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August 9, 1974
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Declassified in Part - Sanitized Copy Approved for Release 2011/11/04: CIA-RDP85T00875R001000070013-6 Secret -'S-D Weekly Review Special Report Ostpolitik from Brandt to Schmidt Secret N! 636 IDeclassified 4SUb{1OS V, iV IZ in Part - Sanitized Copy Approved for Release 2011/11/04: CIA-RDP85T00875R001000070013-6 Declassified in Part - Sanitized Copy Approved for Release 2011/11/04: CIA-RDP85T00875R001000070013-6 Declassified in Part - Sanitized Copy Approved for Release 2011/11/04: CIA-RDP85T00875R001000070013-6 Declassified in Part - Sanitized Copy Approved for Release 2011/11/04 CIA-RDP85T00875R001000070013-6 OSTPOLITIK FROM BRANDY TO SCHMIDT Declassified in Part - Sanitized Copy Approved for Release 2011/11/04 CIA-RDP85T00875R001000070013-6 Declassified in Part - Sanitized Copy Approved for Release 2011/11/04: CIA-RDP85T00875R001000070013-6n1 Despit6 this'setback;' neither Bonn nor Pankow washed-:to reverse what had been accomplished under Brandt they proceeded to establish' diplomatic relations shortly Chancellor; Schmidt, a- major figure in Brandt's government, wants to maintain. continuity in relations with all the :Eastern countries, but he plans to pursue a more cautious policy in .'line. with his more modest expectations of what can be ac complishecl their differing .views,on.economic:cooperation with the.-East Brandt and his chief foreign- policy adviser; Egori Bahr, wanted to move in this direction, hoping to get the government more actively involved in promoting trade and financing industrial projects. They regarded Ostpolitik as a long-term process,. designed.to preserve the possibility of German reunification by slowly overcoming the division of Europe Schrnidt, a;politician more attuned to problems' within 'the Atlantic com- munity,;giives highest priority to the threat of economic instability that Western Europe `faces as a result of the rising cost of raw materials and energy. HHe argues.that theneed to control inflation rules out the granting of large credits or loans to the energy., from the Soviet vUnion, he has'-informed' the Soviet leaders' that at present Schmidt's parsimonious attitude will,,disp!ease the Soviets, who. will make their .impatience .evident when the .Chancellor visits Moscow this Cztober. Bonn's` decision to; establish a Federal Environmental Offico in West Berlin this fall has also soured bilateral.' ;; relations. From ' all present indications, however, neither. side wants a confrontation ,to:'dev.elop over this '' issue. Their goal will be to create as much favorable publicity at the summit meeting as possible since no major agreements are. likely to econcluded.:This effort would particularly benefit Schmidt since the two coalition parties ?in Bonn face stiff'contests, in two state elections later that month. Special Report SECRET August 9, 1974 Declassified in Part - Sanitized Copy Approved for Release 2011/11/04: CIA-RDP85T00875R001000070013-6 Declassified in Part - Sanitized Copy Approved for Release 2011/11/04: CIA-RDP85T00875R001000070013-6 , In the long run, we are very keen-if only for the sake of supplying our economy with raw materials and energy-on raising trade with Moscow and the other East European countries even further. From the Soviet Union we want gre't quantities of raw materials of every description: natural gas, crude oil, possibly electric current.... We must be prepared to grant credits once the situation concerning our export surpluses has become somewhat more favorable again. That will be the case in one or two years. The Soviet leaders know that at present we are close to the edge of our capacity. Chancellor Schmidt June 12, 1974 Background The collapse of the Brandt government fol- lowing the Guillaume affair came at a time when Bonn was about to conclude its efforts at re- storing normal political relations with the USSR and Eastern Europe. Brandt was particularly in- terested in establishing a new relationship with the "other Germany" based on trust, and he looked forward to the opening of diplomatic re- lations with East Berlin. Upon leaving office, however, he had only the bitter feeling that he had been victimized by East German machi- nations. The revelation of Guillaume's espionage ac- tivities it the chancellor's office also came at a time when Brandt's critics were claiming that Cstpolitik had already come to a dead end. Many parliamentary deputies on both sides of the aisle were pointing to the widespread public feeling that Ostpolitik had faired to live up to the expec- tations raised by the chancellor. To be sure, the general atmosphere of Bonn's relations with the East had certainly im- proved, compared with the hostility and recrimi- nations that characterized the first 20 years of the Federal Republic's existence. Ostpolitik had helped free a new generation of West Germans from the burdens of the past and had permitted Bonn to have the same kind of relationship with the East Europeans that the other Western na- tions enjoy. The Brandt government could also pride itself on contributing to East-West detente, and could claim that the current series of multi- lateral negotiations would never have been pos- sible without Ostpolitik. The government could also point to such tangible gains as the improvements in transit and traffic privileges that allowed greater access to East Berlin and East Germany. The Quadripartite Agreement on Berlin, which went into effect after the Bundestag ratified the non-aggression treaties with the Soviet Union and Poland, reaffirmed Western legal rights and ,:,;cess to the divided city. More West Berliners and West Germans have since been able to visit the "other Germany" than at anytime since the Berlin Wall was erected. Auto- mobile traffic between Wesi Germany and West Berl-n rose by nearly 17 percent in 1973, and travel by West Germans to East Berlin and East Germany jumped by almost 62 percent during the same period. Nevertheless, by the end of 1973, enough difficulties had emerged to convince many West Germans that Ostpolitik was running out of steam. Although Bonn went on to establish diplo- matic relations with the remaining East European countries, these governments refused to give a formal guarantee that West Berliners traveling in their territory would receive legal assistance as part of the usual consular services. They referred West German officials to Moscow to settle the issr.-e. Most disappointing of all was Pankow's de- cision in November to doi;ble the minimum Special Report August 9, 1974 SECRET Declassified in Part - Sanitized Copy Approved for Release 2011/11/04: CIA-RDP85T00875R001000070013-6 Declassified in Part - Sanitized Copy Approved for Release 2011/11/04: CIA-RDP85T00875R001000070013-6 I currency exchange requirement for travel to East Germany. This tactic reduced visits by roughly a third from the 1973 level. Officials in Bonn and West Berlin protested strongly but had no means of forcing Pankow to reverse its action. In response to this situation, Brandt and Bahr wanted tc prove thit Ostpolitik was not stagnating, hoping at the same time perhaps to distract public attention from other problems that the chancellor was encountering on the domestic scene. During his 11-day visit to Mos- cow in early March, Bahr discussed Berlin issues with Soviet leaders and made preparations for the chancellor's visit to the Soviet Union later this year. Some progress was made in negotiating a scientific and technological agreement as well as a bilateral legal assistance agreement extending such services to West Berliners. West German and Soviet officials were in fact trying to conclude these negotiations when the Guillaume affair became public. During Bahr's visit, the Soviets announced that they were prepared to pay cash for nearly $1 billion worth of equipment to be provided by West German firms during the first phase of the Kursk steel mill project. The Soviet decision removed pressures on Bonn to subsidize the project and, at the same time, underscored Mos- cove's interest in giving Brandt a badly needed public relaticns boost after his party's defeat in the Hamburg state elections. Ostpolitik was again showing some signs of progress. Chancellor Schmidt clearly does not have the commitment to Ostpolitik that motivated Brandt and Bahr. Like most residents of Ham- burg, where he was born, Schmidt looks westward and is convinced that West Germany's future lies in its relationship with the Atlantic community. Schmidt's principal areas of interest are financial policy, European monetary cooperation, and de- fense problems pertaining to the Atlantic al- liance-a subject on which he acquired consider- able expertise as defense minister in the first Brandt government. In his government declara- tion on May 17, Schmidt stated that he intended to place a high priority on dealing with domestic economic problems--something that many voters felt Brandt had failed to do. The dismissal of Brandt's protege, Egon Bahr, from the cabinet and from the post of federal plenipotentiary for Berlin was another sign to some that the new Chancellor intended to substitute a policy of "benign neglect" for Brandt's active policy to- ward the East. Despite these developments, Schmidt has stated publicly that he intends to travel to Mos- cow to meet with Brezhnev later this year, prob- ably in October. His decision came as a surprise in Bonn where the Guillaume affair still rankles and where many believe that the East should have first demonstrated its good intentions before Schmidt agreed to visit Moscow. The East Germans, for their part, agreed at about the same time to place diplomatic re;ations on a firmer basis by exchanging permanent mis- sions with Bonn. A few weeks later, the two Germanies concluded three bilateral accords in the humanitarian field. West Berlin officials, who had often charged that Brandt and Bahr were sacrificing the city's interests for the "broader" goals of Ostpolitik, were gratif:c_+ that Bonn's permanent mission would be us~'.r,tc'a to provide consular services for West BerIhne:,:; :ind that the three inter-German accords z o ap Aied to West Berlin. Thus. just prior to t4-,;: Guillaume affair, Special Report Actually, East Germany soon made a move in that direction. In an apparent effort to make amends for the damage the Guillaume affair had done to bilateral relations, Pankow announced in late May that it wouid be prepared to hold bi- lateral talks concerning the currency exchange requirement and economic cooperation, espe- cially industrial projects involving the delivery of energy to West Berlin. Pankow's forthcoming attitude was probably the result of prodding from Moscow. Both the Soviets and East Germans are aware that Schmidt August 9, 1974 SECRET Declassified in Part - Sanitized Copy Approved for Release 2011/11/04: CIA-RDP85T00875R001000070013-6 Declassified in Part - Sanitized Copy Approved for Release 2011/11/04: CIA-RDP85T00875R001000070013-6 is in a strong position in view of the reluctance of most West Germans to see Ostpolitik moving again if the price is additional political and eco- nomic concessions. The bilateral talks so far have not taken place. Schmidt's decision to go ahead with a sum- mit meeting with Brezhnev this fall reflects the value he places on maintaining continuity in rela- tions with the East. He is aware that since its revival by foreign minister Schroeder in the Erhard government more than a decade ago, Ostpolitik has become a permanent dimension of German foreign policy. A pragmatist, the new Chancellor also realizes that he must keep open his channels to Moscow and is anxious to estab- lish personal contact with the Soviet leaders. Any sign that he was allowing detente to wither would raise serious problems for Schmidt with his col- leagues in the Social Democratic Party and would disappoint the East Europeans Schmid indicated that he was aware of these considerations when he praised the previous government's efforts at detente in his maiden speech to the Bundestag. Moscow likewise has no intention of allow- ing inter-German problems to undermine its rela- tions with Bonn. As long as Bonn does not adopt an anti-Soviet line, Moscow seems prepared to do its part to keep relations between the two states on a businesslike basis. Brezhnev and Brandt were able--over a period of time-to develop a relation- ship that enabled both sides to discuss their prob- lems in a candid fashion. There is no reason to believe that the Soviet leaders will be unable to deal effectively with Schmidt, even though they view him with some caution. The Soviets prob- ably believe he is bound by the agreements they concluded with Brandt and that he will not radi- cally alter bilateral relations. Their demonstrated desire for Western technology and long-term credits is another factor underlying their apparent interest in assuring stable relations. The East Europeans also have a strong in- terest in expanding relations with 3onn. Their eagerness for greater trade and economic coop- Special Report Economics Minister Friderichs (I) and Chancellor Schmidt eration with West Germany will not be affected by their need to support the political interests of their East German ally. In the past, several East- ern regimes have grumbled that the East Germans enjoyed the economic benefits of inter-zonal trade for years while slowing efforts by others to establish diplomatic relations or to expand trade with West Germany. N . w that the two Germanies are developing their political relationship within the framework of the Basic Treaty, Pankow has little say over what the other East Europeans choose to do in their relations with Bonn. Finally, and perhaps most important, there are no major political disputes between Bonn and most of the Eastern capitals. The Eastern regimes, moreovi-,r, have had to end their vitriolic attacks against German revanchism to prove their com- mitmerct to detente. Despite the extent to which Bonn's relations with the East have been "normalized" and the August 9, 1974 SECRET Declassified in Part - Sanitized Copy Approved for Release 2011/11/04: CIA-RDP85T00875R001000070013-6 Declassified in Part - Sanitized Copy Approved for Release 2011/11/04: CIA-RDP85T00875R001000070013-6 .1 interest of both sides "n keeping them that way, sources of past and future friction continue to exist. The complex issue of legal assistance for West Berliners traveling in the East is a good example of this. Most Eastern governments allow West German embassies to provide consular services and, as a matter of practice, legal assist- ance to West Berliners. They insist, however, that Bonn has no authority in cases involving West Berlin courts. West German and Soviet negotia- tors have reached agreement cn a formula to solve the issue but remain deadlocked on the manner of official Soviet acknowledgement. Schmidt and !3rezhnev may discuss this issue when they meet this fall. Bonn's decision to establish a Federal En- vironmental Office in West Berlin has also been a troublesome issue. Special Report SECRET rapprochement "o dec1ic go was the realization that the sdhition to7hhe German problem; question ivas conceivable . neither. through annexation nor through a Angle act but only as th e,r'es pit of an. historica8 process. The East Germans have retaliated by under- taking spot checks of travelers on the autobahn. There have been no serious disruptions of traffic, but one employee of the Environmental Office was denied the use of the access route. At Bonn's request, the Transit Commission established to handle such matters met on August 6. Bonn hopes to resolve the issue in the commission and prevent it from causing further trouble. The Soviets, for their part, regard such ef- forts to strengthen West Berlin's ties to the Fed- eral Republic as violations of the Quadripartite Agreement and have strongly protested Bonn's decision. Although Moscow regards the issue as One, of the main` consr'derdt'6nsfn the formulation of "c~i~tnge tlt$o' i F. ugust 9, 1974 Declassified in Part - Sanitized Copy Approved for Release 2011/11/04: CIA-RDP85T00875R001000070013-6 one of prestige, it may not seek an open confron- tation because the Western allies have agreed to support Bonn. Soviet diplomats in Bonn have suggested measures that would prevent establish- ment of the office from undermining their legal position. Specifically, they seek a guarantee from the West that this office will be the last federal institution to be established in West Berlin. Officials in Bur .; will not reverse';reir plans to have the office fully manned sometime this fall, but they may be willing to go along with a possible decision by the Western allies to give the Soviets some form of assurance. Mayor Schuetz, on the other hand, will most emphatically oppose any agreement, formal or informal, that would curb efforts to strengthen the city's ties to the Federal Republic. The Chancellor will almost cer- tainly discuss Berlin issues with Soviet Foreign Minister Gromyko when he visits Bonn in mid- September. Whither Ostpolitik? Beyond keeping such issues as these from becoming too aggravated, the basic problem facing Chancellor Schmidt and his government is how to give continued meaning to Ostpolitik. Actually, there are only two areas that offer opportunities to extend Ostpolitik beyond what the Brandi government achieved. Cultural exchanges are one such area. West German and Polish historians, for example, are meeting annually to revise school textbook inter- pretations of World War II. As a result, future generations of West German and Polish youth may have a less acrimonious relationship. Ideo- logical differences, however, still pose limitations. This is particult?ly true with regard to East Ger- many, which war,`-, to purge from its citizens' minds any notion of German unity by empha- sizing the Marxist foundations of East Germany's political, social, and economic system. Conse- quently, Bonn is encountering difficulties in nego- tiating a cultural agreement with Pankow. Cross-cultural understanding is more likely to be advanced by tourism. Travel to the East is a kind of everyday Ostpolitik-largely outside aov- Special Report ernmental direction-in which first-rand exposure tends to weaken old prejudices, many of which have nothing to do with ideology. The number of West Germans on vacation or business trips to Eastern Europe has grown tenfold in the past decade-and now reaches nearly three million each year. Although the Eastern capitals welcome the tourists for their hard currency, they are still worried that exposure to Western ideas and in- fluences poses a threat to their system of government. Ostpolitik and Eastern Trade Despite the attention given to cultural co- operation and tourism, trade and incustrial co- operation is of far greater importance to govern- mtnt and business circles in West Germany. Actually, nothing could better illustrate the dif- ference between Brandt and Schmidt on Ostpoli- tik than the manner in which each has viewed economic cooperatior1 with the East. Brandt's Approach Last November, Brandt appointed Bahr as chief government coordinator for all economic cooperation with "state-run economies." In preparation for visits to Washington and Moscow to discuss East-West trade, Bahr formulated new models for economic cooperation with the Soviet Union and Eastern Europe. Emphasizing the bilat- eral approach, Bahr's plans had two objectives: +o boost German imports of raw materials and fuels from the East, and to make West Germany more competitive in financing large-scale industrial prcj- ecis in these fields. Bahr ii-tored the creation of a financial institution modeled on the US Export/ Import Bank that weuid offer loans and credits to support projects promising to generate impc,.-fs of raw materials. 25X1 25X1 These models, though ostensibly directed toward practical considerations, were more an indication of Brandt's and Bahr's e_gerness to shape policy in terms of their own politica! philosophy. Both men looked upon Ostpolitik as August 9, 1974 SECRET Declassified in Part - Sanitized Copy Approved for Release 2011/11/04: CIA-RDP85T00875R001000070013-6 Declassified in Part - Sanitized Copy Approved for Release 2011/11/04: CIA-RDP85T00875R001000070013-6 a long-term process, the next phase of which would be economic cooperation. Their overall goal was to set in motion an "historical process" that would ultimately help break down the exist- ing political, military and economic blocs in Europe, a process that would eventually over- come these divisions and make German reunifica- tion less remote. Both men shared a Bismarckian perspective that saw Germany as a force in central Europe with valid interests in the East as well as the West. The four-stage plan for the demilitarization of central Europe that Bahr drafted in 1968 when chief of the Foreign Ministry's policy and plan- ning staff illustrated his line of thought. It envisioned the gradual creation of a demilitarized zone by means of renunciation-of-force agree- ments and troop reductions. Berlin would then eventually serve as the administrative center for the zone, which would include, at the minimum, the two Germanies, Poland, Czechoslovakia, and the Benelux countries. Brandt never publicly endorsed this police proposal for obvious political reasons, but per- Special Report haps accepted its long-range goals as something to work toward. Growing pessimism about the ability to create a new security system for Europe in the foreseeable future prompted Brandt and Bahr to turn their attention to trade and eco- nomic cooperation with the East. Both men evidently hoped to further the "historical process" of pan-European cooperation by offer- ing the Eastern capitals more of what they so long desired-Western technology and trade. They justified their views by arguing that the conflict between the two halves of Europe was fading in significance when compared with the growhig problems between the industrialized nations of the northern hemisphere and the underdeveloped, though often energy-rich countries of the so-.ith. Schmidt has a somewhat different perspec- tive on economic relations with the East. Unlike Brandt and Bahr, he has formal training as an economist arid has a better sense of wha? is pos- sible. He does not share their belief that the goal of improving relations with the East justifies the expansion of economic ties as a matter of prin- ciple. Furthermore, the Chancellor. like most August 9, 1974 SECRET' Declassified in Part - Sanitized Copy Approved for Release 2011/11/04: CIA-RDP85T00875R001000070013-6 m SFf_RFT Declassified in Part - Sanitized Copy Approved for Release 2011/11/04: CIA-RDP85T00875R001000070013-6 1 West German politicians, recognizes that the eco- nomic relations among members of the European Community are of far greater importance. !n any case, Schmidt is pragmatic in his assessment of West Germany`s economic relations with other countries. This applies to the goal of creating an economic and monetary union for Western Europe as well as grandiose visions of trade with the East. Schmidt sees the need to deflate exaggerated expectations in both areas. The consistent thaine in the Chancellor's public and private comments is that plans for economic cooperation or assistance must not only be feasi- ble but must also serve West Germany's interests. This "hard-headed" attitude is unavoidable, Schmidt argues, given the economic problems the nation faces as a result of the rising cost of raw materials and fuel. Osthandel (Eastern Trade) Billion US Dollars' 1956 57 58 39 60 61 62 64 65 66 67 6b 69 70 71 72 73 Chancellor-I- Grand Coalition --I-- Chancellor Brandt Erhard Special Report SECRET As finance minister in Brandt's cabinet, for example, he repeated'y argued that budgetary limitations and the need to control inflation rule out government su' Aidies for export credits to the East, even for large-scale industrial projects. Eco- nomics Minister Friderichs and many of his col- leagues in the Free Democratic Party support Schmidt on this score. They fear that granting subsidies to bridge the gap between the high in- terest rates on the German money markets and the credit demands of the Soviets and East Euro- peans might set an undesirable precedent. They defend this "laissez-faire" policy with the argu- ment that Eastern trade has grown steadily with- out government intervention. Indeed, the German business community has been largely self-reliant in its undertakings. Ger- man firms operate either independently or with August 9, 1974 Declassified in Part - Sanitized Copy Approved for Release 2011/11/04: CIA-RDP85T00875R001000070013-6 SECRET ssified in Part - Sanitized Copy Approved for Release 2011/11/04: CIA-RDP85T00875R001000070013-6 1 the assistance of the Ostausschuss der Deutschen Wirtschaft-a semi-official organization whose members are drawn from firms interested in East- ern trade. Since 1956, the Ostausschuss has played a prominent role in searching out and promoting commercial opportunities for these firms. Bonn's "laissez-faire" policy toward East- ern trade clearly contrasts with the policies of other Western industrialized nations that are more willing to underwrite trade with the East with direct financial assistance. Egon Bahv's re-entry into the cabinet on July 10 as minister for economic cooperation does not signal a change in this policy, as this ministry is responsible only for assistance pro- grams to less-developed countries. The appoint- ment was basically a shrewd political move by Schmidt. It currys favor with Brandt and other party leaders who have supported Bahr in the past, withoL't expanding his direct role in the foreign policy field. Schmidt's conservative attitude on the ques- tion of loans and credits to the East is evident in two particular cases, one involving Poland, the other East Germany. For some time, for example, Warsaw has been angling for some $1 billion in credits. The Poles recently indicated that they would accept Bonn's offer of $400 million in long-term, low-interest credits, but they still demanded addition&I funds as indemnification for war victims. They insist that ethnic Germans living in i oland will not be allowed to emigrate in large numbers until these demands are met. Schmidt has stated that he is not prepared to accommodate Warsaw. At present, ethnic Ger- mans an: being repatriated at the rate of about 10,000 t year, far lower than the annual rate of 50,000 that Warsaw promised last December. In the case of East Germany, Pankow has shown its interest in continuing the swing-credit system tit helps finance inter-German trade. Its desire to renew this provision or some modifica- tion of it beyond 1975 surfaced in recent discus- sions with West German officials concerning the currency exchange requirement for travel to the East. The East Germans have not yet demanded the continuation of credit at its present level as a quid pro quo for a reduction ir, the currency exchange requirements, but the idea is on their minds. Schmidt has refused to make concessions to get Pankow to rescind its decision doubling the currency requirement, however, and demands that the E-ist Germans comply with the bilateral The Search for Energy Despite his unwillingness to open Bonn's coffers to buy "human rights" for ethnic Ger- mans or West Berliners, Schmidt is aware of the need to assure adequate energy supplies for the Federal Republic and for West Berlin in the coming decade. The Soviet Union, with its abundant sources of raw materials and fuels, has much to offer in this regard, as Schmidt and German industrialists realize. German firms, with government concurrence, have recently turned to the Soviets for the enrichment of uranium. Mos- cow presently offers much more favorable terms for such services than does Washington, but present contracts with the Soviets still do not constitute a significant portion of West German requirements. Bonn's overall energy policy aims at avoiding dependence on any one country or group of countries for vital raw materials. Efforts to diversify the nation's energy sources have focused on major non-Arab pro- ducers such as Iran, but the government is also considering projects in the energy field that will involve the Soviets. One such project, being planned by the Joint West German - Soviet Eco- nomic Commission, is a trilateral deal involving Iranian natural gas, in which German firms would supply large-diameter pipe for the construction of a pipeline across the Soviet Union from Germany to Iran. Special Report _10- SECRET August 9, 1974 ssified in Part - Sanitized Copy Approved for Release 2011/11/04: CIA-RDP85T00875R001000070013-6_N Declassified in Part - Sanitized Copy Approved for Release 2011/11/04: CIA-RDP85T00875R001000070013-6 25X1 Bonn is also considering projects that would supply electrical energy to West Berlin. The enclave is the only major urban community in Europe not connected to a power grid, and West Berlin will be hard pressed to meet its energy needs In the coming years without expanding its power plant system at considerable trouble and cost. The Poles have offered to supply West Berlin with electrical energy from a new plant cn the Oder, provided Bonn finances the construction of a transmission line to the city. The Soviets are interested in building four nuclear power plants, two of which would supply energy to the Federal Republic in return for construction costs. In both cases, Bonn has demanded that there be a single, continuous transmission line from the East link- ing West Berlin and the Federal Republic. The Soviets agreed to this demand in June, overriding objections from the East Germans. This sudden breakthrough on the 'ong-standing deadlock has permitted the Soviets and German firms to reach a general agreement on the construction of the first of the power plants, which will be situated in the western part of the Soviet Union. Schmidt will r onLt"er longer and harder than Brandt on whether the government should help to finance these projects. His own public and private statements indicate that he would like to see these projects eventually completed. Several factors will influence his thinking on the question of offering the financial assistance that these projects might require. A decision in the affirmative would contradict his arguments about the need to control inflation and would raise the eyebrows of other EC members who have listened to his admonitions on this score. On the other hand, the Chancellor must reckon that the Soviets might not be able or, for that matter, willing to pay cash for every industrial project as they have in the case of the Kursk plant. The high cost of borrowing funds in the West German and Eurocurrency markets could tempt the Soviets to shop elsewhere for the equipment they need. Thus, the possibility of being cut out of the sizable Soviet investment projects with their pay- off--increased access to Soviet raw materials-may motivate Bonn to subsidize credits in certain cases. Marienborn checkpoint Scene of recent harassment Special Report SECRET The meeting with Brezhnev in October will come too soon for Schmidt to offer anything August 9, 1974 Declassified in Part - Sanitized Copy Approved for Release 2011/11/04 : CIA-RDP85T00875R001000070013-6 CI 'DDT classified in Part - Sanitized Copy Approved for Release 2011/11/04: CIA-RDP85T00875R001000070013-6__1 substantial in the field of trade and economic cooperation. The Chancellor seems prepared to risk further Soviet impatience, and probably hopes that the large-scale industrial projects can be handled on strictly a commercial basis. Schmidt's earlier interest in shelving the plan to establish the Federal Environmental Office in West Berlin was, in part, related to the fact that Bonn could not afford to satisfy Moscow's de- mand for credits. The Chancellor realizes that it is now too late to "kill" the project as a consolation prize for the Soviets. Mayor Schuetz and the West Berliners have made the environmental office a major political issue and insist that plans for its formal establishment not be postponed for the sake of the summit. Moscow, from all present indications, does not want any last minute con- frontation and appears ready to receive Schmidt despite the bitterness this issue has created. Officials in Bonn do not expect that any agreement on major issues will be reached at the summit. Schmidt's main objective will be to extract as much favorable publicity from his vi!::t as possible. The two coalition parties-the Social Democrats and Free Democrats-face stiff con- tests in two stale elections on October 27; this may prompt the Chancellor to time the summit to garner the greatest political capital for his government. The trip will most likely be scheduled for mid-October to coincide with the next meeting of the Joint Economic Commission and a large West German industrial exhibition tanned for tin Moscow Special Report .12- SECRET August 9, 1974 Declassified in Part - Sanitized Copy Approved for Release 2011/11/04: CIA-RDP85T00875R001000070013-6