WEST GERMANY UNDER ERHARD

Created: 12/18/1963

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NATIONAL INTELLIGENCE ESTIMATE

West Germany Under Erhard

TABLE OF CONTENTS

Page

THE

I ERHARD AND THE PROBLEM OF

IL ECONOMIC

HI. PROBABLE ATTITUDES ON MAIN ISSUES OF FOREIGN

A. RminiAcalion. Berlin, unit Kelulkms with tho Soviet

B West German Deleiue Policy. NATO, and the

C. Relations with Fiance and Eurojiean

JEW

WEST GERMANY UNDER ERHARD

THE PROBLEM

To estimate tlie immediate outlook Im* West Uermany under the leadership of Ludwig Erhard, with particular reference to West Germany's rule within the Western Alliance and itswith the Soviet Bloc fur the period up to the West German parliamentary elections in5

CONCLUSIONS

has taken over leadership in West GermanyArm hand und will in all probability be his party'sthe5 national election. His foreign andwill almost certainly continue to stress closethe US. He is by temperament more pragmatic andAdenauer iParan., 7.

like most West Germans, would like tu "doabout the division of his country and the plight ofGermans To make progress in this direction, he mayto offer economic inducements to the USSR (Paras.

considers NATO and the US presence vitalsecurity In discussions oirategy, Bonn willthat troops defending West Germany must haveaccess to tactical nuclear weapons if NATO'sis to succeed. Germany desires to Join the MLF,as the most politically feasible way ol gaining admittance to

' ThUmidp lu aatt Kithe Outlook for Wmiuly ISO? Munv ol Um btutrIn nib 'in im are -nil vullil

the nuclear club and hence more influence in the alliance.)

D. Erhard favors close European cooperation in the economic fleld. Including British association with the EEC. He isless enthusiastic about expanding the authority ol the EEC's institutions. On agriculture. Erhard will go someto get agreement both within ihe EEC and with the US; for domestic political reasons he is unlikely to be able to satisfy either France or the US. )

DISCUSSION

I. ERHARD AND THE PROBLEM Of LEADERSHIP

1 The Adenauer period tn West Germany has ended under clreum-stances which appear to augur well for the future The transfer ot power to the flfl-vear-old Erhard has proceeded smoothly. In the face o! Adenauer's persistent allegations that his heir-apparent lackedacumen and decisiveness. Erhard has moved vigorously andto assert his leadership since taking office in mid-October. As the most potent vote-getter In the Christian Democratic Christian Social Party iCDUe will lead his party in the coming campaign for the neat national parliamentary election in Septemberther leaders such as Foreign Minister Schroeder or Defense Minister vcn Hasael. whatever their ambitions to succeed Erhard, almost certainly recognise the necessity of postponing their hopesdenauer, though he still holds the potentially Important role of CDU chairman, has lost greatlv in power and influence with his departure from the Chancellorship.

evertheless. Erhard will have ta contendomplicated tangle ol divisions and rivalries which will almost certainly continue to exist beneath the surface In the CDU CSU These challenges are made more difficult by the knotty problems which WestIndeed the Alliance as aface In the next year or two in the fields of economic cooperation and defense policy. They are especially magnified by tha recent increaseeiman attention to the complex questions of reunification and reUUons with Eastern Europe and the Soviet Union Differences concerning foreign policy issues confronting West Germany have tended to deepen and exacerbate existing personal and political rivalries within the ruling CDU CSU.

3 Erhard will also be progressively more concerned with politicalas thelection draws nearer He will have toocial Democratic Party <SPD) which for the first time in the history of the Bonn Republic feels within striking distanceational victory. He may also be under increasing pressure to cater to and compromise with his coalition partner, tha Free Democratic Partyn certain issues The FDP. as the only small party which remain, on the national political scene, holds disproportionate power, since neither of the two major parties has an absolute majority In the Bundestag. Theshould not be excluded that tension between the coalitioncould bring down tha government even before3 election. This could result In the formationrand coalition of the CDU CSU and SPD

POLICIES

Erhard's reputation as the architect ot Germany's economicle already secure. Nevertheless, accelerated inflation and the reappearir.eeurplus in Germany's international payments may force him to consider modifying existing monetary and fiscal policies. Erhard's approach to the problem ot Inflation Is centered on budgetary restraint and appeals to management and labor lor moderation In price and wage policies. Thli policy will be somewhat undercut by hi* promise or tax reductionshe payments surplus, expected toillion dollars this year, in contrastmall deficit recorded2 arisestrengthened trade positionenewed inflow of private capital.

Aside iram these problems, whteh appear manageable, the German economy continues to show underlying strengthapacity forgrowth beyonc the extraordinary boom otheONP growthercent In real terms ror the current year is expectede exceededtimulatedtrong upswing in export ordersise in both production and orders for capital goods.

ATTITUDES ON MAIN ISSUES OF FOREIGN POLICY

n foreign affairs. Erhard's role will be to continue the policies of the previous administration, without appearing either Inflexible orin enterprise. He will have to defend himself against the criticism of such men as former Foreign Minister von Brentano. former Defense Minister Strauss, and Adenauerot whom resent their losa or power and doubt that the new cabinet can ba trusted to maintain the old policies. However, his keen personal Interest in assertingand thus giving the lie to Adenauer's frequent aspersions on his political Judgment and leadership, will be an Important force forin foreign policy. Bo too. will be the greater power of Foreign Minister Schroeder. who even under Adenauer was willing to risk the old Chancellor's censure on the teat ban Issue and to make clear his interest in achieving greater diplomatic flexibility ror Germany.

here is.eneral feeling in West Germany that foreign policy should be re-evaluated In the light of the Federal Republic'sstrength and importance, the competition between Paris and Washington for German larar. and athe USSR's economic problems and the Sino-Soviet split may improve the climate for fruitful negotiations between Moscow and the West. Erhard'sto foreign policy will reflect his awareness of these factors and the fact that he Is by temperament more pragmatic andr. Adenauer Erhard will show himself more willing to entertain new lines of action and will almost certainly net react to US moves with the suspicion characteristic of Adenauer's later years He almost rertalnlv

tecognlses. however, thai his real freedom of maneuver, with Wait Qer-mar.yu lt la at the very center of the East-West confrontation. Is extremely limited. He Is unlikely to make any approach to the Soviets without first consulting the US and possibly also Bonn's other major allies.

A. Reunification, Berlin, ond Relations with flatBloc

n his public and private statements since becoming Chancellor. Erhard has consistently supported present US policy toward tha Soviet Union and on Berlin and the Oerman problem Differences in approach to these issues may arise in the future, however, since in West Oerman eyes they are inextricably bound up with the subject of reunification. As West Qermany's strength has increased In recent years, so also has Its frustration at not being able to achieve any progress towardor any Improvement in the lot of Germans living In the Eastern Zone. Sentiment in favor of "doing something" about this has grown substantially throughout West Oermany since the Berlin Wall waa erected In1

nterea: in the possibilityore active Eastern policy has also coincided with Oerman industry's widening search for markets, with the expectations of possible movement in Soviet policy stimulated by the signing of the nuclear test bar. treaty Innd with the atmosphere of political speculation and discussion which developed as Adenauer's term of office drewll parties and all politicians, generally speaking, recognise that reunification on acceptable terms is unattainable for the foreseeable future, and virtually all Oerman leaders Insist that there can be no movement toward accommodation with the Soviet Union which is not linked to concessions on the Oerman problem However, there is considerable variation as to how this principle should be applied in practice.

* In tlur. Bonn hai already mada small move* toward Improvingith tha Kaat Kuropaan countries Pacts perailttlni the exchange of realdant trade muaaona iwithiplomatic staiuii have been concluded with Polandnd Rumania, andadai have Been signed with thewo. Negotiation, are now underway for similar arrangements with Csacnoslovakia and Bulgaria. In thaw negotiations the Weal Oarmans lucceaafutty Insisted that West Berlin be automatically included aa part of the "Deuuche Manend: presumably Ba aBlao ao with the other Satellite* The Satellite negotiator, had originally refused ihli ecneaeaion on the Basis of the Jong.held Bice thaila that the Federal RepuBllc has no authority or reiponalbiutlaa in Wast Berlin.

denauer has argued that the Soviet leadership Is In deep trouble over economic conditions and Its quarrels with the Chinese and that. If the West remains firm, ths USSR can be made toolitical price for Weatern economic help. Certain SPD leaders have

put forth, proposals ror more flexible Eutern oalicles. Berlin Mayor Willy Brand: In particular hu placed primary empnaiU or. trying to induce the Communists to eaae restrictions on the East OermanBusinessmen such aa Berthold Belti. genera) manager or Krupp. and like-minded element* in the FDP are interested In restoring historic Oerman economic pre-eminence in Eastern Europe, arguing thatSatellite contactynamic West Oermany will tend to Isolate the East Oerman regime and perhaps bring other politicalas well Belts has also expresaed interesti)or economic deal with the USSR Itself. He does not necessarily represent, however, the prevailing sentlmen* of Industry. Equally Influential spokesmen, such as Frtta Berg of the Federation of Oerman Industry, doubt that Increased trade with the Eaat ta feasible

himself has suggested that he would be willingy Westin the form ofreturn for Soviet concessions on reunification. Herealises that an offer of large-scale or long-term aid toBloc wouldost of problems within the Westernany event, whether or not Erhard puts forward new initiatives orIn coming months, he will make every effort to assure that theto extract concessions on the Oerman problem In anythe Soviet Union

possibility Is that the Soviets themselves may seekon Oerman hopes of progressettlement or theRepublic's outstanding problems with the East. On thefind It difficult to Imagine the Soviets offering the kind ofwhich would justify, in West Oerman eyes, the extensionaid or long-term credits. In the uneasy West Oermanhowever, even the hint that political concessions were incould be enough to stir up intensive political debate inunity of the government coallUon and perhaps Interalliedbe considerably bruised.

B. Wait Garmon Defense Polky. NATO, ond tha MLF

on the US and active participation In NATOcertainly continue to be the basis of West Oerman detenseand his colleagues recognise that US military andIs essential to Oerman security; they give no heed toof the party right wing which question the reliability ofand seek to play up the French connection For thisOermany la likely to remain more cooperative than otheron many military matters, as well as In making militaryoffset the foreign exchange coats af maintaining US gairlaonssoil. esult of Its continuing military buildup, the Federal

Republicteadily larger role in NATO defenses. West Qermanyignificant Increase in the combat readiness ol Itsith parallel Improvements in both naval and air forces.

Nevertheless, the West Oarmana. with their ipeclal circumstances and fears, will probably continue to pose some problems aa well. They will remain convinced that effective maintenance of Oerman territorial integrity In the lace of attack, under NATO's "forwardill depend on the defending troops' having immediate access to tactical nuclear as well as conventional weaponsesult the Oermana will remain hard to convince that the flexible response advocated by US military planners will either deter attack or defend Oerman soli

The extreme Was: Oerman sensitivity to any reduction of USstrength in Oermany will almost certainlyecurrent source of uneasiness in US-Qerman relations. Erhard is probably less suspicious on this score than was Adenauer, but will neverthelessclosely any US plans to alter US troop dispositions in West Oer-many He Is well aware of the pressures on the US lo cut down onexpenses and will be concerned lest balance of paymentscolor US military Judgments. Moreover, he will have to giveto the West Oerman press, which will continue to react emotionally to even the most limited and circumscribed US efforts to eliminateor redeploy units.

he Federal Republic hu been concerned to keep militaryunder control, and Is likely to be even more so under Erhard. The new Chancellor has already manifested an Interest in stabilizing the tax ourden and minimising inflationary pressures by limiting the growth of federal expenditures to tha rate of growth in ONP Should he apply this principle directly to the military budget, the Wei; Oerman military buildup will, as It has in the past, lag behind schedule to some extent.

est Oerman participation is of key importance to the proposed NATO multilateral nuclear force. We behave that the Oermana'to endorse this US proposal was motivated notesire to move toward acquisitionational nuclear capability, but rathereries of political considerations. They believe that the multilateral approach is the moat politically feasible method of gaining admittance to the nuclear club and hence of moving toward parity with their major European allies In Western, councils. They see the MLF as preferable to either an independent Oerman effort or some sort of bilateralwith France. They also do not want the MLF to degeneratewo-country program involving only the US and West Oermany They probably also reason that West Germany's willinffneaa toizable Investment In the MLF Is essential to Insure Its participation tn any future nuolear sharing. Some Oerman supporters of the MLF.

secret

Pur

especially Delenae Mlnls:et vor. Hassel. expect tha: It will ultimately developorce governed by majority vols. The Germans probably are also Inclined to cooperate with what they believe totrong US wishstablish the MLF In addition, tome Oerman* consider that che creation or the MLF would help aaauie continued US involvement in the defense of Europe. No significant shift In this generally pro-MLF attitude Is likely to be Initiated by the Erhaid administration.

C. Relations wlrh Franca and European Integrandn

rhard has so rai been cautious and noncommittal aboutwith France. His relations with de Qaulle will clearly not be as close as were those or Adenauer. He has nonetheless expresaed approval or the French-German pact ofnd has *ald that heto Improve cooperation between the two countries. Theor his two-day meeting with de Oaulle in3 was cordial.

IB Foi the Immediate future. German relations with France willto center on Common Market developments. Erhard's attitude toward the EEC has for some years conspicuously differed rrom those or both Adenauer and da Gaulle. The new Chancellor until recently has shown little interest In the political objectives of the Europeanmovement. Instead, he has been preoccupied with commercial and economic considerations and with promotingee trade. As Economics Minuter he supported formation of anFree Trade Area to include Britain and other states aa well aa the "EEC. He also favored measures to bridge the gap between the EEC and the seven-nation EFTA, after the latter organisation waa formed by the Britishounterweight to the EEC. Later, he strongly aupported Britain's application for admission to the EEC. Since becominghe has empruuised that the EEC must not degenerateelf-sufficient market,e integration of only six European countries cannot be considered "the ultimatend tha: efforts to intensify "internal European ties with Great Britain" must be an essential part or Germany's policy.

iberal economist. Erhard oppose* the central direction and economic planning idiiiaUmai Implicit in the EEC. and has never been enthusiastic about giving up national powers to supranational instltu-Uons auch aa the EEC Commission. Erhard's dislike of supra nationality and of European "technocrats" recalls that of de Oaulle. The possibility cannot be excluded, therefore, that Erhard might react aympathetically should de Gaulle revive hie plano-called "political union" of the Six along essentially intergovernmental lines. The German Chancellor would probably insist, however, that any auch plan leave open anfor Britain's participation.

ithin the EEC. Ihe ma|or difficulty facing Krhard la the complex problem ot agriculture. Thli is inontinuing source of tension In relations with France. On the crucial Issue of EEC grain support prices. Erhard haa indicated that he may be receptiveompromise bated on the Mansholt proposal which was put forward by the EEC Commission, and which would reduce significantly the present high Oerman price level Regulations affecting othercommodities must also be worked out. Because the EEC has chosen to link agricultural decisions with adoption of Iti position for next year's Kennedy Round negotiations, the prospects for significanttn tariff and non-tariff barriers will dependarge extent on the EEC'solving Its agricultural problems In all these matters, Erhard must reckon with the factubstantial segment of the CDU CSU votei's are farmers, and accordingly we believe that Erhard will be unwilling to go further ln lowering the Oerman price level than called for by the EEC Commission proposal

n many key problems affecting US-West European economicErhardtrong luppor.er of present US positions. Hismost Wast Oerman industries assubstantial reductions of trade barriers in the Kennedy Round. Erhard willto Influence the Common Market to pursue liberal policies and. aa already Indicated, to keep open the possibility of closer Britishwith the EEC.

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