Document Type: 
Document Number (FOIA) /ESDN (CREST): 
Release Decision: 
Original Classification: 
Document Page Count: 
Document Creation Date: 
December 16, 2016
Document Release Date: 
August 30, 2004
Sequence Number: 
Case Number: 
Publication Date: 
August 9, 1974
Content Type: 
PDF icon CIA-RDP85T00875R001500060014-1.pdf850.84 KB
Approved For Release 2004/09/28 : CIA-RDP85T00875R001500060014-1 Secret meekly Summary Special Report Ostpolitik from Brandt to Schmidt Secret N2 S86 August 9, 1974 No. 0032/74A 25X1 Approved For Release 2004/09/28 : CIA-RDP85T00875R001500060014-1 25X1 Approved For Release 2004/09/28 : CIA-RDP85T00875R001500060014-1 Approved For Release 2004/09/28 : CIA-RDP85T00875R001500060014-1 Approved For Release 2004/09/28 : CIA-RDP85T00875R001500060014-1 OSTPOLITIK FROM BRANDY TO SCHMIDT Approved For Release 2004/09/28 : CIA-RDP85T00875R001500060014-1 Approved For Release 2004/ Summary The Guillaume espionage case and Chancellor Brandt' subsequent resignation occurred at a time when Bonn's Ostpolitik was showing some signs of rejuvenation. Despite this setback, neither Bonn nor Pankow wished to reverse what had been accomplished under Brandt; they proceeded to establish diplomatic relations shortly thereafter. Chancellor Schmidt, a major figure in Brandt's government, wants to maintain continuity in relations with all the Eastern countries, but he plans io pursue a more cautious policy in line with his more modest expectations of what an be ac- complished. The diiferance bet Aleen Brandt's and Schmidt's policies will be most evident in their differing views on economic cooperation with the East. Brandt and his chief foreign policy adviser, Egon Bahr, wanted to mov' this direction, hoping to get the government more actively involved in promoting trade and financing industrial projects. They regarded Ostpolitik as a long-terra process, designed to preserve the possibility of German reunification by slowly overcoming the division of Europe. Schmidt, a politician more attuned to problems within the Atlantic com- munity, gives highest priority to the threat of economic instability that Western Europe faces as a result of the rising cost of raw materials and energy. He argues that the need to control inflation rules out the granting of large credits or loans to the Eastern capitals. Although interested in industrial projects that promise deliveries of energy from the Soviet Union, he has informed the Soviet leaders that at present Bonn cannot afford to give financial assistance. Schmidt's ;.parsimonious attitude will displease the Soviets, who will make their impatience evident when the Chancellor visits Moscow this October. Bonn's decision to establish a Federal Environmental Office in West Berlin this fall has also soured bilateral relations. From ail present indications, however, neither side wants a confrontation to develop over this issue. Their goal will be to create as much favorable publicity at the summit meeting as possibie since no major agreements are likely to be concluded. This effort would particularly benefit Schmidt since the two coalition parties in Bonn face stiff contests in two state elections later that month. Spacial Report -2- August 9, 1974 25X1 Approved For Release 2004/0DP85T00875R001500060014-1 Approved For Release 2004/09 P85T00875R001500060014-1 In tl'e long run, we are very keen-if only for th sake of su/pplving our economy with raw materials and energy--on raising trade with Moscow (!;td the other East European countries even further. From the Soviet Union we want great 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 crse 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- i.,wing the Gui?iaume 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 wa, 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 Gelman machi- nations. The revelation of Guillaume's espionage ac- tivities iii the chancellor's office also came at a time when Brandt's critics were claiming that Ostpolitik 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 failed 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-We3t detente, and could claim that the current series of multi- Special Report lateral negotiations would ? ever have been pos- sible without Ostpolitik. The government ;ouid also point to such tangible gains as the im;)rovements in transit and traffic privileges tha+ 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 access to the divided city. More West Berliners and West Germans have since been able to visit the "other Germany" than at any time since the Berlin Wall was erected. Auto- mobile traffic between West Germany and West Berlin 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 issue. Most disappointing of all was Pankow's de- cision in November to double the minimum August 9, 1974 25X1 Approved For Release 2004/09SE(R T)P85T00875R001500060014-1 Approved For Release 2004/09/2856 @_f5T00875R001500060014-1 25X1 currency exchange requirement for travel to Cast Germany. This tactic reduced visits by roughiy a third from the 1973 level. Officials in Bonn :;nd West Berlin protested strongly but had no mean:; of forcing Pankow to reverse its action. In response to this situation, Brandt and Bahr wanted to prove that 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 iss'es with Soviet leaders and made preparations for the chancellor's visit to the Soviet Union Idter this year. Some progress was made in negotiating a scientific and technological agreement as well as a bilateral legal assistance agreement extend ng such services to West Berliners. West Gerr.nan 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- cow's interest in giving Brandt a badly needed public relations 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 Ostpol,' ;k 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- riance-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 h;gh priority n dealing with domestic economic problems--something that many voters felt Brandt had failed to do. The di_missal 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 relations on a firmer basis by exchanging permanent mis- sions with Bonn. A few weeks later, the Lwo Germanies concluded three bilateral accords in the humanitarian field. West Benin officials, who had often charged that Brandt and Bahr were sacrificing the city's interests for the "broader" goals of Ostpolitik, were gratified that Bonn's permanent mission would be allowed to provide consular services for West Berliners and that the three inter-German accords also applied to West Kerlin. Thus, just prior to the Guillaume affair, Special Report - 4 - Actually, East Germany soon made a move in that direction. in an apparrnt effort to make amends for the damage the G aillaume affair had done to bilateral relations, Pa ikow announced in late May that it would be p epared to hold bi- lateral talks concerning the .~rrrency exchange requirement and economic v?o? -eration, espe- cially industrial projects involving ~ to delivery of energy to West Berlin. Pankow's forthcoming altitude was probably he result of prodding from Moscow. Both the Soviets and East Germans are aware that Schmidt August 9, 1974 Approved For Release 2004/09/FSEQAR85T00875R001500060014-1 Approved For Release 2004/09/28 :t6Jf 185T00875R001500060014-1 is in a strung 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. Elemenis of Continr'ity 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 g^?,,ernmunt more than a decade ago, Ostpolitik has become a permanent dimension of German foreign policy. A pragmatist, the new Chancellor also real;=es that he must keep open his channels to Moscow and is anxious to estab- lish personal ccntact with the Soviet leaders. Any sign that he was allow'ng detente to wither would raise serious problems for Schmidt with his col- leagues in the Social Democratic Part and would di ropean F chmid in ice e a e was aware o these considerations when he praised the previous government's efforts at detente in his maiden speech to the Bundestag. Mo~cov likewise has no intention of allow- ing inter-German problems iio undermine its rela- tions with Bonn. As long as Bonn does not adopt an anti-Soviet line, Moscow seems prepared to do its pert 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 tc 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 in;-;rest in assuring stable relations. The East Europeans also have a strong in- terest .'Hi expanding relations w;th Bonn. Their eagerness for greater trade and economic coop- Special Report -5- 5 - Economics Economics Minister Friderichs (I) and Chancellor Schmidt oration with West Germany will not be affected by their need to support the political interests of their East German ally. In the past, severa! East- ern regimes have grumbled that the East Germans enjoyed the economic benefits of inter-- onal trade for years while slowing efforts by others to establish diplomatic relations or to expand trade with West Germany. Now 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. ' inally, and perhaps most important, there are no major political disputes between Bonn and most oi the Eastern capitals. The Eastern regimes, moreover, have had to end their vitriolic attacks against German revanchism to prove their com- mitment to detente. Despite the extent to which Bonn's relations with the East have been "normalized" and the August 9, 1974 Approved For Release 2004/09/fiE6 JafP85T00875R001500060014-1 125X1 25X1 Approved For Release 200 - 75R001500060014-1 interest of both sides in 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 on a formula to solve the issue but remain deadlocked on the manner of official Soviet acknowledgement. Schmidt and Brezhnev may discuss this issue when they meet this fall. Bonn's decision to establish a Federal En- One of the main considerations in the formulation of "cjtnge thb h rapprochement" a decadg ago was the realization that the so/u'Won to7he German problem question was conceivable neither through vrinexation nor through aingle,act but only as the refult of an historical process Egon Bahr, July 1973 Second Tutzing Academy speech 1 t Special Report 25X1 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 August 9, 1974 Approved For Release 2004/09/2&S IZA U85T00875R001500060014-1 Approved For Release 2004/09/26SEt&IkE85T00875 R001500060014-1 25X1 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 Bonn will not reverse their 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 Brandt 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 particularly true with regard to East Ger- many, which wants 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, Boni 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 gov- ernmental direction-in which first-hand 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 attenton given to cultural co- operation and tourism, trade and industrial co- operation is of far greater importance to govern- ment -end 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 cooperation with the East. 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. Emphas;Ling the bilat- eral approach, Bahr's plans had two objectives: to boost German imports of raw materials and fuels from the East, and to make West Germany more competitive in financing large-scale industrial proj- ects in these fields. Bahr favored the creation of a financial institution modeled on the US Expeasxi Import Bank that would offer loans and credits to support projecFc nt'nmicinn to .,o_-+., a c 25X1 These models, though ostensibly directed toward practical considerations, were more an indication of Brandt's and Bahr's eagerness to shape policy in terms of their own political philosophy. Both men looked upon Ostpolitik as August 9, 1974 Approved For Release 2004109/. EIR UP85T00875R001500060014-1 Approved For Release 2004/09/28 EAD -F85T00875R001500060014-1 Th- ., Evolution of West German Trade 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 chat 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 policy 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 sys-cem for Europe in the foreseeable future promp ced Brandt and Bahr to turn their attention to trade and eco- nomic cooperation with the East. Bcth 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 growing problems between the industrialized nations of the northern hemisphere and the underdeveloped, though often energy-rich countries of the south. Schmidt has a somewhat different perspec- tive on economic relations with the East. Unlike Brandt and Bahr, he has formal training as an economist and has a better sense of what 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 25X1 August 9, 1974 Approved For Release 2004/09/26EO FFT85T00875R001500060014-1 Approved For Release 2004/0 0875R001500060014-1 West German politicians, recognizes that the eco- nomic relations among members of the European Community are of far greater importance. In any case, Schmidt is pragmatic in his assessment of West Germany's economic 'elations 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 theme in the Chancellor's public and private comments is that plans for economic cooperation cr 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' 25X1 As finance minister in Brandt's cabinet, for example, he repeatedly argued that budgetary limitations and the need to control inflation rule out government subsidies 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 64 65 66 67 68 69 70 71 72 73 -Chancellor y '- Chancellor I Grand Coalition --~~ Chancellor Brandt --y Special Report August 9, 1974 Approved For Release 2004/09Ek EOP85T00875R001500060014-1 Approved For Release 2004/09/ 5R001500060014-1 the assistance of the Ostausschuss der Deutsche? Wirtschafr--a semi-officiai 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 contr ,its with the policies of other Western industrialized nations that are more willing to underwrite Trade with the East with direct financial assistance. Egon Bahr'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, without expanding his direct role in the 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-interes" credits, but they still demanded additional funds as indemnification for war victims. They insist that ethnic Germans living in Poland 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 are being repatriated at the rate of about 10,000 a 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 that helps finance inter-German trade. Its desire to renew this provision or some modifica- Special Report 25X1 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 in the currency exchange requirements, but the idea is on their minds. Schmidt has refused to make concessions to get Pankow to rescind its decision doubl,,in,.9~I~ e currency requirement, however, and ddr~a7r~Js that the East Germans comply with the bilateral trAncit inreementc +h.f nor+-.in +.-. %A/....1 G....1' 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 fueis, 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 Jaint West German - Soviet Eco- oomic Commission, is a trilateral deal involving Iranian natural ga,:, in which German firms would supply large-diameter pipe for the construction of a pipeline across the Soviet Union from Germany to Iran. _10- August 9, 1974 Approved For Release 2004109128S E" 5T00875R001500060014-1 Approved For Release 2004/0g? t IRCA=RDP85T00875R001500060014-1 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 on 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 th3re be a single, continuous transmission line from the East link- Marienborn checkpoint Scene of recent harassment Special Report 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 long-standing deadlock has permitted L;-,e 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 ponder 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 'hese 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 cr ' of borrowing funds in the West German and )currency markets could tempt the Soviets to shop elsewhere for the equipment they need. Thu3, the possibility of being cut out of the sizable Soviet investment projects with their pay- off--increased access to Sovic, raw materials-may motivate Bonn to subsidize credits in certain cases. The meeting with Brezhnev in October will come too soon for Schmidt to offer anything August 9, 1974 25X Approved For Release 20040/28 : I` -RDP85T00875R001500060014-1 Approved For Release 2004/09/ &- P85T00875R001500060014-1 25X1 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 Sovieis. 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 inuch favorable publicity from his visit as possible. The two coalition parties the Social Democrats and Free Democrats-fare stiff con- tests in two state elections on October 27; this may prompt the Chancellor to time the summit to garner the greatest political capital for his government. Tie 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 planned for the same time in Moscow. I 25X1 25X1 Special Report August 9, 1974 Approved For Release 2004/09/28 : CIA-RDP85T00875R001500060014-1 SECRET