How the Leipzig artists are taking on the world

In a top-floor studio in Leipzig, a group of art students in ragged jeans and T-shirts chain-smoked nervously as they waited for their guests. The atmosphere of the evening, a party to celebrate the completion of the students' latest works, was tense. The young painters were about to be "discovered" by the outside world.

On that evening in February, hundreds of wealthy art collectors were making a beeline for the studios of Leipzig's Academy of Visual Arts to view the works of painters that were being exclusively exhibited.

As they puffed on cigarettes, glorious visions of swelling bank accounts and internationally acclaimed shows filled the students' minds. Anywhere else, such daydreams would have been dismissed as hopelessly deluded. But not in Leipzig.

In today's art world, the former East German city has become a phenomenon. The paintings emerging from Leipzig's Academy of Visual Arts were recently described by the curator of New York's prestigious Museum of Modern Art as " the hottest thing on earth."

With an almost forgotten style of figurative painting drawing on the traditions of Max Beckmann and the "Socialist Realist" schools of 1950s Stalinism, the artists from the "New Leipzig School" have stormed the bastions of the international art scene.

By any standards, it is an extraordinary success story. Eighteen months ago, all the paintings by the Leipzig artist Martin Eder were sold for $36,000 (£19,000) each within 18 minutes of being unveiled in Miami. Matthias Weischer, another Leipzig graduate was selling his pictures for about $20,000 each in 2004. Last year, his paintings were changing hands for $370,000.

Gerd Harry Lybke, the owner of a gallery in Berlin, who has become one of Germany's chief purveyors of New Leipzig School paintings, says: "In Leipzig, the international art world has suddenly found what it was subconsciously yearning for."

Yet if Leipzig provided the stagnating art world with the radical change it was looking for, it did so by default. Throughout the Cold War and during its immediate aftermath, avant-garde works by so-called "action artists" such as the celebrated German Joseph Beuys were being paraded in galleries from Brooklyn to Dusseldorf. But Leipzig - hidden away behind the Iron Curtain for more than 28 years - stayed locked in a bubble of artistic isolation, with its painters sticking to traditions unchanged since the era of Beckmann. Concentrating on the disciplines of figurative art, they drew from nude models and learnt to master the techniques of perspective - following a strict daily schedule that left little room for avant-garde experiments.

Arno Rink, a former professor of painting in Leipzig who worked at the school throughout the Cold War, said: "In hindsight, one of the Berlin Wall's few advantages was that it allowed us to continue in the tradition of artists such as Beckmann. It protected us from the influence of Joseph Beuys."

It wasn't until the fall of the Berlin Wall that the breakthrough occurred. In 1990, the Leipzig artist Neo Rauch, now the éminence grise of the New Leipzig School, won the annual art prize offered by the town's newspaper, the Leipziger Volkszeitung. The prize culminated in a one-man exhibition at the David Zwirner Gallery in New York in 2000.

Rauch's broad canvases are a mixture of Pop Art and the Socialist Realist paintings of 1950s East Germany that depicted muscular working class heroes performing Herculean tasks of labour for the benefit of the Communist cause.

The success of his paintings sparked today's staggering demand for the figurative paintings of the same genre.

The artists behind the phenomenon are mostly young and hail from both East and West Germany. But they have drawn much of their inspiration from the post-Communist hangover that eastern Germany is now experiencing. The Second World War has certainly left its mark on Leipzig's psyche. Unemployment is soaring, factories are closing and people are fleeing to the west in search of jobs. And the city's artists dwell on similarly melancholy themes.

Christoph Ruckhaeberle, a Leipzig artist, paints pictures of listless young people on the receiving end of eastern Germany's record unemployment.

Robert Storr, a modern art professor at New York University's Institute of Fine Arts, describes the Leipzig painters as "artists who are going back to a literal, descriptive figuration and giving it an air of anomie."

The school's latest works dwell on the economic depression gripping the former East Germany. An 8ft high canvas called The Starving Ones by 30-year-old artist Christian Fabian depicts three figures seated in a Burger King fast-food restaurant in Leipzig. Two muscular men in the painting wear desperate expressions, while a woman kneels on the floor.

The runaway success of star painters such as Rauch and Weischer has engendered fierce competition that was completely unheard of during the years of Communism.

Last year, there were 988 applicants for only 80 places at the academy. According to Rauch, the lure of huge cash rewards has produced "a very negative climate" among students.

Asked what causes art collectors to outbid each other so furiously for the school's works, Gerd Harrry Lybke, now the New Leipzig School's chief purveyor of painting to the outside world, simply says one word: "Quality".