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Let's re-examine the clues, and hopefully get a good (really good) map or atlas (in which small chilean cities do appear)
I have given these clues:
-It's in southern Chile (yet people said Valparaiso and Santiago, which are in central Chile)
-The city has about 5,000 inhabitants(hence you need a good atlas, otherwise it won't appear)
-It's a port
-It was destroyed by the 1960 quake
-It was a fort in the spanish colony
One more clue:
-Cruise ships do get to this city (a few per year) and people can go down from the cruise ship and can get to Valdivia easily.
Gee.. I thought it was almost settled a few posts back... But you guys went for bigger cities... (Puerto Montt and Temuco are both bigger than Valdivia) although I said it was a SMALL city of 5,000 inhabitants
The slogan is in german, because the origin of the family that founded it is german. And Valdivia has many other stuff related to german, due to the influence from the colonization of these areas in the 1800's. It was a state controled colonization, and they sent people to germany to bring people to Chile (to Valdivia and nearby).
Of course Valdivia dates way back, at least the first foundation, in 1552, was just spanish.