to offer bondholders. Under the Treaty of Berlin, signed on 13 July 1878, Bulgaria, Montenegro, and Serbia were required to assume part of the Ottoman public debt, the amounts to be determined later. But other countries that acquired new territories, mainly Russia, were exempted from all liability. At the time, the Ottoman debt was still in default. The conference urged the Ottoman empire to accept the establishment of a financial commission that would centralize the claims of the various creditors in order to reach an agreement acceptable to all the parties (Wynne 1951 [2000], 426–27).

Over the next few years the same dual situation, liability and exemption, recurred with cessions of territories. In 1881 Greece was held liable for a share of the debt in exchange for newly acquired territory, whereas no claims were upheld against Austria–Hungary after it finally annexed Bosnia-Herzegovina (Feilchenfeld 1931, 232–45). Although established in principle, the practical division of the Ottoman debt remained deadlocked. In 1881 the Treaty of Mouharrem resolved some of the issues, particularly by creating a Council of the Ottoman Public Debt, but it did not settle the apportionment.

Not until the Treaty of Lausanne in 1912, which ended the war between Turkey and Italy, were the practical terms of the transfer of the Ottoman debt explicitly laid down in a treaty (Feilchenfeld 1931, 356–61). After Tripoli and Cyrenaica were annexed, Italy accepted a share of the debt. The Treaty of Lausanne, signed on 18 October 1912, based the (p.143) amounts to be paid annually by Italy on the revenues of the annexed territories, previously allocated to servicing the Ottoman public debt.2

The First Balkan War further complicated the apportionment process. Although the Treaty of London, which ended the First Balkan War, contained a provision on financial settlement, the outbreak of the First World War interrupted the negotiations. The settlement of the Ottoman debt after the First World War became more complex than ever. The signing of the Treaty of Lausanne on 24 July 1923 ended the debates over the shares to be assumed by each country. A distinction was drawn between the territories ceded before and after the First Balkan War, specifically, before and after 17 October 1912. The successor states were allocated a share of the debt proportional to the revenues of the annexed territories for the years 1910–11 or 1911–12. The only difference lay in scope, with the earlier group referring to the empire in October 1912, the latter referring to a smaller area (Feilchenfeld 1931, 466–67; Wynne 1951 [2000], 490–91). The amount actually due by each country was not decided until November 1924 and sparked numerous objections that were finally arbitrated by the League of Nations in April 1925. The division of the Ottoman debt resulted in an unusually complex apportionment of liability. Turkey was assigned 65 percent, Greece 9 percent, Syria and Lebanon 8 percent, Iraq 5 percent, Yugoslavia 4 percent, and Palestine 3 percent; the remainder was assigned to Bulgaria, Albania, Hedjaz, Yemen, Transjordania, Italy, Nejd, Maan, and Assyria.

The positions of the United States and Britain were guided by the concept of fairness, which had the advantage of being highly flexible over time. To my knowledge, neither the United States nor Britain objected to the apportionment of the Ottoman debt when the Ottoman empire disintegrated. In the nineteenth century America and Britain acquired new territories, but in the twentieth century their territorial expansion stabilized, and Britain was later faced with the independence of most of its colonies. Twentieth-century geopolitics altered American and British interests, particularly their position on the succession of debt. While they were expanding territorially, their interest was to reject succession; but when the trend reversed, they supported recognition of debts by the successor states.

(p.144) In the case of the Russian repudiation, in which France and Britain were creditors, it is hardly surprising that a common position was found. In a joint communiqué dated 28 March 1918 the Inter-Allied Committee on War Purchases and Finance published a resolution adopted in early February of the same year.3 It stipulated that “the obligations of Russia bind and will bind the new state or the group of new states that represent or will represent Russia” (Klotz 1924, 78–79).

In light of the above, what might the expectations of French investors in the early twentieth century have been in terms of the succession of states and debts? More than likely the concept of the succession of states would have seemed extremely complex. They would certainly have been aware of the conflicting examples of Cuba and the Ottoman empire, since most of the Cuban bonds were held in France and Belgium, and Ottoman debt had been present in Paris since the Crimean War (Romey 2007, 289). Those two cases probably left room for only limited optimism. Even in the best-case scenario, in which third parties would repay part of the Russian debt, the Ottoman example showed that repayment by successor states was likely to be slow and not necessarily executed by all the parties.

The peace talks that followed the First World War rekindled interest, given that the peace treaties signed at the time all contained clauses on public debt apportionment (Feilchenfeld 1931, 431). The treaties were far from consistent, however. In the case of Germany alone, three situations resulted: a cession of territory without an assumption of debt (e.g., the annexation of Alsace-Lorraine by France); a cession of territory with a partial debt assumption of debt (e.g., the annexation of Eupen and Malmedy by Belgium); and a cession with full assumption (e.g., the annexation of Memel by Lithuania).

Whatever the sentiment of French investors at the time, one can reasonably assume that even without having a clear idea of the obligations of successor states they would have been attracted by promises of repayment from third countries.

(p.145) Promises, Promises

The repayment of the debt issued by the tsarist regime was not a priority for the newly established governments. In fact, some regions probably wanted a clean break in order to underscore their newly acquired independence. Therefore, it might seem surprising that some countries were willing to assume a share of the tsarist debt. Their motivations—excluding an unlikely ethical motive—are easy to sum up. For some countries the recognition of debt seems to have been limited to debt owned by its own population.4 It was thus a domestic policy matter that may have been a way to reject the Bolshevik revolution, that is, a way of asserting attachment to a capitalist economy, or an attempt at economic recovery. When the proposal to recognize the debt extended beyond national borders, geopolitical motives are likely. Some recognition seems to have been motivated by a desire to secure military aid in order to ensure the nation’s survival, while others were hoping to strengthen trade relations with Western countries.

A Principle Applicable to Russia?

The apportionment of the Russian debt was mentioned as early as January 1918.5 At the time, it was seen as a subsidiary issue of a general peace treaty, and, apparently, a peace that did not include Russia was not envisaged at the time. Members of the National Securities Office (Office National des Valeurs Mobilières) commented that if a treaty led to the autonomy or secession of territories and if this in turn led to an apportionment of debts, then French interests would be best represented by diplomatic channels. When that comment was made, debt apportionment did not seem likely. The recognition of autonomy was presented as a necessary but not a sufficient condition for apportionment. On the stock exchange the issue was addressed indirectly: market practitioners considered it would be inadmissible for Russia not to repay its debt if it did not break up into a number of smaller states.6 At the level of French diplomacy the possibility of a succession of states became part of the prevailing view at a very early stage. The joint declaration by France and Britain explicitly provides for this possibility by stipulating that the obligations (p.146) of Russia bind and will bind the new state or all the new states that represent or will represent Russia.

Although Germany obliged Russia to pay an amount in gold to protect German holders of Russian bonds, none of the treaties signed by the two countries referred to an apportionment of the debt as a result of territorial changes (Feilchenfeld 1931, 535). On the contrary, the Brest-Litovsk Treaty assigned full liability for the Russian debt to Russia. Germany maintained the same position in the case of Romania (see Treaty of Bucharest of 7 May 1918) after the cession of territories that had previously belonged to that country.

The apportionment of the imperial debt between Russia and the new states was mentioned in Gazette du Commerce et de l’Industrie on 13 July 1918.7 The author of the article reported that a substantial amount of formerly Russian assets now belonged to the new states. Although he did not propose a basis for apportionment, he estimated that the amount involved was worth more than 4.5 billion rubles in the form of railways as well as land mortgaged to the Imperial Land Mortgage Bank for the Nobility. The General Commission for the Protection of French Interests in Russia soon included the concept of the succession of states in its arguments.8

The tone adopted by the foreign minister, Stéphen Pichon, radically changed in a letter to the chairman of the National Securities Office dated October 1918.9 Citing the case of Poland, the minister made it clear that the successor states were liable for the public debt. In his view the terms of the assumption of the Russian debt, particularly the mechanism for its division, should be settled as part of the negotiations between the Allied governments. Despite this change of tone, until 1920 French policy toward Russia would focus on an almost reunified Russia repaying the debt. Anatole de Monzie criticized the dominant influence of certain civil servants who were behind this policy toward Russia.10 In his opinion the sole debtor approach was contrary to French interests. Despite the proposals of repayment by some states that declared their independence, France continued to back the proponents of a united Russia, thus alienating the new states.

The positions of the various Russian representatives in Paris were more radical. Recognizing the successor states’ liability for the Russian (p.147) debt would have been tantamount to recognizing their secession. Members of the Russian Political Conference in Paris were quick to express their views to the chairman of the Peace Conference. In their opinion only Poland had a legitimate claim as a separate state because it had been declared independent by what they considered to be the last legitimate government of Russia. Finland’s share of the debt could also be discussed, given the historical separation between Russian and Finnish finances (Eliacheff 1919, 237–39). Conversely, the other secessions were not considered valid. Until August 1920 the Soviets were counting on a settlement that took the liability of the successor states into account. At his meeting with de Poulpiquet du Halgouët, Leonid Krasin cited the Ottoman example.11

In February 1921 the issue of repayment by the successor states was raised at the international conference on the protection of private interests in Russia.12 It was quickly dismissed by the chairman of the General Commission, Joseph Noulens, a former French ambassador to Russia, who thought negotiations could not be opened with those states unless Russia participated. In Noulens’s opinion the debt ought to be apportioned at an international conference to which Russia and all the creditor states and successor states would be invited.

France’s relatively passive stance toward the successor states was undoubtedly adopted for geopolitical reasons. From late January 1918 on, some French leaders thought Russia should remain united in order to act as a counterweight to the other European powers, and they therefore sought to prevent secession (Carley 1976). Furthermore, the succession of states raised the issue of France’s liability toward Germany, from which it had just taken Alsace-Lorraine; unless, as Raffalovitch claimed (1919, 100, 151), the case of Alsace-Lorraine was simply different. In any case that seems to have been the position that prevailed, since the region was assigned to France unencumbered.

Repayment by the Baltic states, Finland, Poland, Romania, or Ukraine?

The Baltic states, Finland, and Poland were established on territory that had belonged to the Russian empire before the revolution. Romania was (p.148) also concerned by “Russia’s legacy” in terms of debt because it received Bessarabia. All these new countries managed to secure and maintain their independence during the interwar period. Conversely, other territories, including Armenia, Azerbaijan, Dagestan, Georgia, Kuban, and Ukraine, were incorporated into Russia in the early 1920s and became an integral part of the Soviet Union in December 1922.

At one time or another, almost all these territories announced their willingness to repay or to discuss the assumption of some of the Russian debt. The cases of the Baltic countries, Finland, Poland, Romania, and Ukraine are outlined below. It also appears that the governments of Azerbaijan, Georgia, and Kuban considered partial repayment at one point and that offers to this effect reached France.13

The Baltic States and Finland

The financial relations between imperial Russia and the Grand Duchy of Finland were extremely complex. Since the Grand Duchy enjoyed political, economic, and financial autonomy within the Russian empire, the issue of its liability was tenuous. Finland’s contribution to the various wars led by Russia ranged from heavy engagement during the Crimean War to a smaller—even tiny—commitment in later wars (Eliacheff 1919, 239–40). In peacetime, according to Eliacheff, who makes no secret of his pro-Russian sentiments, Finland enjoyed a privileged position. Its status, perceived as being unfair in Russia, was criticized when Russia entered the First World War. An interministerial commission that was convened suggested the ratifying of three principles: Finland’s contribution to the extraordinary expenditure of the treasury as a result of the war (proportionate to its population); setting this contribution for a five-year period, starting at 1.8 percent for 1914–19; and Finland’s payment into the imperial treasury of the amounts needed to cover its contribution to the war expenditure (Eliacheff 1919, 239–40). The proposal was not implemented, but in 1919 the lawyer Boris Eliacheff considered it an interesting basis for apportionment of liability.

The Baltic States and Finland were among the first countries to be recognized as independent by Russia. In a series of treaties signed in 1920 the Russian Soviet Federative Socialist Republic recognized Estonia, (p.149) Latvia, Lithuania, and Finland as independent states. When these peace treaties were signed, they included the issue of the Russian debts. With astounding generosity, the Russian Soviet Federative Socialist Republic relieved the new states of any liability for Russian debt (Delaisi 1930, 17; Eisemann, 2002). Russia’s generosity was evidently not to the taste of the creditor states, which considered the offending article illegitimate. Many contemporary lawyers criticized such a unilateral decision (Apolston and Michelson 1922).

Russia’s position was undoubtedly motivated by several factors. These probably included a concern not to alienate the neighboring countries over an issue that did not cost Russia anything as long as the debt continued to be repudiated. In any case, as Feilchenfeld points out (1931, 539), Bolshevik Russia could hardly have expected a third country to repay a debt that it had itself canceled. Moreover, Russia had everything to gain by encouraging other states to reject liability for the prewar Russian debt. Russia was thus no longer isolated on the question of the debt. With the exception of Romania, all the successor states eventually supported Russia’s position, although their stance was criticized.


Poland was mentioned as a potential payer as early as October 1918. Of the states that managed to remain independent during the interwar period, Poland, given its economic development, was probably the one that would have to assume the largest share of the debt after Russia. It was also in the best position to do so.14 Raffalovitch (1919, 100) argued that Poland should assume a share of the Russian debt as well as buy back the railways financed by Russian bonds on its territory. While Poland’s borders were not final, the amounts to assign to it were the subject of bitter debate. According to Eliacheff (1919, 245), the “new” Poland should occupy only the territory of the former Kingdom of Poland. Illogically, while the population was used as the basis for debt apportionment in the case of Finland, Eliacheff recommended using revenues in the case of Poland—a much more advantageous arrangement for Russia. He justified this on the grounds of Poland’s rapid economic development, which did not reflect the population criterion. After demonstrating that (p.150) there was insufficient data to calculate the share to be charged to Poland, Eliacheff (1919, 259–60) proposed basing it on direct and indirect taxes, stamps, and other levies. Using this methodology, which excluded contributions to state revenues and state lands and repayment of the treasury, Eliacheff found Poland liable for 13 percent of the Russian debt.15 That figure is similar to the one proposed by Apolstol and Michelson (1922), who assigned 12.6 percent of Russia’s public debt to Poland.

In a convention dated 28 June 1919 appended to the Treaty of Versailles, Poland accepted liability for part of the Russian debt. The convention stipulated that a conference would be convened between the Allied powers and Poland to determine its obligations more precisely. Despite that document, in a written question in May 1920 Edouard Daladier asked Foreign Minister Alexandre Millerand whether Poland had accepted its share of the Russian foreign debt and whether France would require all the Russian republics that had belonged to the empire to assume their share of Russia’s foreign debt.16 The end of the Russo–Polish War and the Peace of Riga signed on 18 March 1921 led to a redrawing of Polish, Russian, and Ukrainian borders. In a gesture of generosity similar to the one it extended to the Baltic States, one probably forced by the outcome of war, the Russian Soviet Federative Socialist Republic relieved Poland of any liability for the Russian debt.

The contradictions between the treaty of 28 June 1919 and that of 18 March 1921 were not lost on the French government, which reacted soon after the latter was published by protesting vigorously to the Polish government.17 After expressing its surprise, France stressed the importance of the recognition of Russia’s foreign debt and pointed out that French capital invested in Russia had “ultimately rendered inestimable services to Poland in the general war that had enabled Poland’s resurgence.” Between a threat and a reminder of duty, the text left little doubt as to the expectations of the French government, which deemed baseless the provisions of the Treaty of Riga on the succession of the Russian debt. The issue of Poland’s liability was raised again later, particularly during the Franco–Russian negotiations of the 1920s. The far-right press and its representatives also demanded repayment by Poland (Bonzon 1924).

(p.151) Ukraine

Ukraine experienced a turbulent period with a succession of governments between 1917 and 1921. France paid special attention to the country, not only for military reasons but also because France had invested heavily there before the war. According to Kosyk (1981, 56), more than half of the foreign investment in Ukraine came from France. Independence movements began to emerge there in March 1917. The Central Rada, a central council representing various Ukrainian organizations, was established that month. At the end of May a Ukrainian delegation traveled to Saint Petersburg to negotiate autonomy with the provisional government. Their application was rejected, leading to direct assumption of autonomy by the Central Rada, which proclaimed independence in June and set up a national government, the General Secretariat of Ukraine (Kosyk 1981, 78). Lacking capable leaders, an organized army, and a bureaucracy, the new country soon proved to be ungovernable (Subtelny 1994, 348). The Bolsheviks’ seizure of power after the October Revolution opened up the question of relations between Russia and Ukraine. The Bolsheviks, who were thinly represented in Ukraine, took a pragmatic position. Too weak to overthrow the Central Rada and the partisans of the provisional government who had retreated to Ukraine, they made the best of a bad situation and strove to maintain cordial relations with their new neighbor, at least until they could eliminate the partisans. The respite was short-lived, as Bolshevik troops headed into Ukraine in late 1917 (Kosyk 1981, 156; Subtelny 1994, 350). Meanwhile, France had opened negotiations with the new country. It is not surprising therefore that in December 1917 Ukraine was considered a separate entity on the Paris Bourse. This decision reflected the belief that Ukraine would not follow the Bolshevik course.18

The first clashes took place between the forces of Simon Petliura, Ukraine’s minister of war, and the Red Army troops led by Vladimir Antonov-Ovseyenko. A string of military successes for the Bolsheviks created a critical situation for the Central Rada, which hoped a foreign intervention might reverse the situation. The French government, eager to maintain an Allied front in the east, gave the Ukrainian government de facto recognition on 5 January 1918 (Carley 1976). That late recognition (p.152) was not enough to ensure its continuity, however. The Treaty of Brest-Litovsk drastically changed the balance of power. Represented at the treaty talks, the members of the Central Rada eventually promised to supply food in exchange for German military support (Subtelny 1994, 353). In practice the treaty led to the division of Ukraine into German and Austro–Hungarian spheres of influence and to the introduction of a new government that replaced the Central Rada.

In late April 1918 a new provisional Ukrainian government was established under Hetman Pavlo Skoropadski.19 His conservative regime remained under the sway of Germany. The new government nevertheless developed a foreign policy that led to the signing of a peace treaty with Russia on 12 July 1918. Opposition to Skoropadski’s regime, which receded temporarily, returned with a vengeance when it became clear that the Central Powers were going to lose the war. The Treaty of Brest-Litovsk, which confirmed German–Ukrainian rapprochement, must have left the French with a bitter taste (Kosyk 1981, 260). That development and the anticipation of Germany’s defeat may explain the position adopted by the Ukrainian government on the Russian bonds. On 26 September 1918 the hetmanate apparently declared its intention to pay advances for the coupons of the tsarist and provisional government bonds deposited in Ukrainian banks before 1 November 1918.20 Shortly afterward an insurrection led by Petliura and others attacked the government. By mid-December the rebels had seized power and restored the Ukrainian National Republic (Subtelny 1994, 359). Yet far from stabilizing the country, the new government was faced with total anarchy, as no fewer than six armies—Ukrainian, Bolshevik, White, Polish, the Entente, and anarchist—were operating on its territory.

In January 1919 the delegation of the Ukrainian republic offered to assume part of the Russian debt.21 As a successor to Russia but also to maintain its alliance with France, Ukraine declared it was willing to assume a 30 percent share. According to the Ukrainian representatives, that figure corresponded to Ukraine’s share on the basis of its population and wealth. On several occasions in 1920 Ukraine reaffirmed its willingness to assume some of the Russian debt. At the Conference of San Remo Ukraine again offered to repay 30 percent of the former Russian debt.22 In return Ukraine asked to recover 30 percent of the Russian gold (p.153) from the Bolsheviks and 30 percent of the domestic bills and bonds issued before the revolution. Ukraine also expressed the wish to be represented so that its citizens could be considered for compensation by Russia in the future.

The military situation in Ukraine deteriorated further in 1919. After repulsing a second Bolshevik offensive in the summer of 1919, the country faced another onslaught in December. It took the Russian troops almost another year to defeat their last White and Ukrainian opponents. But in November 1920 the country was still prey to armed groups opposed to the Bolshevik government. The last opposition movements were not eradicated until late 1921. The incorporation of the Ukrainian Soviet Socialist Republic into the Soviet Union in December 1922 definitively foreclosed any possibility of repayment by Ukraine as an independent entity.

Romania and Bessarabia

Romania was the only successor state the Soviets did not exempt from liability for the tsarist debt, a fact that can be explained by the Soviet Union’s refusal to sanction the integration of Bessarabia into Romania. In a treaty signed on 28 October 1920 Romania eventually recognized its liability for the share of the Russian debt corresponding to the territory of Bessarabia. However, the Romanian agreement yielded payment for only one security, the Akkerman Railway bond (Freymond 1996, 94–95). The practical terms of this were established in 1934. These provided for the exchange of expired coupons for Romanian 4.5 percent bonds (at 50 percent of the nominal value of the coupons) and the exchange of the bonds themselves for Romanian bonds of the same nominal value.

Despite that apparently good news French investors drew only meager gains from the exchange. During the interwar period, the bonds of the Kingdom of Romania suffered a spectacular series of defaults, followed by as many restructurings (Ureche-Rangau 2008). In early 1941 the Romanian government declared a general retroactive moratorium on public foreign debt. After years of talks an agreement was finally reached in 1959. This offered only symbolic compensation to the holders (p.154) of Romanian bonds but settled the fate of those held in France once and for all.

A Joint Agreement

In late 1920 France suggested settling the apportionment of the Russian debt under a broad agreement. In a memorandum to the British embassy the political affairs division noted explicitly that Russia should not be the only entity to incur the burden of the Russian debt.23 It proposed establishing an international body to apportion the debt that would be tasked with determining the amounts to be assumed by each of the parties and with transferring the funds. According to the authors of the memorandum, the mechanism could be based on the one set up by the treaties of 1918. No such body was ever established, but in 1921 some Russian bondholders remained convinced that the Russian debt would be apportioned on the basis of criteria to be determined.24 The Committee for the Defense of Belgian Interests in Russia (Comité de défense des intérêts belges en Russie) mentioned the liability of Estonia, “Livonia,” Lithuania, Poland, Romania, Georgia, Armenia, Azerbaijan, and, to some extent, Ukraine. Citing the case of Austria, the committee recognized the complexity of the methods that could be used to determine the respective share of each state but proposed that it be based on each entity’s capacity to contribute (based on revenues from the railways, customs, or a tax on naphtha).

When the question of the Russian debt was addressed by the de Monzie commission, the apportionment of the imperial debts between the states that emerged from the ruins of the empire resurfaced. According to Delaisi (1930, 17), a consensus was reached that the secession of the Baltic countries, a large share of Poland, and a slice of Bessarabia should be reflected in a 25 percent reduction in the Soviet Union’s share of the debt. Delaisi (1930) says these states were all in agreement. However, responding to a question from a member of the audience during a lecture he gave called “The Soviets and the Russian Debt in France,” Delaisi (1930, 40) acknowledged that an agreement existed in principle but that no demand for funds had been sent to the countries concerned. And, in his opinion, even if such a demand were expressed, those countries (p.155) would be unable to repay their share of the debt, other than by supplying raw materials.

Although agreements were reached, no payments were actually made in the name of the succession of states. The thorny issue of the terms of apportionment had long held back the negotiations on the Ottoman debt. The Russian case was likely to be equally complex. Depending on the criteria used, the respective shares assigned to each territory would have varied considerably. An apportionment based on the size of the states or, to a lesser extent, on the size of the population would have left Russia liable for the bulk of the debt; an apportionment based on actual investments or on the revenues of each region would have been more disadvantageous for the other states.

Eisemann (2002) considers that Russia is no longer the debtor for all the bonds. He claims that some of those obligations would be the liability of the Baltic countries, Poland, and Romania. In a moment of history repeating itself, the issue of the succession of states and their debts was raised again when the Soviet Union collapsed in 1991.

The Paris Peace Conference and the Treaty of Versailles: Paving the Way for German Repayment of the Russian Debt

Even before the end of the First World War investors hoped the repayment of the Russian bonds would be addressed in the peace talks. As early as January 1918 the New York Times opined that the question of the Russian debt would be settled in the peace treaties.25 In August 1918 the members of the General Commission asserted, “Settlement of the Russian debt will definitely be included in the clauses of the peace treaty.” A few months later John Maynard Keynes, the British treasury’s delegate at Versailles, wrote a memorandum on compensation payments (Keynes 1971, 340–41). He referred explicitly to the possibility that, as part of the reparations, Germany might assume a portion of the debt issued by Allied countries and owned by German citizens. He argued that Germany might be forced to assume the Russian, Italian, Serbian, Belgian, or Romanian debt.

In January 1919, as the Paris Peace Conference opened, there was fresh enthusiasm for Russian bonds on the Paris Bourse, based on the (p.156) hope that the conference would have a positive outcome for the Russian bondholders.26 That hope was dashed when it was announced that the Bolshevik government had been invited to the negotiating table.27 The impact of the conference was not limited to the Paris market since Russian bondholders in London were hopeful, too.28 The Committee for the Defense of Belgian Interests in Russia worked to ensure that the peace conference did not alter Russia’s liabilities without the consent of the bondholders.29

In the end Russia was conspicuously absent from the peace talks in Paris and consequently did not have an opportunity to express its opinions when the Treaty of Versailles was drafted. Despite its absence Russia was mentioned several times as part of the treaty. Regarding the fate of the Russian bonds, several points are noteworthy. First, Article 15 of the Treaty of Versailles canceled the provisions of the Treaty of Brest-Litovsk, and Article 19 provided for the transfer to the Allies of the gold paid to Germany by Russia under that treaty (Thomson 1966, 23–24). Articles 25 and 29 stipulated the opening of the Black Sea and the Baltic Sea to the Allies, facilitating their access to the regions threatened by the Bolsheviks.

Two articles, 116 and 117, subsequently took on great importance for the repayment of the Russian debt and formed the basis of numerous arguments on this issue. Article 116 stipulated that Germany should recognize the independence of all the territories that had belonged to the Russian empire, that it should accept the revocation of the Treaty of Brest-Litovsk, and—a factor of vital importance to the Russian bond-holders—that the Allies should uphold Russia’s right to demand reparations from Germany (Thomson 1966, 310). Article 117 strengthened the provisions of Article 116 by obliging Germany to recognize all the treaties that the Allies signed in future with the successor states to the Russian empire. Although some leaders of the White armies disagreed with the wording of those articles, particularly with respect to the successor states, they attempted to take advantage of them for military purposes, specifically by asking for weapons and German logistical support (Thomson 1966, 313–14). Last, Article 259 of the treaty provided for the transfer of all the amounts Germany had received under the Treaty of Brest-Litovsk (Apolston and Michelson 1922).

(p.157) In 1919 Raffalovitch (1919, 100), hardly an impartial observer, said that part of the Russian debt should be assigned to the states “more responsible than others for the war, such as Prussia.” That opinion was shared by other authors of Russian origin, such as Eliacheff (1919, 130). The economic and financial commission of the Russian Political Conference also considered Russia’s claim on reparations from Germany to be legitimate. The commission felt that the claim should be treated in the same way as those of other countries that had been fully or partly occupied by Germany, such as Belgium and France (Eliacheff 1919, 266).

Naturally, Germany considered Article 116 of the Treaty of Versailles unacceptable.30 In December 1921, shortly after Chicherin issued a memorandum offering to recognize the tsarist debts, the Riga-based newspaper Novyi Put’ described the chronology of the Russian debt. The article distinguished between prewar and war debt and claimed that the latter had served only to enrich France and Britain. The position of those two countries on their own war debt also diverged significantly from Russia’s line of conduct. Whereas France and Britain assigned their debt to Germany as part of the reparations, Russia refused to follow suit. The author of the article avowed that Russia never wanted to “participate in the plunder of the German people” but that “by refusing to take part in the despoiling, it erased its obligations stemming from the war debt.”31

In practice, repayment by Germany would soon prove illusory. On 15 December 1921 Germany notified the Inter-Allied Reparations Commission that it was unable to meet the next scheduled payment (Apolston and Michelson 1922). If Germany was already unable to repay the reparations directly attributable to the war, demanding that it pay for Russia was practically senseless. Negotiations between Russia and Germany opened in early 1922. According to rumors on the Bourse in March 1922, the outcome of those negotiations was that Russia refused to demand reparations under the Treaty of Versailles.32 The Treaty of Rapallo, signed by Germany and Russia on 16 April 1922, confirmed the rumors (Davis 1926) and finally extinguished all hope that Germany would repay the Russian debt.


(1.) For a literature review, see Feilchenfeld (1931) and Hoeflich (1982).

(2.) The amount was to correspond “to the average of the sums which in each of the three years preceding that of the declaration of war have been assigned to the service of the public debt under the revenues of the two provinces.”

(3.) The Inter-Allied Commission on War Purchases and Finance meet for the first time in Paris on 2 January 1918 to determine the terms and coordinate the financial actions of the Allied countries. The first meeting was attended by representatives of the United States, Belgium, Britain, France, Japan, Italy, Romania, and Serbia (Klotz 1924, 77–78). After the war the issue of the Inter-Allied debt would give rise to numerous controversies (see Homberg 1926 for a contemporary account of the events, and Artaud 1978, for a more recent analysis).

(4.) Determining the citizenships of many individuals remained an arduous task following the partition of the Russian Empire (see, for example, Lohr 2012 for an in-depth analysis of this problem).

(5.) Office National des Valeurs Mobilières, Note sur la création d’un comité de protection des intérêts français engagés en Russie, 22 June 1918, ANPFVM 440-A-17.

(6.) APPP, BA 1587, 23 January 1918.

(7.) Torgovo-Promyshlennaia Gazeta,Commission générale pour la protection des intérêts français en Russie, Bulletin no. 1, 1 October 1918, p. 12, ANPFVM 440A3.

(8.) Commission générale pour la protection des intérêts français en Russie, Communication 1, 5 August, 1918, ANPFVM, 440-A-30.

(9.) Letter from Stéphen Pichon, the foreign minister, to the chairman of the National Securities Office, 23 October 1918, ANPFVM 440-A-10.

(10.) Speech by Senator Anatole de Monzie to the Senate (session of 26 March 1920, p. 393).

(11.) Letter from du Halgouët to de Fleuriau, Ministère des Affaires Etrangères (1999), vol. 1920, tome 2.

(12.) Minutes of the International Conference for the Protection of Private Interests in Russia, 10–13 February 1921, ANPFVM 440-A-25.

(13.) Speech by Senator Anatole de Monzie to the Senate (session of 26 March 1920, p. 394). I have not found any other record of those offers. In any case, given the relative size and economic importance of the three countries, their offer probably concerned only a small portion of the debt. For Azerbaijan, see also Feilchenfeld 1931, 543–44.

(14.) Association belge pour la défense des détenteurs de fonds publics, Annual report for 1920–21, p. 156.

(p.221) (15.) The inclusion of all the contributions reduced Poland’s share from 12.98 percent to 8.07 percent. That factor shows how sensitive the determination of the amounts due was to the definition of revenues.

(16.) Les nouvelles économiques et financières, 27 May 1920, ANPFVM 440-A-18.

(17.) Letter from the foreign minister to the Polish Legation, 30 April 1921, ANPFVM 440-A-10. See also Letter from the foreign minister to the Polish Legation, 30 April 1921, ANPFVM 440-A-10.Ministère des Affaires Etrangères (2004), vol. 1921, tome 1.

(18.) APPP, BA 1587, 22 December 1917.

(19.) The honorific title Hetman reflects Skoropadski’s Cossack origins.

(20.) Document dated 26 September 1918, translated by the Danish delegation and sent on 29 September 1918 to ANPFVM. The enthusiastic title of the original document, apparently published in Finances et économie populaire, was “On reconnaît les emprunts du Tsar” (The tsar’s bonds have been recognized), ANPFVM A40.

(21.) Speech by Senator Anatole de Monzie to the Senate (session of 26 March 1920, p. 394).

(22.) Letter dated 16 June 1920 from the chairman of the delegation of the Ukrainian National Republic to Paris to Joseph Noulens, chairman of the international conference of Russian creditors, ANPFVM 440-A-13.

(23.) Memorandum from the political affairs division to the British embassy regarding the settlement of the Russian debt and the damages suffered by foreigners in Russia, Ministère des Affaires Etrangères (1999), vol. 1920, tome 3.

(24.) Association belge pour la défense des détenteurs de fonds publics, Annual report for 1920–21, p. 156.

(25.) “Russian Bonds Drop on Repudiation Ralk,” New York Times, 12 January 1918.

(26.) APPP BA 1588, 20, 21, 22 January 1919.

(27.) APPP, BA 1588, 31 January 1919.

(28.) The Economist, 1 March 1919.

(29.) Letter from the foreign minister published in Courrier de la bourse et de la banque on 27 February 1919, ANPFVM 440-A-52.

(30.) As the German delegates said at the Genoa Conference after the Treaty of Rapallo was signed, Le Rentier, 27 April 1922.

(31.) Commission générale pour la protection des intérêts français en Russie, second series, Bulletin no. 5, November–December 1921, p. 168, ANPFVM 440A1.

(32.) “Stock markets. Revival in Russian bonds expected. Foreign bondholders and the outlook,” British Russian Gazette, 31 March 1922.