Deutsche Mark Diplomacy: Positive Economic Sanctions in German-Russian Relations

Deutsche Mark Diplomacy

Deutsche Mark Diplomacy POSITIVE ECONOMIC SANCTIONS IN GERMAN-RUSSIAN RELATIONS

RANDALL

NEWNHAM

the pennsylvania state university press university park, pennsylvania

Library of Congress Cataloging-in-Publication Data

Newnham, Randall Everest, 1966– Deutsche mark diplomacy : positive economic sanctions in German-Russian relations / Randall Newnham. p. cm. Includes bibliographical references and index. ISBN 0-271-02220-5 (cloth : alk. paper) 1. Germany—Foreign economic relations—Russia (Federation). 2. Russia (Federation)—Foreign economic relations—Germany. I. Title.

HF1546.15.R9 N494 2002 337.43047⬘09⬘04—dc21

2002009842

Copyright 䉷 2002 The Pennsylvania State University All rights reserved Printed in the United States of America Published by The Pennsylvania State University Press, University Park, PA 16802-1003

It is the policy of The Pennsylvania State University Press to use acid-free paper for the printing of all books. Publications on uncoated stock satisfy the minimum requirements of American National Standard for Information Sciences—Permanence of Paper for Printed Library Materials, ANSI Z39.48–1992.

Contents

Acknowledgments vi List of Tables viii 1 Introduction and Theory

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2 German-Russian and German-Soviet Relations Before 1945 3 The Chill of the Cold War, 1945–1987

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4 Setting the Stage for Reunification, 1987–1990 5 Reunification and After 6 Conclusion

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Appendix: Trade Statistics 317 Bibliography 321 List of Interviews 333 Index 337

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Acknowledgments

This project would not have been possible without the help of many institutions and individuals who provided vital funding, research and writing assistance, and moral support. My thanks to you all! I would first like to acknowledge the DAAD (German Academic Exchange Service), the UCLA International Studies and Overseas Program, and the Center for German and European Studies at UC Berkeley, all of which provided funding for the initial research stages of this project. DAAD also funded a return visit to Germany in the summer of 2000, which helped me to update my work on German-Russian relations. The Penn State Berks campus also provided generous funding for both research and production costs associated with the book. Dr. Carl Lovitt, Associate Dean for Academic Affairs, is particularly deserving of my thanks. Much of the research for this book was carried out in Germany and Russia. The support of the Federal Institute for Eastern and International Studies (BiOst) in Cologne was especially important, particularly the library staff and Dr. Fred Oldenburg. The help of the University of Cologne, the Stiftung Wissenschaft und Politik, and the Deutsche Gesellschaft fu¨r Auswa¨rtige Politik was also vital. Many interview partners in both government and academia in Germany and Russia gave generously of their time. They are listed at the end of the book. Additional research help was provided by the Penn State library staff, both at Berks Campus and University Park. While writing this book, I received vital early criticism and help from Richard Rosecrance, Ron Rogowski, and Andrzej Korbonski of UCLA. Several colleagues at the RAND Corporation also provided important assistance, notably Tom Szayna and Ron Asmus. Later, Michael Mastanduno of

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ACKNOWLEDGMENTS

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Dartmouth and George Shambaugh of Georgetown helped me to greatly improve the manuscript. Of course the staff of the Penn State Press, most notably my editor, Sandy Thatcher, played an indispensable role. Lisa Weidman of Penn State Berks also provided vital help in preparing the manuscript. Finally, I must give credit to my family, my wife, Dr. Janet Graden, and to many colleagues and friends at Penn State who helped me see this project through to a successful conclusion. I couldn’t have done it without you. June 2002

List of Tables

1.1 1.2 1.3 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 3.1 3.2

4.1 5.1 6.1 6.2

Economic/Political Linkage (1) Economic/Political Linkage (2) Economic/Political Linkage (3) Trade Between Prussia and Russia, 1860–1870 (millions of rubles) Foreign Investment in Russia, 1914 The Role of Germany and Britain in Russian Foreign Trade Before 1914 German-Soviet Trade in the Weimar Era Soviet Share of German Exports, 1934–1923 Selected German-Soviet Joint Companies German Credits to the USSR, 1926–1932 German-Soviet Trade, 1933–1938 Soviet Trade with Western Countries, 1961–1968 (millions of rubles) Western Exports of Machinery and Manufactured Goods to the Eastern Bloc, 1974 (figures are percentages or millions of U.S. dollars, as indicated) Soviet Debt in the 1980s German Aid to the USSR and CIS, 1989–1993 Linkage in German-Russian and German-Soviet Relations Effectiveness of Types of Linkage as seen in Table 6.1

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17 18 19 61 74 75 83 84 85 88 95 143

164 190 287 292 304

1

Introduction and Theory

It has often been said that Germany is an ‘‘economic giant and a political dwarf.’’ However, this is clearly untrue; when a country is an economic giant it will inevitably be a political giant as well.

—Gerd Leptin, Freie Universita ¨ t Berlin, Osteuropa Institut, April 1994

In 1945, Albert Hirschman published his classic study on the manipulation of trade to gain security advantages, National Power and the Structure of Foreign Trade.1 Hirschman’s primary case study was Germany’s economic manipulation of Eastern Europe in the 1930s. He showed that Germany was able to exploit its strength in trade and technology to pave the way for its military conquests in the Second World War. While today’s Germany 1. Albert Hirschman, National Power and the Structure of Foreign Trade (Berkeley and Los Angeles: University of California Press, 1945).

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does not seem to share the expansionist objectives of that era, as in the 1930s it is clearly the most important economic force in the region.2 Perhaps the most dramatic recent demonstration of this power took place when German economic aid played a major role in securing Moscow’s consent for German reunification.3 Indeed, as this study will show, Germany’s relations with its Eastern neighbors have always been striking examples of the role of economic power in gaining political and security advantages in international relations. Thus these relations can serve as a rich case field for testing new theories of economic statecraft. This book makes two major theoretical points. First, it shows that economic statecraft is far more common in international affairs than many theorists have believed. It does this by developing the new concepts of specific and general economic linkage. Specific linkage—the only kind studied by most authors—occurs when a state directly links economic actions to a political demand on a target state. Yet states also frequently employ general economic linkage, using economic aid or penalties to influence a country in a general way—strengthening friends, weakening enemies, and conditioning both to respond to some future political demand.4 This second common type of economic statecraft is ignored by much of the existing literature on economic sanctions. Additionally, as we shall see, both of these types of linkage can be accomplished by using dozens of different economic instruments, ranging from trade and investment sanctions to foreign aid to indirect aid through multilateral organizations. Only by conceptualizing linkage in this broad way, encompassing both specific and general types and many different types of instruments, can we see how truly important it is in world affairs. This represents a significant improvement over many existing works on economic linkage, which focus narrowly on one type of linkage and one economic instrument. The second, and even more important, theoretical contribution of this work is to test the relative effectiveness of positive and negative economic 2. For a good discussion of Germany’s economic power, see Andrei Markovits and Simon Reich, The German Predicament: Memory and Power in the New Europe (Ithaca: Cornell University Press, 1997), esp. chap. 11. 3. See the discussion in Chapters 4 and 5. For more details on this case, see Randall Newnham, ‘‘The Price of German Unity: The Role of Economic Aid in the German-Soviet Negotiations,’’ German Studies Review 22 (October 1999): 421–46. 4. As Mastanduno notes in a recent review of the field that adopts my new specific/general terminology, general linkage can also be called ‘‘long-term engagement’’ if it involves economic aid, or ‘‘economic warfare’’ if it involves sanctions. Michael Mastanduno, ‘‘Economic Statecraft, Interdependence and National Security: Agendas for Research,’’ Security Studies 9 (autumn 1999–winter 2000): 303.

INTRODUCTION AND THEORY

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sanctions.5 Surprisingly, to date no major study has attempted to make this seemingly obvious comparison. For both theoretical and policy reasons it is absolutely vital to compare positive and negative sanctions. The area of positive sanctions remains undertheorized, as many authors have pointed out.6 Indeed, even many current authors continue to debate the efficacy of sanctions by referring only to negative instruments, completely neglecting the vast array of positive inducements states can employ.7 It is not surprising, then, that in their recent work David Cortright and George Lopez note that their ‘‘most important’’ conclusion is that positive sanctions may be more useful than many believe, and that ‘‘analysts should investigate the relative effectiveness of [negative] sanctions as compared with other instruments, including their inverse, economic incentives.’’8 This work will be the first to attempt to meet that challenge. The frequent neglect by theorists is especially surprising when one can open any major newspaper and see daily reports of states using many types of positive economic linkage, from traditional development assistance to politically motivated trade treaties and investment agreements. Clearly, policymakers have great faith in the efficacy of positive sanctions. This study attempts to show why. This first chapter of the study introduces both these theories of economic linkage and the substantive area that I used to test them: German relations with Russia and the USSR. We begin with an overview of the literature on economic linkage. In the past the area was often neglected by both of the major schools in International Relations theory, realism and liberal5. Some analysts believe that the term ‘‘sanctions’’ should be reserved only for negative instruments and prefer to use terms such as ‘‘economic incentives’’ for positive instruments such as foreign aid. See, for example, William Long, ‘‘Trade and Technology Incentives and Bilateral Cooperation,’’ International Studies Quarterly 40 (1996): 77–106. However, this work will adopt the usage of authors such as David Baldwin and Klaus Knorr, who have used ‘‘sanctions’’ as an umbrella term embracing both rewards (positive sanctions) and punishments (negative sanctions). 6. Baldwin, for example, notes that before the mid-1980s few authors writing about the role of economics in international relations even cited Hirschman’s definitive study of positive sanctions. David Baldwin, Economic Statecraft (Princeton: Princeton University Press, 1985), 53. As we shall see, however, this situation is gradually changing today. 7. See, for example, the debate between Robert Pape, Kimberly Elliot, and David Baldwin in International Security. Robert Pape, ‘‘Why Economic Sanctions Do Not Work,’’ International Security 22 (fall 1997): 90–136; Kimberly Elliot, ‘‘The Sanctions Glass: Half Full or Completely Empty?’’ International Security 23 (summer 1998): 50–65; Robert Pape, ‘‘Why Economic Sanctions Still Do Not Work,’’ International Security 23 (summer 1998): 66–77; and David Baldwin and Robert Pape, ‘‘Evaluating Economic Sanctions,’’ International Security 23 (fall 1998): 189–98. 8. David Cortright and George Lopez, eds., Economic Sanctions: Panacea or Peacebuilding in a Post–Cold War World? (Boulder, Colo.: Westview, 1995), 202, 205–6.

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ism. Yet in recent years, as we shall see, the field has undergone a notable revival. This work aims to be a part of this new literature. The next section briefly discusses the large range of economic instruments states can potentially use for linkage and presents a typology that can be used to classify the various forms of economic sanctions. As noted above, I distinguish specific from general sanctions and positive from negative sanctions. The third section of this chapter focuses in more detail on positive sanctions. This section discusses a number of reasons—involving psychology, economics, and other factors—that make it possible for positive sanctions to be more effective than negative ones. Yet even positive sanctions are certainly not infallible; this section also examines a number of conditions necessary for such sanctions to succeed. Hence the groundwork will be laid for the two major conclusions of this study: sanctions can be used in a surprisingly large range of cases, and positive sanctions in particular can be surprisingly effective. In short, one may indeed be able to catch more flies with honey than with vinegar.9 In the final section of Chapter 1, we discuss the cases that were examined to test these theoretical views and the methodology that was used in performing this test. Why were the German-Russian cases selected for analysis? First, Germany’s economic advantage over Russia has persisted for a very long time; indeed, as we shall see, it can be traced to well before 1870, when Germany was initially unified as a modern state. Hence there are many different historical cases in which economic linkage has been attempted by the Germans. These cases include all four of the sanction types discussed here: specific, general, negative, and positive. This allows the study to compare the effectiveness of all these sanction types, showing clearly that positive sanctions have been more effective overall. Furthermore, as we shall see, the German-Russian cases provide a fairly difficult test for the effectiveness of linkage. Linkage has been used across a wide variety of issue areas, including very contentious ‘‘high-political’’ issues related to national security— issues that many would consider to be beyond the reach of such a ‘‘weak’’ tool as economic linkage. Additionally, Russia has historically been much more powerful, especially in military terms, than Germany’s other Eastern neighbors; indeed, it often has seemed to have more power than Germany itself. Thus it might be expected that Russia would be largely invulnerable to German economic linkage; even in times of economic hardship Russia 9. See Randall Newnham, ‘‘More Flies with Honey: Positive Economic Linkage in German Ostpolitik from Bismarck to Kohl,’’ International Studies Quarterly 44 (March 2000): 73–96.

INTRODUCTION AND THEORY

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would be able to counter German economic influence with the threat of military force. Finally, over the period studied, from the era of Chancellor Bismarck to that of Chancellor Kohl, the regimes involved on both sides of the linkage attempts have ranged from monarchies to fascist and communist dictatorships to democratic governments. This variation allows us to test the level of effectiveness of economic leverage against all types of regimes. If any type of linkage can be shown to play a role across such a wide range of difficult issues and diverse regimes, between two relatively equal powers, its importance in real-world politics can be taken as proven. The remaining parts of this book examine the various German-Russian cases of economic linkage in more detail and summarize the importance of these cases for the study’s theoretical arguments. Chapter 2 discusses the roots of German economic influence in Russia, which dates to the Middle Ages, and examines cases of bilateral linkage attempts from the mid-1800s to the Second World War. Chapter 3 focuses on numerous cases of attempted economic linkage by West Germany, covering the period up to 1987, when the full importance of Mikhail Gorbachev’s ‘‘New Thinking’’ in Soviet foreign policy began to become apparent. Chapters 4 and 5 deal with German-Russian/Soviet negotiations since 1987, during and after the period of reunification, which as the most recent major case in this work will be covered in some detail. Finally, Chapter 6 sums up the study’s conclusions and attempts to answer some of the questions about economic linkage raised at the beginning of the work.

The Reemergence of Theories of Economic Linkage This section provides a theoretical overview of the topic of economic linkage. First, we focus on the overall treatment of the topic in the International Relations literature. Next, we briefly discuss the range of possible instruments of economic linkage and classify them into a new typology, which can be used to evaluate various cases of economic sanctions in world affairs. In the following section we focus more narrowly on the importance of positive sanctions and on the conditions necessary for their success. For some years after 1945, the insights of authors such as Albert Hirschman were often neglected or marginalized by International Relations theorists. This is particularly striking given the fact that by the 1970s a general consensus had begun to emerge among analysts that trade and other international economic ties were now more important than ever in world af-

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fairs.10 In the past both the realist and liberal schools have often been too quick to dismiss the role of linkages between economic and security issues. Unfortunately, the neglect of the topic by those theorists continues to impact many of today’s authors. Nonetheless, as we shall see, in recent years economic linkage has again become a major focus of important scholarship. This has been particularly true for the formerly neglected area of positive sanctions. It is perhaps not surprising that representatives of the realist school of International Relations were among the foremost exponents of the view that international economic ties were of secondary importance in world affairs—‘‘low’’ politics, as opposed to the ‘‘high’’ politics of international security issues. The events of the Second World War and the conditions that existed immediately after 1945, which were crucial in shaping the realist outlook, seemed to vindicate that viewpoint. Economic statecraft was widely seen as having failed to stop aggression in the 1930s, as for example when the League of Nations’ 1935 sanctions failed to halt the Italian invasion of Ethiopia. In the end, the only way to stop the Axis powers was military force. Similarly, after 1945 the primary arena of the U.S.-Soviet conflict was military competition. The overwhelming power and reach of nuclear weapons during the Cold War seemed to confirm the centrality of military matters. A case can be made, however, that the failure of the economic sanctions efforts of the 1930s was largely due to lack of will on the part of the sanctioning states rather than to any particular inherent fault in the concept of economic leverage. It could also be argued that the United States’s single most important victory in the ‘‘long twilight struggle’’ against Soviet Communism, the rescue of Western Europe from Soviet influence immediately after the Second World War, was due largely to the economic statecraft of the Marshall Plan. It could further be argued that the actual military engagements of the Cold War—such as the wars in Korea and Vietnam—were peripheral to the final outcome. The incredible power of both sides’ military arsenals ironically made it impossible to secure victory through military means. Ultimately, the Cold War was ended when Mikhail Gorbachev, act10. Objective measures of international economic links—trade flows, capital flows, communication links, even international labor migration—have all been rising sharply for some time. See, for example, figures cited in Richard Rosecrance, The Rise of the Trading State: Commerce and Conquest in the Modern World (New York: Basic Books, 1986), chap. 7. The rising importance of economic matters can be seen in the resurrection of political economy as a subfield of international relations in the late 1960s to mid-1970s. The trend toward emphasizing economic problems was further strengthened by the end of the Cold War, the world’s central military rivalry.

INTRODUCTION AND THEORY

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ing in large part because of the USSR’s relative economic weakness, began to reform the Soviet Union’s economy—and eventually found it necessary to reform its foreign policy and political system as well.11 Nonetheless, for the realists military-based balance of power thinking remained the order of the day. Many realists did include economic strength as one component of their definitions of national power. As Robert Gilpin puts it, ‘‘Power refers simply to the military, economic, and technological capabilities of states.’’12 However, economic power was still seen as a subordinate factor by the realists. For example, despite the fact that the Soviet and U.S. economies were declining in relative terms compared to Germany, Japan, and other states, it was clear to realists that the world remained basically bipolar until the collapse of the USSR—since military power was the most important component of overall power. When Kenneth Waltz devised neorealism,13 he was even more explicit in his definition of power. Waltz wanted to reduce power to a simple, identifiable variable—and thus seemed to focus even more clearly on military force. Although his definition of power was still formally a broadly defined capability index, which included a state’s GNP, it was clear that military power was the real causal variable. Realists have tended to see economic power as relevant only if it can be converted directly into military power. For example, the United States in the late 1930s had substantial civilian economic resources that could quickly be mobilized for use in the Second World War. Thus, it was potentially far more powerful than its meager armed forces suggested at the time. As Gilpin puts it: ‘‘Treasure was needed to purchase arms, hire soldiers, and finance foreign campaigns.’’14 However, relatively little thought was given to the possibility that ‘‘treasure,’’ in and of itself, could be important in shaping outcomes in ‘‘high’’ politics. In contrast, the liberal school of International Relations theorists has speculated since the 1950s about the emerging primacy of economic issues, particularly in relations between capitalist, democratic states.15 However, this focus often seems to neglect large parts of the world in which relations are more conflictual. For example, in their work Power and Interdepen11. Gorbachev’s motivations will be discussed in more detail in Chapter 4. 12. Robert Gilpin, War and Change in World Politics (Cambridge: Cambridge University Press, 1981), 13. 13. Kenneth Waltz, Theory of International Politics (New York: Random House, 1979). 14. Gilpin, War and Change, 125. 15. See, for example, the early works of Karl Deutsch and Ernst Haas, centering on the increasing integration which was arising in Western Europe beginning in the 1950s.

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dence, Robert Keohane and Joseph Nye analyze cases drawn from U.S.Canadian and U.S.-Australian relations.16 Not surprisingly, they find that in cases such as these, economic issues take precedence. For example, in fishing rights disputes with Canada, the United States will negotiate a fair solution rather than exploiting its military muscle to force a resolution in its favor. In reality, an observation such as this is not very surprising. Canada and the United States are both democratic, free-market states and members of the same alliance system. Furthermore, fishing rights are hardly an issue of central importance in security terms. Thus, the outcome in such a case is overdetermined; everything points to a nonmilitary mode of dispute resolution. In dealing with ‘‘economic statecraft,’’ a state’s use of economic means to pursue its foreign policy goals, liberal theorists have faced two large problems. First, they have tended to believe that conflict between states is inevitably disappearing and thus issues of power are automatically of declining importance and of little scholarly interest. Second, they have tended to believe that economics, a main vehicle by which the world is transforming itself in this new, peaceful liberal age, is somehow especially unsuited to being used as a tool of statecraft. Both of these concepts are implicit in the concept of increasing interdependence, which lies at the heart of the liberal theoretical structure. However, it should be remembered that even such seemingly peaceful measures as the granting of foreign aid—a favorite liberal foreign policy prescription—remain inextricably linked to issues of power. This fact has long been a source of consternation to the mainly liberal scholars who write in the area of development theory. A good example of their thinking can be found in Robert Zimmerman’s study of U.S. foreign aid policy.17 Zimmerman castigates the United States for devoting the vast majority of its foreign aid budget to supporting politically important states such as Egypt, Israel, Pakistan, and El Salvador, a policy which has adversely affected the aid programs’ development goals. Yet is it not possible, indeed probable, that political goals took precedence in the minds of U.S. policymakers and thus the fact that development goals were sacrificed is entirely understandable? Indeed, Zimmerman grudgingly admits that politically motivated aid has obtained several ‘‘short-term successes.’’ Among these he includes the 16. Robert Keohane and Joseph Nye, Power and Interdependence: World Politics in Transition (Glenview, Ill.: Scott, Foresman, 1989). 17. . Robert F. Zimmerman, Dollars, Diplomacy, and Dependency: Dilemmas of U.S. Economic Aid (Boulder, Colo.: Lynne Rienner, 1993).

INTRODUCTION AND THEORY

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Marshall Plan, the Camp David accords, obtaining Pakistan’s support in arming the Afghan rebels, obtaining numerous military and intelligence bases around the world, and ‘‘the generally successful containment of Soviet efforts to extend communist influence throughout the Third World.’’ Zimmerman even credits politically motivated foreign aid as having been indirectly responsible for ‘‘political reform in the Soviet Union itself and the Soviet withdrawal from Eastern Europe.’’18 The author does not seem to realize that this list contains virtually every major U.S. foreign policy success in the last fifty years, and thus is dramatic proof that economic/political linkage can in fact be very effective. It is, of course, possible, as Zimmerman argues, that using foreign aid purely for development—with no political strings attached—can also be an indirect, long-term means to achieve U.S. ‘‘high-political’’ goals, since prosperous countries tend to become democratic and pro-Western. Yet this path is slow and uncertain, and there is no justification for simply asserting that it should take priority over a more directly politically motivated foreign aid strategy. It seems that both the realists and the liberals have tended to see the world from a limited perspective. The realists focus too exclusively on the use of military force to solve security problems; the liberals (as well as many writers in International Political Economy) focus on the use of economic power to solve economic problems, and seem to assume that security problems will simply disappear. By and large, neither side has devoted enough time or study to the linkages between these two types of power. Within these dominant perspectives, though, lay the seeds of a strong reemergence of the literature on economic statecraft, which has steadily gathered steam in recent years. One such alternative view was the notion of ‘‘asymmetrical interdependence,’’ advanced by Keohane and Nye. This concept tempers the familiar liberal concept of ‘‘interdependence’’ with a useful note of political realism. The approach shows that economic ties, even those which create mutual interdependence, are not free of a power element. As the authors note: ‘‘It is asymmetries in dependence that are most likely to provide sources of influence for actors in their dealings with one another. Less dependent actors can often use the interdependent relationship as a source of power in bargaining over an issue and perhaps to 18. Ibid., 3. The Marshall Plan’s success is mentioned on page 8. Zimmerman’s logic in attributing Gorbachev’s reforms in part to U.S. foreign aid is as follows: U.S. aid strengthened Third World resistance to Communism (notably in Afghanistan, although the same can be said for the Third World as a whole); thus the Soviets’ ‘‘costs of empire’’ (to use the phrase of Charles Wolf ’s study) increased; thus reform became inevitable.

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affect other issues.’’19 However, Keohane and Nye do not apply this notion explicitly to linkages between economic and political issues. In an afterword added to the second edition, they admit that ‘‘the lack of extensive analysis of issue linkage in Power and Interdependence must have struck some observant readers as one of the oddest aspects of our book.’’20 It is apparent, though, that the power derived from asymmetries in economic interdependence could potentially be made fungible to other issue areas. Another element of a useful alternative view is the concept of ‘‘trading states’’ and ‘‘territorial states,’’ developed by Richard Rosecrance.21 Rosecrance divides the states of the world into two groups. Territorial states are those which focus on territorial control and the military as the ultimate source of state power. In short, they see the world in ‘‘realist’’ terms. Trading states, in contrast, have come to see that peaceful economic exchange can be more beneficial than conquest. In other words, they see the world in ‘‘liberal’’ terms. Since 1945, some major states—such as Japan and Germany—and a number of minor states (particularly in East Asia and Western Europe) have moved decisively in a ‘‘trading’’ direction. The United States has also increased its reliance on world trade. The economic opening of the former communist bloc is an even more striking example of a move toward a ‘‘trading’’ orientation. The strength of Rosecrance’s outlook, like Keohane and Nye’s concept of asymmetrical interdependence, is that to some extent it bridges the gap between the liberal and realist worldviews. While Rosecrance agrees with the liberals that interdependence is increasing and the ‘‘trading state’’ bloc is growing, he agrees with realists that the world remains a dangerous place and that many territorial states will remain in place for a long time to come. However, a large weakness remains in the trading state argument. What is a trading state to do when it is faced by neighbors who are still primarily territorial? Realist political theorists believe that the trading state will, for reasons of self-defense, ultimately be forced to become just as territorial as its neighbors. How can this fate be avoided? Simply put, the trading state must develop a way to achieve its security goals by taking advantage of its trading orientation—by using its economic power. Even during the Cold War period, when many scholars understandably saw military statecraft as the dominant factor in world affairs, a literature emerged which discussed the political effects of the West’s trade and tech19. Keohane and Nye, Power and Interdependence, 10–11. 20. Ibid., 253. 21. Rosecrance, Rise of the Trading State.

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nology sanctions against the East bloc. More recent studies have continued to explore this period.22 By the late 1970s and 1980s some new theoretical studies of economic sanctions also emerged, a few of which even began to explore the question of positive sanctions. For example, in his classic work The Power of Nations, Klaus Knorr explicitly deals with both positive and negative sanctions, placing them alongside military force as important sources of state power.23 David Baldwin, in his book Economic Statecraft and in several published articles, focuses even more closely on the use of economic sources of power.24 Baldwin is particularly interested in defending economic statecraft against the commonly held perception that ‘‘sanctions never work.’’ To this end he has reviewed many classic cases of the ‘‘failure’’ of economic sanctions and has shown that often the sanctions were far more effective than some observers had claimed.25 Today an increasing number of International Relations scholars are attempting to pursue such insights. Particularly in the years since the end of the Cold War, more and more works on economic sanctions have begun to appear. Unfortunately, many of these still focus entirely on negative sanctions.26 For example, the work still regarded as the most definitive 22. See, for example, Thomas Baylis, The West and Eastern Europe: Economic Statecraft and Political Change (Westport, Conn.: Praeger, 1994); Abraham Becker, ‘‘Economic Leverage on the Soviet Union in the 1980s,’’ RAND Paper R-3127-USDP, July 1984; Gary Bertsch, ed., Controlling East-West Trade and Technology Transfer: Power, Politics, and Policies (Durham, N.C.: Duke University Press, 1988); Beverly Crawford, Economic Vulnerability in International Relations: East-West Trade, Investment, and Finance (New York: Columbia University Press, 1993); Philip Hanson, Western Economic Statecraft in East-West Relations: Embargoes, Sanctions, Linkage, Economic Warfare, and Detente (London: Routledge & Kegan Paul, 1988); Bruce Jentleson, Pipeline Politics: The Complex Political Economy of East-West Energy Trade (Ithaca: Cornell University Press, 1986); Michael Mastanduno, Economic Containment: COCOM and the Politics of East-West Trade (Ithaca: Cornell University Press, 1992); and the collection of articles in Foreign Policy, no. 38 (fall 1978): 63–106, including contributions by Samuel Huntington, Franklyn Holzman and Richard Portes, John Kiser, Maurice Mountain, and Robert Klitgaard (see bibliography). 23. Klaus Knorr, The Power of Nations: The Political Economy of International Relations (New York: Basic Books, 1975). 24. Baldwin, Economic Statecraft. See also in particular Baldwin’s article ‘‘The Power of Positive Sanctions,’’ World Politics 24 (October 1971): 19–39. 25. Baldwin, Economic Statecraft, chaps. 8–10. 26. See, for example, Cortright and Lopez, Economic Sanctions, and idem, The Sanctions Decade: Assessing UN Strategies in the 1990s (Boulder, Colo.: Lynne Rienner, 2000); William Kaempfer and Anton Lowenberg, International Economic Sanctions: A Public Choice Perspective (Boulder, Colo.: Westview Press, 1992); Makio Miyagawa, Do Economic Sanctions Work? (New York: St. Martin’s Press, 1992); and David Leyton-Brown, ed., The Utility of International Economic Sanctions (New York: St. Martin’s Press, 1987). For numerous other citations from this literature, see the excellent bibliography in Baldwin, Economic Statecraft, and the more recent review article by Michael Mastanduno, ‘‘Economics and Security in Statecraft and Scholarship,’’ International Organization 52 (autumn 1998): 825–54.

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study on sanctions, Gary Hufbauer and Jeffrey Schott’s Economic Sanctions Reconsidered, mentions only negative instruments.27 Given this focus, current debates over whether sanctions ‘‘work’’ often assume that only negative sanctions are relevant, as was the case in the exchange between Kimberly Elliot, Robert Pape, and Baldwin in recent issues of the journal International Security.28 However, there has also been a notable revival of interest in the area of positive sanctions, which had seemed particularly neglected during much of the Cold War, perhaps because the ‘‘weapon’’ of economic incentives seemed too gentle to be effective in the harsh world of international relations. Recent works have detailed the use of a wide variety of different economic incentives in many different circumstances and periods. For example, authors such as Neil Richardson and Charles Kegley, Joanne Gowa, Edward Mansfield and Rachel Bronson, Paul Papayoanou, and Lars Ska˚lnes have examined the effectiveness of trade incentives in foreign policy.29 William Long has explored the power of technology incentives.30 Steven Hook, Peter Schraeder, and others have explored the use of foreign aid conditionality as a general policy tool.31 Other authors, meanwhile, have more closely linked economic aid to specific measures of policy compliance. Examples of these studies include examinations of the UN voting records of recipient states by E. R. Wittkopf, Kegley and Hook, and Marianne Linger.32 Others, 27. Gary Hufbauer and Jeffrey Schott, Economic Sanctions Reconsidered: History and Current Policy, 2d ed. (Washington, D.C.: Institute for International Economics, 1990). 28. See note 7. 29. Neil Richardson and Charles Kegley, ‘‘Trade Dependence and Foreign Policy Compliance: A Longitudinal Analysis,’’ International Studies Quarterly 24 (1980): 191–222; Joanne Gowa, Allies, Adversaries, and International Trade (Princeton: Princeton University Press, 1994); Edward Mansfield and Rachel Bronson, ‘‘Alliances, Preferential Trading Arrangements and International Trade,’’ American Political Science Review 91 (1997): 94–107; Paul Papayoanou, ‘‘Interdependence, Institutions, and the Balance of Power: Britain, Germany, and World War I,’’ International Security 20 (spring 1996): 42–76; and Lars Ska˚lnes, ‘‘Grand Strategy and Foreign Economic Policy: British Grand Strategy in the 1930s,’’ World Politics 50 (July 1998): 582–616, and When International Politics Matters: Grand Strategy and Economic Discrimination (Ann Arbor: University of Michigan Press, 2000). 30. Long, ‘‘Trade and Technology Incentives,’’ and idem, Economic Incentives and Bilateral Cooperation (Ann Arbor: University of Michigan Press, 1996). 31. Steven Hook, National Interest and Foreign Aid (Boulder, Colo.: Lynne Rienner, 1995); and Peter Schraeder et al., ‘‘Clarifying the Foreign Aid Puzzle: A Comparison of American, Japanese, French, and Swedish Aid Flows,’’ World Politics 50 (January 1998): 294–323. 32. E. R. Wittkopf, ‘‘Foreign Aid and United Nations Votes: A Comparative Study,’’ American Political Science Review 67 (1973): 868–88; Charles Kegley and Steven Hook, ‘‘U.S. Foreign Aid and UN Voting: Did Reagan’s Linkage Strategy Buy Deference or Defiance?’’ International Studies Quarterly 35 (1991): 295–312; and Marianne Linger, ‘‘Foreign Aid and Recipient Voting Behavior in the UN, 1990–1995’’ (paper presented at International Studies Association conference, Toronto, 1997).

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such as David Cingranelli and Thomas Pasquarello and Patrick Regan, have linked aid to compliance with Western expectations in areas such as human rights or democratic governance.33 Still another interesting set of studies, by authors such as Thomas Bernauer and Dieter Ruloff, Cortright, and Leon Sigal, have examined the ability of positive incentives to persuade states to disarm.34 This entire emerging literature is important to this study, which will stress the efficacy of positive sanctions. However, it too suffers from a critical flaw; it generally looks only at one type of positive instrument at a time, thus both understating the true role of linkage in world affairs and making it impossible to compare different types of linkage. Finally, some studies have begun to appear which do include both positive and negative linkage strategies. However, these often are in the form of edited volumes, such as the recent work by Steve Chan and A. Cooper Drury.35 Generally such volumes simply contain chapters by different authors describing various cases of linkage; little effort is made to explicitly compare the cases or draw conclusions about the overall efficacy of various types of sanctions. Only a few recent works, such as Daniel Drezner’s The Sanctions Paradox, have advanced a more comprehensive theory of sanctions.36 Thus it is clear that, despite recent advances, the current literature on sanctions still suffers from several flaws—which this study seeks to address. First, too many studies still define sanctions exclusively in negative terms. Second, even studies that address positive sanctions often focus only on one type of instrument. Finally, both types of studies usually fail to compare positive and negative sanctions at all, and none has yet done so in a systematic way. 33. David Cingranelli and Thomas Pasquarello, ‘‘Human Rights Practices and the Distribution of U.S. Foreign Aid to Latin American Countries,’’ American Journal of Political Science 29 (1985): 539–63; and Patrick Regan, ‘‘U.S. Economic Aid and Political Repression: An Empirical Evaluation of U.S. Foreign Policy,’’ Political Research Quarterly 48 (September 1995): 613–28. See also the interesting study showing that private investment also promotes human rights: David Richards et al., ‘‘Money with a Mean Streak? Foreign Economic Penetration and Government Respect for Human Rights in Developing Countries,’’ International Studies Quarterly 45 (2001): 219–40. 34. Thomas Bernauer and Dieter Ruloff, The Politics of Positive Incentives in Arms Control (Columbia: University of South Carolina Press, 1999); David Cortright, ed., The Price of Peace: Incentives and International Conflict Prevention (New York: Rowman and Littlefield, 1997); Leon Sigal, Disarming Strangers: Nuclear Diplomacy with North Korea (Princeton: Princeton University Press, 1998). 35. Steve Chan and A. Cooper Drury, eds., Sanctions as Economic Statecraft: Theory and Practice (New York: St. Martin’s Press, 2000). 36. Daniel Drezner, The Sanctions Paradox: Economic Statecraft and International Relations (Cambridge: Cambridge University Press, 1999).

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How can this work productively build on the new literature on economic statecraft? First a crucial definition is needed: what exactly is ‘‘economic linkage’’? This question has been a vexing one, given that authors writing on the subject use terms such as ‘‘sanctions,’’ ‘‘incentives,’’ and ‘‘leverage’’ in a variety of ways. This section answers this question in two ways, first by noting the broad range of instruments of economic leverage governments can employ. In particular we show that instruments can have a large impact on the private sector—an important factor, given that private corporations now control most trade and investment flows in the world. Second, we present a comprehensive typology of economic sanctions, which, as noted above, encompasses specific, general, negative and positive sanctions, thus making possible systematic classification and comparisons between the types of linkage. The range of possible economic instruments is far broader than many analysts assume. Many cases of economic linkage are missed when a study focuses only on one particular instrument; this defect has flawed most past studies of linkage. The diversity of linkage options can be seen by listing some possible economic incentives (positive economic sanctions). Direct government loans and grants are one key economic weapon. To a relatively poor state, such aid may be valuable enough to be worth major political concessions. The total annual U.S. foreign aid budget, for example, while lower than it has been in the past, is far larger than the GNP of many small Third World countries. A small adjustment in this budget may thus be hugely important to a small, poor state. States may also, of course, use trade as an incentive, by lowering tariffs or removing other barriers to trade, or by offering export credits on concessionary terms. They may facilitate access to investment or other private financial flows to the target state, for example by encouraging private banks to make loans to that country. Access to specific desirable commodities, such as advanced technology, can be a powerful incentive. In addition, a state may be able to give its partner economic benefits in more indirect ways, for example by helping the target state in deepening its economic links to other trading states or to multilateral institutions. For example, in 1990–91 Germany promised Poland and other Central European states that it would help facilitate their links to the European Community if certain bilateral political issues were resolved. Naturally, all these positive incentives can also be reversed to become negative sanctions, thus again doubling the already extensive range of policy instruments. The fact that states can shape conditions in areas such as trade and invest-

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ment points to a key area of economic linkage often neglected by those studying sanctions: achieving international political objectives through the manipulation of private firms.37 Including this phenomenon greatly increases the range of observable economic linkage cases. Currently, many political scientists stress the relative weakness of national governments, claiming that large corporations are increasingly able to control international economic ties.38 Nonetheless, the role of the government in this area remains large, even in relatively laissez-faire states such as Britain and the United States. And as Alexander Gerschenkron and others have suggested, the state has historically played an even larger economic role in later-developing capitalist countries such as France, Japan, and Germany.39 In another example, George Shambaugh has recently shown that it is possible in some circumstances for states to successfully apply sanctions to enforce extraterritorial compliance with their export control laws by foreign firms.40 Private trade and investment decisions can be influenced by national governments in many ways. For example, when a powerful Western state extends export loan guarantees to a tottering Third World nation, private creditors often will rush to follow suit. If pressed, these private lenders would deny that they are acting at the behest of the government; they would state that they are responding to their own independent cost/benefit calculus. Yet no one can fail to see the role of governments in shaping such a private calculus. Indeed, such government efforts can be particularly effective, since they can facilitate private trade or credit flows that multiply the government’s financial power many times over. This is the case in many areas, ranging from government guarantees for loans extended by private banks to government-backed export insurance, which facilitates private trade shipments to a target country. Even more indirectly, a state may be able to hold out the promise to a target state that if certain political/security issues are resolved, the general atmosphere between the countries will be improved, and that this, in itself, will lead to a rise in private economic ties. 37. For more details on this argument, see Randall Newnham, ‘‘Corporations and Governments as Foreign Policy Partners: The Case of Economic Sanctions’’ (paper presented at the annual meeting of the International Studies Association, Los Angeles, March 2000). 38. See, for example, such works by Susan Strange as ‘‘States, Firms, and Diplomacy,’’ International Affairs (London) 68, no. 1 (1992): 1–15, and The Retreat of the State: The Diffusion of Power in the World Economy (Cambridge: Cambridge University Press, 1996). 39. Alexander Gerschenkron, Economic Backwardness in Historical Perspective: A Book of Essays (Cambridge: Harvard University Press, 1962). 40. George Shambaugh, States, Firms, and Power: Successful Sanctions in United States Foreign Policy (Albany: SUNY Press, 1999), 6.

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Such an approach has formed an important part of Japan’s campaign to regain the Kurile Islands from Russia. The government’s role in guiding private economic decisions is particularly clear in economic ties with states that are not part of the liberal world trading order, that is to say, between ‘‘trading’’ and ‘‘territorial’’ states. Several reasons can be put forward for the large governmental role in links between trading and territorial states. First, within many territorial states a stable capitalist trading order has not been established, or at least not established securely. Thus private businesses and banks cannot operate as freely as they can within the trading world. They depend on political conditions, which are under the control of the states involved. Furthermore, since firms naturally tend to be risk-averse, many will avoid ties with ‘‘unreliable’’ territorial states entirely. Thus these states are forced to rely on foreign states for capital and economic aid. The ‘‘seal of approval’’ provided by good political/security ties to a prominent trading state, however, may be enough to persuade firms that the risks of doing business with a particular territorial state are acceptably low. In cases of asymmetrical interdependence, the role of the trading state’s government is further strengthened. Even if a state can control only a small proportion of its own resources (either directly, as through foreign aid, or indirectly, through influencing private economic activity) the absolute amount involved may loom large to the target state. When national security interests are involved—as was the case in economic ties between East and West during the Cold War—political considerations play a particularly large role.41 To cite but one example: the COCOM (Coordinating Committee) organization, which enforced Western technology sanctions against the East, was not universally effective. However, its mere existence and the relatively high degree of obedience it enjoyed are testimony to the potential power of trading states to influence private economic matters if the political considerations involved are important enough. For all the reasons outlined here, it is clearly disingenuous for corporations to claim that their investment, lending, and trade decisions are made purely on ‘‘nonpolitical’’ grounds. As recent scholarship has clearly shown, political factors do have an impact on international trade patterns. William Dixon and Bruce Moon, for example, show that the proportion of U.S. trade conducted with states that ‘‘share a basic philosophy and foreign policy stance’’ with the United States is far higher than would be predicted by 41. See note 22.

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economic factors alone. Similar results are seen in the studies of authors such as Gowa, Mansfield, and Ska˚lnes.42 Clearly, particularly when the role of state influence on private actors is included, the range of possible economic linkage instruments is extremely great. As we will see later in this study, all these instruments have been used in the German-Russian case field. However, in order to truly build upon the work of the various authors in the field of economic sanctions, it is necessary to move beyond simply listing and describing various instruments. It would be far better to construct a systematic typology that can be used to classify all the various types of linkages. Table 1.1 is a first-cut typology of the varieties of linkage between economic and political power, where ‘‘political’’ refers to high-political power and goals. However, this typology does not focus adequately on what is conventionally considered linkage. ‘‘High-political’’ power (such as military force or threats) being used for ‘‘high-political’’ gains is the major subject of current International Relations literature. From alliance politics to arms control, high politics / high politics linkage is already well studied. Similarly, economic/economic linkage is the major area of interest of much of the literature on such issues as international trade and tariffs, and has been central to the discipline of International Political Economy. Only the two mixed cases—economic/political and political/economic—fit the normal definition of linkage politics, in which two dissimilar issue areas are ‘‘linked’’ to further the foreign policy goals of the initiating party. Furthermore, this initial linkage typology fails to distinguish between various types of economic linkage. As we shall see, the distinction between positive and negative sanctions is particularly important. A second typology, proposed by Angela Stent in her 1981 analysis of the role of economic policy in German-Soviet relations, is more useful as it inTable 1.1 Economic/Political Linkage (1) Economic power Political power

Economic goals

Political goals

Economic power used for economic goals Political power used for economic goals

Economic power used for political goals Political power used for political goals

42. See Joanne Gowa and Edward Mansfield, ‘‘Power Politics and International Trade,’’ American Political Science Review 87 (1993): 408–20, and William J. Dixon and Bruce E. Moon, ‘‘Political Similarity and American Foreign Trade Patterns,’’ Political Research Quarterly 46 (March 1993): 5–25. See also Gowa and Mansfield, Allies, Adversaries, and International Trade, and Ska˚lnes , ‘‘Grand Strategy,’’ and idem, When International Politics Matters.

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corporates the negative/positive distinction and focuses only on the mixed cases mentioned above.43 This typology can be seen in Table 1.2. Stent’s typology outlines the range of possible linkage strategies. It embraces the policy options of both sides in a typical linkage negotiation. The two boxes on the right represent the likely strategies of a ‘‘trading’’ state, that is, a state whose power is primarily economic. It attempts to employ that economic power to gain in the ‘‘high-political’’ arena, where it is weaker. Conversely, a state that is stronger in ‘‘high-political’’ power (a territorial state, to use Rosecrance’s terminology) will be tempted to exploit that power to gain economic benefits, as is shown in the left two boxes of Stent’s typology. Thus, for example, during the Cold War one might expect to find an economic power such as Germany initiating an economic-political linkage in its ties to the USSR, such as offering economic aid in return for Soviet concessions on a ‘‘high-political’’ issue such as the political status of Berlin. Conversely, one would expect the Soviet Union to initiate political-economic linkage, offering concessions on Berlin’s status in return for economic aid. Indeed, as Stent finds, such linkages played an important role in postwar German-Soviet relations. In this study, too, we will see several instances in which Russia or the USSR—normally seen as the target of German economic influence attempts—initiated such a ‘‘reverse’’ linkage. Before proceeding further, however, one final refinement in the typology of linkage strategies would be helpful. This study focuses primarily on the strategies of economic powers that seek to initiate linkage, and only secondarily on the reciprocal strategies of noneconomic powers. In any case, economic-political linkage is what is commonly understood under the rubric of ‘‘economic statecraft,’’ the term used by Baldwin, or Hirschman’s concept of the manipulation of trade for political advantage. Thus it would be useful to focus the typology exclusively on different varieties of ecoTable 1.2 Economic/Political Linkage (2)

Negative sanctions Positive sanctions

Political power used for economic goals

Economic power used for political goals

Negative political sanctions used for economic goals Positive political sanctions used for economic goals

Negative economic sanctions used for political goals Positive economic sanctions used for political goals

43. Angela Stent, From Embargo to Ostpolitik: The Political Economy of West German-Soviet Relations, 1955–1980 (Cambridge: Cambridge University Press, 1981), 19. Note that Stent does not present this typology as a 2x2 matrix but as a list. It has been converted to matrix form in order to match the other figures used in this section.

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nomic-to-political linkages. This last typology, which is used throughout the rest of this study, is presented in Table 1.3. As noted above, the specific versus general distinction is a new one, created for this study. It has been added to better differentiate the most common types of economic-political linkages. A purely ‘‘specific’’ linkage would be found in a case in which an economic instrument is linked directly to a target state’s behavior on one political issue. An example of specific negative sanctions would be the U.S. grain embargo against the USSR following the Soviet invasion of Afghanistan, which was specifically designed to punish the Soviets for that one action and to force a withdrawal if possible. Similarly, in the realm of positive sanctions, Taiwan has long rewarded the few states in the Third World willing to recognize it instead of mainland China with economic aid.44 In both cases, a specific instrument is being used to reward or punish a state for a specific act. Conversely, a good example of negative general sanctions is the U.S.led Cold War embargo of technology sales to the Soviet bloc, while the contrasting U.S. policy of promoting trade and other economic ties with the East bloc during the de´tente era would be a case of positive general sanctions. In both cases, the rewards and punishments were meted out in an effort to influence the overall behavior of the target states, rather than in response to specific acts. Such policies are often mentioned by other authors, who may refer to them by such labels as ‘‘economic warfare’’ (negative linkage) or ‘‘long-term engagement’’ (positive).45 However, these policies are generally considered separately from ‘‘economic sanctions,’’ which are often falsely defined as consisting only of specific sanctions. This has the effect, unfortunately, of greatly understating the role of economic linkage in world politics. Admittedly, not every case of economic sanctions is easy to classify as specific or general; some may lack a clear objective or may have several obTable 1.3 Economic/Political Linkage (3) Negative sanctions Positive sanctions

Specific sanctions

General sanctions

Negative specific sanctions (Carter grain embargo) Positive specific sanctions (Taiwan aid for recognition)

Negative general sanctions (COCOM sanctions) Positive general sanctions (De´tente trade promotion)

44. See Randall Newnham, ‘‘Embassies for Sale: The Purchase of Diplomatic Recognition by West Germany, Taiwan, and South Korea,’’ International Politics 37 (September 2000): 259–84. 45. See, for example, Mastanduno, ‘‘Economic Statecraft,’’ 303–4.

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jectives. Nonetheless, the basic conceptual difference between an instrumentalist approach to economic linkage (specific sanctions) and a more indirect approach (general sanctions) remains important. The specific/general distinction is especially valuable because it makes it possible to see a policy of general trade promotion or economic aid as a form of economic leverage (positive general sanctions), even if no immediate political quid pro quo is demanded. This greatly expands the number of cases of linkage that can be seen in world affairs. Sometimes, as in Germany during the era of Ostpolitik, leaders may choose to promote trade with a rival state or rival bloc. It may be politically expedient for them to deny that any sort of linkage politics is taking place. The strategy may be promoted as a way to ‘‘depoliticize trade,’’ in comparison with more restrictive policies of negative linkage (embargoes and sanctions). Nonetheless, such policies, like the United States’s moves to increase trade with the USSR in the early 1970s and South Korea’s current attempts to ‘‘depoliticize’’ trade with North Korea, remain ultimately linked to politics. The underlying logic of such attempts, as expressed in the interdependence literature, is to envelop an opponent in a soft net of economic ties, with the objective of reducing political tensions. Thus it remains a way of exercising economic power, by persuading an opponent to change its political actions in a way amenable to the initiating state—or alternatively, by persuading a friend to become even closer.46 Positive general sanctions are merely a more subtle, gradual means of reaching the same political ends sought by any form of linkage strategy. The second key distinction made in this typology of economic linkage is between negative and positive forms of linkage. Just as many authors ignore general sanctions, positive sanctions are often neglected as well—which again greatly understates the true role of economic linkage in world affairs. When negative and positive instruments are mentioned, they are usually studied in isolation, which makes any comparison between them impossible. This study, however, attempts to compare their effectiveness. Negative sanctions may be used to prepare the ground for positive sanctions, and vice versa. As Baldwin demonstrates, negative sanctions can be 46. Thus, as Ska˚lnes shows, it is logical for a state to promote trade with a friendly state it hopes to win as a formal ally, as Britain sought to bolster its trade with the United States when the Second World War loomed on the horizon. Ska˚lnes, ‘‘Grand Strategy,’’ and idem, When International Politics Matters. Similarly, in the early 1890s Germany sought to boost trade with Austria-Hungary and Italy, who were to become its allies in the Triple Alliance. See Robert Mark Spaulding, Osthandel und Ostpolitik: German Foreign Trade Policies in Eastern Europe from Bismarck to Adenauer (Providence: Berghahn Books, 1997), 43.

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used to shift a target state’s baseline of expectations to the point where the removal of the negative sanctions is seen as a positive reward.47 For example, Baldwin credits the Carter administration with having successfully created a bargaining chip by freezing Iranian assets in the United States during the 1979–80 hostage crisis.48 By the end of the crisis, Iran saw the return of its own assets as a sufficient reward to justify the release of the hostages. Conversely, positive sanctions can be used to pave the way for future negative sanctions. Hirschman, in his study of Nazi Germany’s economic tactics in Eastern Europe in the 1930s, shows that Hitler’s regime awarded lavish trade treaties to states in the region. This generous behavior was, as one might expect given the objectives of the Third Reich, not altruistic. By paying prices higher than world market rates the Germans created dependency in the neighboring states, to the point that the states’ export production was largely specialized for the German market. The slightest threat of negative sanctions—cutting off the favored trade relationship—thus became a powerful political tool. The distinction between positive and negative sanctions remains valid. They simply must be measured from whatever the starting point is in a particular bilateral relationship. As Jason Davidson and George Shambaugh stress, this baseline of expectations is crucial.49 Any move to improve ties from this baseline is a positive sanction; any move to reduce them, a negative one. Thus, for example, if the United States were to offer Israel $1 billion in annual aid, this would actually be a negative sanction, since current aid levels are much higher. For a state receiving no aid, of course, the $1 billion offer would be a major positive sanction. Conversely, during the Cold War a U.S. decision to allow some limited exports of computer technology to the East bloc would have been seen as an important positive sanction. However, if the United States were to inform an ally like Great Britain that it was moving from free trade to allowing only some limited technology exports, this would be a major negative sanction. In all, as will be seen in the studies in this book, it is always important to describe the baseline of economic relations before deciding whether a particular economic step represents a positive or negative sanction. The primary conceptual focus of this work is on the value of positive sanctions. As will become clear in the next section, there are a number of reasons for choosing this approach. 47. See Baldwin, ‘‘Power of Positive Sanctions,’’ 23–27. 48. Baldwin, Economic Statecraft, 251–61. 49. Jason Davidson and George Shambaugh, ‘‘Who’s Afraid of Economic Incentives? The Efficacy-Externality Tradeoff,’’ in Chan and Drury, Sanctions as Economic Statecraft, 42–44.

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The Power of Positive Sanctions Among the most intriguing notions brought up by authors such as Knorr and Baldwin is the idea that positive economic sanctions are potentially as important as negative sanctions. This study argues, in fact, that they can be even more effective. This section begins by exploring a number of reasons for this effectiveness. Positive sanctions can deepen a target state’s dependence on the initiating state, and thus its vulnerability to future sanctions. Positive instruments are less threatening than negative ones, and thus are psychologically more effective. The use of positive sanctions also promotes positive feelings in the target state which spill over to other aspects of the bilateral relationship. Positive tools may be better able than negative ones to make the donor a focus of emulation, thus promoting norm change in the target state. Positive instruments are generally seen as noncoercive; in terms of economics literature, their use allows both sides to benefit, reaching higher levels of satisfaction as measured by indifference curves. Positive sanctions provide economic benefits that can be channeled to specific interest groups—thus winning them over as allies within the targeted state. Positive sanctions are also immune to the problem of cheating, which lessens the effectiveness of negative sanctions—and increases the costs of enforcing them. Furthermore, they do not cause collateral damage to friendly states, as negative sanctions do. When all these factors are taken into account, it becomes clear that the old saw ‘‘you can catch more flies with honey than with vinegar’’ rests on some solid analytical ground. Still, despite the advantages of positive sanctions, no form of power can be perfectly effective. Thus this section will conclude by asking: Under what specific circumstances are positive sanctions most likely to succeed? The idea that positive sanctions may be more effective than negative ones flies in the face of much conventional wisdom in the political science community and in the general public. As mentioned above, many authors have tended to downplay the significance of economic statecraft in general. This tendency is especially pronounced for positive economic sanctions. For those leaning toward the realist approach, economic aid and related forms of positive sanctions carry the onus of appeasement. Rewarding a potential opponent seems foolish and self-defeating to proponents of a zero-sum world based on military power. For those leaning toward the liberal approach, it seems heretical to seriously study economic aid as a form of political influence. Liberals tend to see economic aid as a peaceful, altruistic force that is ill-suited for the crass purposes of power manipulation. In fact,

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though, aid may be designed to be both idealistic and influential, and the two goals may indeed be, not mutually exclusive, but mutually reinforcing. The first advantage of positive linkage was noted recently by Davidson and Shambaugh,50 just as it was seen by Hirschman over fifty years ago in his study of German relations with Eastern Europe in the 1930s. Economic incentives can induce economic dependence. Once the target is dependent on the initiating state for aid, trade, or investment, it becomes more vulnerable to any type of sanction in the future. Of course, a wise target state may be aware of this. For example, as we shall see in this study, Moscow was sometimes reluctant to allow Germany to deepen bilateral economic ties, since it feared becoming dependent. Still, the seduction of economic incentives is difficult to resist. Conversely, negative sanctions have the counterproductive effect of forcing the target state to find new economic partners, thus lessening its dependence on the initiating state. Later, when the initiator tries to employ new sanctions of any type, it will find that its leverage over the target has decreased. A second important advantage of positive sanctions is that they are generally not seen as threatening by the target state. Negative sanctions cause resentment in and of themselves, which must be added to the resentment the target already feels at being asked to change its political behavior. Yet that state sees the initiating country very differently when positive sanctions are used. As Baldwin noted in a pioneering 1971 article, positive sanctions ‘‘tend to convey an impression of sympathy and concern for [the target state’s] needs, [while] negative ones tend to convey an impression of indifference or actual hostility.’’51 This insight has long been recognized in the psychological study of interpersonal relationships and in the field of behavior modification. As Knorr puts it, ‘‘Promises are commonly taken as less unfriendly than threats as a way of manipulating relationships.’’52 However, only a few recent authors, such as James Davis, have followed up carefully on this topic.53 A third major advantage to the use of positive sanctions is the role of the spillover effect into other issue areas or future relations in general between the two states. If positive sanctions are used, the spillover will likely be posi50. Ibid., 40–41. 51. Baldwin, ‘‘Power of Positive Sanctions,’’ 32. 52. Knorr, Power of Nations, 8. 53. James Davis, Threats and Promises: The Pursuit of International Influence (Baltimore: Johns Hopkins University Press, 2000). Davis’s use of prospect theory to differentiate between incentives and sanctions also fits well with the discussion of the importance of a target’s baseline of expectations.

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tive; if negative sanctions are used, it will be negative.54 Thus, for example, states which have been showered with U.S. foreign aid naturally tend to view the United States in a more positive light than do the present governments of Libya or Cuba, long the victims of negative sanctions. Thus in the future one would expect that the United States would find the former group of states more willing to support U.S. policies than the latter. Both negative and positive economic sanctions have been used in attempts to change the norms of other states.55 As Martha Finnemore and Kathryn Sikkink note in their review of the literature on norms, ‘‘socialization’’ by other states is instrumental in inducing reluctant states to adopt an emerging international norm. This socialization ‘‘involves diplomatic praise or censure, either bilateral or multilateral, which is reinforced by material sanctions or incentives.’’56 Yet positive economic linkage, with its positive spillover effects, makes the initiating state appear to be a friend; this means that the target state may be more willing to adopt norms promoted by the initiator. As Deborah Larson notes in studying the emergence of an international norm of reciprocity, states will generally reciprocate positive behavior by another state, especially if that state is seen as making concessions that are costly to it and are not made out of obvious self-interest.57 Economic aid is ideally suited as a tool to induce reciprocity, since it is obviously costly to the donor and unambiguously beneficial to the recipient, especially if it is not explicitly linked to immediate political concessions (in other words, if general rather than specific linkage is used). As Larson notes, however, states that have an image of inherent bad faith will find it more difficult to induce reciprocity in their negotiating partners. She cites the example of the Soviet Union, which in her view made many small concessions to the United States in the 1950s and 1960s that were not reciprocated by the U.S. leadership. The United States was so convinced of the USSR’s inherent bad faith that it did not take the Soviet concessions seriously.58 Similarly, Germany needed decades of patient diplomacy after the Second World War, coupled with economic aid and other concessions, 54. Baldwin, ‘‘Power of Positive Sanctions,’’ 32. 55. On the impact of negative sanctions in inducing norm change, see, for example, Audie Klotz, Norms in International Relations: The Struggle Against Apartheid (Ithaca: Cornell University Press, 1995). Negative U.S. sanctions against Burma, China, and the USSR for human rights abuses could also be cited. 56. Martha Finnemore and Kathryn Sikkink, ‘‘International Norm Dynamics and Political Change,’’ International Organization 52, no. 4 (autumn 1998): 902. 57. See ‘‘Norms and Emulation in International Behavior,’’ UCLA Center for International Relations, January 1994, unpublished conference report, 16. 58. Ibid.

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to convince its Eastern neighbors that it was, indeed, a ‘‘new Germany’’ which could be trusted. Similarly, Daniel Drezner notes that in cases where fear of future conflict is high, target states will be very reluctant to make political concessions when threatened with negative sanctions.59 Here again positive sanctions could be more effective, since they reduce fear of future conflict in such tense situations. Additionally, since positive economic sanctions are generally less coercive than negative sanctions, they are able to avoid the attack of analyses which raise objections to the possibility of using economic sanctions in a coercive way. R. Harrison Wagner, for example, attempts to show that economic power can only be used noncoercively—as part of an exchange which brings both parties to a mutually beneficial outcome.60 Wagner’s logic can be extended to give an economic grounding for the notion that ‘‘carrots’’ may be more effective than ‘‘sticks’’ as a form of economic leverage. Assuming that states desire some mixture of economic prosperity and territorial security, a state can make a mutually beneficial deal with another state if, as an economist would put it, its ‘‘factor endowments’’ in military power or economic power differ from those of the other state. A wealthy but insecure state will value an additional increment of security more than one of prosperity. If its partner has the opposite preference, a mutually beneficial exchange can be made in which one state gives money or aid in return for concessions in the world of security or high politics. During the Cold War, for example, it was only natural for the wealthy (but insecure) West Germans to attempt to ‘‘buy’’ additional increments of security from the poor (but militarily powerful) USSR. However, if negative economic sanctions are used at the start of the negotiations, the bargaining partner is immediately pushed to a lower indifference curve—that is, forced to unilaterally decrease its level of ‘‘satisfaction.’’ This type of coercive bargaining may be less likely to produce the desired result. As Wagner shows, it will be difficult for one state to force another to accept an absolutely lower level of satisfaction by economic means alone. The economic benefits provided by positive sanctions have another advantage: they provide the means to influence particular interest groups in the targeted state. Inevitably, the aid provided will not go to all sectors of 59. Daniel Drezner, ‘‘The Complex Causation of Sanction Outcomes,’’ in Chan and Drury, Sanctions as Economic Statecraft, 216–17. 60. R. Harrison Wagner, ‘‘Economic Interdependence, Bargaining Power, and Political Influence,’’ International Organization 42, no. 3 (summer 1988): 461–83.

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society equally. The sectors that benefit most will try to defend their new prosperity; they thus will become natural allies of the initiating state, pressuring their government to comply with that state’s political demands. If trade incentives are given, one would expect the economic sectors benefiting from the increased trade to agitate for political concessions. This effect was seen clearly by Long in his study of U.S. economic linkage. For example, he shows that the U.S. offer to allow civilian nuclear power plants to be exported to Sweden in the 1960s won the support of key Swedish electric and technology companies. These business leaders then persuaded their government to accede to the U.S. demand that it abandon its independent nuclear program, which Washington feared could have led to nuclear weapons.61 If the initiating state is wise, it will deliberately target its aid to influence important interest groups. As we shall see, for example, at the time of German reunification West Germany targeted much of its aid to the Soviet Red Army, a group which posed a large direct threat to unification.62 The army had military power; and it also had political influence in Moscow as a conservative force respected by traditional communists and nationalists. This aid paid off in the end, as the army command decided to support reunification and the pullout of Soviet troops from the former GDR. Similarly, the United States is currently targeting the military-industrial complex of the former USSR with the Nunn-Lugar (Cooperative Threat Reduction) plan, which funds weapons laboratories and the dismantling of nuclear weapons, hence giving the military and defense workers an incentive to favor continued cooperation with the United States.63 In fact, economic aid may even help to promote the rise of new economic and political groups that may encourage change in the ‘‘target’’ state’s regime. As Drezner notes in his recent work, trade incentives will strengthen the trade-dependent sector, making its voice all the more influential in the target state. If direct grants or loans are given, these too will benefit specific groups, who will then be beholden to the initiating state.64 The result may ultimately be a new regime with new norms, which is willing to cooperate with the initiating state’s demands. 61. Long, ‘‘Trade and Technology Incentives.’’ 62. See the description in Randall Newnham, ‘‘Army for Sale? The End of the Western Group of Forces,’’ in Theodore Karasik, ed., Russia and Eurasia Armed Forces Review Annual, 1992–93 (forthcoming). 63. Jason Ellis, ‘‘Dollar Diplomacy and Nuclear Non-Proliferation: The Case of NunnLugar’’ (paper presented at International Studies Association conference, San Diego, 1996); Bernauer and Ruloff, Politics of Positive Incentives. 64. Drezner, ‘‘Complex Causation,’’ 214.

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An additional important advantage of using positive sanctions also stems from economic logic. Negative economic sanctions generate a powerful economic incentive for ‘‘cheating.’’ Embargoes and other trade restrictions lead to a huge pent-up demand in the target state, and third parties—even those which are politically friendly to the initiating state—are tempted to break the sanctions by trading with the target state. Thus, for example, proWestern states such as Argentina and Australia eagerly sold grain to the Soviet Union when the United States imposed a grain embargo to punish the USSR for its invasion of Afghanistan. Such actions can greatly lessen the effectiveness of negative sanctions. At the very least, the constant temptation to ‘‘cheat’’ creates the need for complex and costly enforcement mechanisms, of which the COCOM system and the ongoing blockade of Iraqi oil sales can be cited as examples. In today’s globalized world this problem has only gotten worse. More countries and more corporations can provide substitutes for the trade goods or investment funds under embargo.65 In contrast, when positive sanctions are used, there is no economic incentive to work against the sanctions. When the United States gives economic aid to a regional ally, such as Israel, it can be sure that politically neutral or pro-American countries will have no incentive to sabotage that aid. There is, of course, the possibility that a politically motivated opponent may attempt to defeat the positive sanction by ‘‘outbidding’’ the initiator. Thus, for example, the United States and the USSR effectively entered into an bidding war for the allegiance of Egypt in the 1950s and 1960s. Yet such a challenge will be difficult to mount, since it is not economically beneficial to the challenger; it is economically costly. Thus, only a relatively wealthy and highly motivated opponent can derail an ‘‘aid offensive.’’ Finally, there is one other economic problem with negative sanctions which can be avoided by using positive instruments: collateral damage to friendly states. For example, Western Europe was harmed by U.S. pipeline sanctions against the Soviets during the Cold War. More recently, Turkey and Jordan suffered losses from UN sanctions against Iraq, and countries such as Macedonia, Romania, and Bulgaria were impacted by sanctions against Serbia. Thus, as Cortright and Lopez note, successful negative sanctions may require expensive economic aid to offset such collateral damage.66 Positive sanctions do not have this problem. In fact, if a target state is given economic aid, its neighbors can benefit from the resulting increase 65. Curtis Martin, ‘‘The U.S.-North Korean Agreed Framework: Incentives-based Diplomacy after the Cold War,’’ in Chan and Drury, Sanctions as Economic Statecraft, 91. 66. Cortright and Lopez, Economic Sanctions, 205.

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in prosperity. Thus, negative sanctions tend to alienate one’s friends as well as the target state. Positive sanctions, meanwhile, help to deepen economic ties—and thus friendships—with current allies as well as with the target country. Considering all these factors, it becomes clear that positive sanctions may in fact be potentially more effective than negative ones. This is not to say, however, that negative sanctions are never justified or never effective. For example, a sudden outburst of negative behavior on the part of the target state should probably be answered with negative rather than positive sanctions; otherwise the target will think that its bad behavior is being rewarded and see no reason to stop it. Negative sanctions also can serve a valuable role by shifting a target state’s baseline perceptions of what is ‘‘normal’’ in economic ties with the initiating state. If a state is subject to negative sanctions for long enough, even a restoration of the most modest trade and investment ties can be seen as a powerful positive sanction—one worth reciprocating with political concessions. Thus, for example, after years of interruption in West German–Soviet trade, the prospect of a simple trade treaty with Bonn was enough to induce Moscow to make concessions to the Germans in the mid-1950s. Similarly, as noted above, President Carter’s actions in freezing Iran’s assets in the United States gave Washington a valuable negotiating chip that could later be ‘‘conceded’’ to the Iranian regime. Finally, if a state is hostile and represents an imminent military threat, negative sanctions may be necessary to help reduce the target’s capabilities—regardless of the fact that such sanctions may aggravate the political tensions between the states. If one accepts that there are some good reasons to believe that positive economic sanctions can be surprisingly effective compared with negative ones, one must next ask under what conditions such sanctions can be successfully used. As Baldwin noted in 1979, we must always remember that in studying any form of power its scope must be specified and the analyst must remember that it may not be fungible in all situations. Still, he also stated that ‘‘no power resource begins to approach the fungibility of money.’’67 Yet even positive sanctions can only be successful if several conditions are met. The initiating state must possess an economic advantage over the state being targeted. It must also maintain military deterrence. The targeted state must have some concern for the economic well-being of its citizens. Finally, 67. David Baldwin, ‘‘Power Analysis and World Politics: New Trends Versus Old Tendencies,’’ World Politics 31 (January 1979): 166 and 192.

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the initiating state must have a clear goal and the economic instruments used must be proportionate to that goal. If these conditions are met, few types of regime and issue areas remain beyond the reach of well-designed positive sanctions. First, the initiating state must obviously have an economic advantage over the target state. Essentially, this precondition is the same as that laid down by Hirschman almost sixty years ago. If a state can induce another to be economically dependent on it (or set up a relationship of asymmetrical interdependence, in the terminology of Keohane and Nye), it can gain bargaining power over noneconomic issues. How should this dependence be measured? Some authors, such as Shambaugh, insist on very careful use of a single indicator, such as economic dominance within a specific trade sector.68 This study takes a somewhat broader approach, since it examines a large range of sanction types and instruments, and contends that economic asymmetries are often fungible between different issue areas. Thus macroeconomic indicators play an important role in showing economic asymmetry exists. What are the states’ overall standards of living? Is the target state in debt to the initiator, and if so, how does this compare to its debts to other states? How much of a role do the states play in world trade? What are the trade and investment flows between them, and how important are they to each side? As we shall see, for a poorer, more isolated state a certain volume of trade will loom far larger than for a wealthy ‘‘trading state.’’ Of course, more specialized sectoral indicators do also play a role. Is the initiating state able to control a large share of the target’s imports or exports in a particular critical sector, such as technology or natural resources? Does the target have countervailing power in some sectors? As Rosecrance indicates,69 if the target possesses unique resources—such as strategic raw materials—the trading state carrying out the sanctions will find its leverage greatly weakened. In contrast, if the trading state possess unique resources, it will have a decisive advantage. For example, in the early 1980s the United States was very worried that the Soviet natural gas pipeline to Western Europe would make that region economically dependent on the USSR. In the end, though, it became clear that Western Europe’s high-technology products, rich export markets, and financial support were far more important to the USSR than the gas was to Western Europe. 68. Shambaugh, States, Firms, and Power, 5, 14. 69. Richard Rosecrance, ‘‘Reward, Punishment, and Interdependence,’’ Journal of Conflict Resolution 25 (March 1981): 31–46. See especially the table on page 34.

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Second, the sanctioning country must maintain minimum military deterrence. Keohane and Nye bluntly state that ‘‘military power dominates economic power in the sense that economic means alone are likely to be ineffective against the serious use of military force.’’70 There have indeed been cases in world history of states that have relied exclusively on economic power being conquered by rivals with substantial military might. This was seen clearly in the Iraqi invasion of Kuwait. The Kuwaiti government mistakenly believed that its substantial oil reserves and financial power would enable it to deflect any Iraqi security threat, while in fact those riches, with virtually no armed force to defend them, merely presented a tempting military target to Saddam Hussein. Similarly, as we shall see in this study, the Soviet decisions to erect the Berlin Wall and to crush the Prague Spring in 1968 were in part military reactions to the perceived danger that West German prosperity could lure a satellite state out of the East bloc. However, the continuing role of military force should not be used to relegate all security issues to the tender mercies of the realist system. As we shall see, economic linkage can still be used in many ‘‘high-political’’ situations. Also, it is of course true that wealth can be converted into military power. Often a wealthy state will find that its economy is large enough that an adequate defense can be maintained without sacrificing its predominantly ‘‘trading’’ orientation. For example, Japan has been able to maintain the third-largest defense budget in the world while spending only 1 percent of its GNP on the military, since its success in world trade has made its GNP grow greatly since 1945. Germany is able to spend a similar amount, although it devotes only 1.5 percent of its GNP to defense.71 Maintaining deterrence is vital to enable the trading state to survive during periods when its territorial neighbors are intransigent and unwilling to enter into negotiations in which economic power can be brought to bear, as the Germans learned in the early days of the Cold War. The third precondition for the successful use of economic power by a trading state is that the ‘‘target’’ state must be concerned with the economic well-being of its citizens. Many believe that this limitation largely exempts dictatorial states from economic pressure, since their leaders are able to focus on their own power and ignore the economic needs of the general population. This is indeed a significant limitation; not surprisingly, 70. Ibid., 6. 71. Because of the enormous size of the Japanese economy, this 1 percent figure represents, in absolute terms, about $33 billion. Germany, meanwhile, spent $32.8 billion on defense in fiscal 1998. CIA World Factbook 2000 (Washington, D.C.: Government Printing Office, 2001).

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for example, a leader such as Stalin was indeed more resistant to economic linkage than Gorbachev and Yeltsin. As Rosecrance notes, ‘‘ideals lessening needs’’—fanatic devotion to a political cause—can give a target state incredible resistance to economic power, especially negative sanctions. Often, as in the recent cases of Iraq and Serbia, a fanatical ruling elite may be willing to allow the general population to suffer greatly in order to obtain a highly valued goal, such as territorial expansion. Sometimes even the general population itself will be willing to endure great hardships for such a goal, to a degree that outside analysts find difficult to understand. It is this factor which accounts for much of the difficulty states have had in imposing successful negative economic sanctions on recalcitrant opponents in recent years. At first glance, it may seem that this limitation on the exercise of economic power is a serious one. However, it is very difficult politically for most states to fully withdraw from profitable economic ties. This applies to dictatorial states as well as democratic ones. Economic performance appears to be of increasing importance to governments around the world. First, some degree of economic strength is needed to fuel a modern military machine; thus even a highly militaristic state such as North Korea will have an incentive to avoid total autarky. Also, the internal political consequences of economic isolation and decline can affect even dictatorial states. Since the Great Depression, democratic, capitalist states have come to see it as obvious that their governments should be held responsible for their countries’ economic welfare. Yet even in nondemocratic states the population increasingly measures the success of their rulers by their own economic well-being. In the communist world, for example, the ruling elite explicitly justified its existence by the mission of bringing a better standard of living to the people. Thus, the communist regimes in the Soviet Union and Eastern Europe were increasingly trapped by their own rhetoric and forced to adopt ‘‘goulash communism,’’ putting economic objectives ahead of security goals. Eventually, the failure to succeed economically became a major factor in the collapse of these regimes. Additionally, one should remember that this problem with economic linkage—that it may not always succeed when resisted by a highly motivated opponent—is hardly unique to this type of leverage. Proponents of military power often fail to admit the obvious fact that its effectiveness, too, cannot always be predicted in advance by objective means. As the U.S. defeat in Vietnam and the Soviet defeat in Afghanistan demonstrated, highly

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motivated nations fighting for causes they believe in can be victorious over less-motivated opponents with superior military might. Another condition necessary for successful linkage is that the linkage used must be proportionate to the political goals being sought. This demands, first, that the initiating state begin the linkage with a clear political goal. As we shall see in some of the cases of German economic linkage in this study, sanctions may sometimes have unclear or multiple goals. If the goals are unclear enough, there is no chance for real political success, since the criteria for success cannot even be determined. Also, the goals may not be communicated clearly to the targeted state, which also reduces the chance that the linkage will be effective. Once the political goals are clear, enough economic power must be employed to achieve them. Abraham Becker, for example, concludes that the relatively sparse results of U.S. economic leverage in the de´tente period were caused by the fact that the economic levers available to the United States at the time (such as offering Most Favored Nation trade status) were not important enough to the security-obsessed Brezhnev leadership to justify changes in the central tenets of Soviet foreign policy.72 Similarly, as we will see in Chapter 3, in the mid-1960s West Germany attempted to use the prospect of a renewed trade treaty to win major political concessions from the Soviets. The USSR simply allowed the treaty to lapse and turned to other Western trading partners. This does not mean, of course, that the USSR was immune to economic linkage—merely that the economic leverage used (like any form of leverage) must be strong enough to reach the goal being sought. Finally, one more condition is of particular importance for attempts to use positive sanctions. The recipient of economic aid will always be tempted to simply take the aid without making the reciprocal security concession. Authors such as Drezner see this as a serious problem in the use of positive sanctions.73 Yet such ‘‘moral hazard’’ is a problem in many types of negotiations, and can be mitigated by the ‘‘shadow of the future,’’ namely, by holding out the promise of further economic aid if the expected political concessions are given, or of a resort to negative economic—or military— sanctions if they are not. In sum, the initiating state must make sure it fulfills the following conditions before it can successfully use sanctions. It must induce another state 72. Becker, ‘‘Economic Leverage.’’ 73. Daniel Drezner, ‘‘The Trouble with Carrots: Transaction Costs, Conflict Expectations, and Economic Inducements,’’ Security Studies 9 (autumn 1999–winter 2000): 193.

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to be economically dependent on it; it must maintain military deterrence; it must face a regime that cares about economic issues; and it must be sure that its goals are clear and its means proportionate to the task at hand. As we shall see, when these broad conditions are met—as they are in many, although not all, of the cases in this book—linkage can be effective. In addition to outlining the conditions that must be met before economic linkage can be effectively used, we must ask a final key question: are there any issue areas that are so crucial to military security that economic power will never be effective in inducing concessions? Certainly some issue areas are more difficult to influence with economic measures than others. For example, the pursuit of actual territorial concessions in return for economic aid would seem to most analysts to be an unlikely use of economic power. Nonetheless, there are examples of states voluntarily offering land for sale to other states, including the Louisiana Purchase of 1803 and the purchase of Alaska in 1867.74 Similarly, cases mentioned earlier, such as the Nunn-Lugar plan and the German use of economic aid to speed the pullout of Soviet troops from the former East Germany suggest that military strength may also be ‘‘sold’’ under the right circumstances. It may be that only one issue area is truly beyond the reach of economic power: the existence of the state itself. Sovereignty is generally agreed to be the most important attribute of a state, and it is unlikely to be given up without the use of military force. As noted at the beginning of this chapter, one of the most important objectives of this study is to show that economic linkage, particularly positive linkage, can be effective in a remarkably wide range of cases.

Case Studies and Methodology To this point the chapter has focused on the theoretical points of this study, including its new typology of sanctions and its belief in the efficacy of economic incentives. Yet how can these ideas be tested? This section of the chapter addresses that issue. It first shows why the case field used in this book, German relations with Russia, was chosen. Second, it describes the methods to be used in studying the cases. First, it should be noted that German relations with Russia are them74. The Alaska case is discussed in more detail in N. N. Bolkhovitinov, ‘‘The Sale of Alaska in the Context of Russo-American Relations in the Nineteenth Century,’’ in Hugh Ragsdale, ed., Imperial Russian Foreign Policy (Cambridge: Cambridge University Press, 1993), 193–215.

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selves quite interesting and important. And these relations cannot be properly understood without understanding economic linkage. As readers of this work from the fields of German and Slavic studies well know, Germany’s economic strength is often mentioned as a key underlying factor in the country’s foreign policy—just as economic backwardness is often highlighted as a major factor in understanding Russia’s role in the world. Recent analysts, for example, have focused on Germany’s current economic role in Western Europe, including its history of being the leading contributor to the European Union and the role of the Bundesbank as a model for the European Central Bank.75 Others have followed in the tradition of Hirschman, examining the political role of Germany’s economic strength vis-a`-vis its Eastern neighbors.76 As we will see, the question of economic power runs through the history of German-Russian relations like a red thread. German principalities and kingdoms sat astride Russia’s main trade route to the Baltic and the West from the Middle Ages onward. German manufacturers played a central role in supplying and, later, investing in Russia from the earliest days of the industrial revolution. With the creation of the Wilhelmine Reich in 1871, a powerful, united Germany came to play an even larger economic role in Russian affairs. During the Weimar era, with Germany’s military options sharply curtailed, the Germans turned decisively to the use of economic power, negotiating close economic ties with Soviet Russia in return for military/security concessions. Even Hitler, before embarking on his insane campaign of military conquest, was quite successful at employing economic strength to increase Germany’s political power, as documented in Hirschman’s study. After the Second World War, Germany again faced dramatic restrictions on its military power, while it quickly rebuilt its economy. As a result, by the mid-1950s West Germany was already a major potential economic partner for the East bloc states, a factor that was important in German Ostpolitik from the time of Adenauer’s first visit to Moscow in 1955 75. See, for example, Peter Loedel, Deutsche Mark Politics: Germany in the European Monetary System (Boulder, Colo.: Lynne Rienner, 1999); and James Sperling, ‘‘German Foreign Policy After Unification: The End of Cheque Book Diplomacy?’’ West European Politics 17 (January 1994): 73–97. 76. Recent works focusing directly on Germany’s economic influence on the weaker East European states include Stent, From Embargo to Ostpolitik; Patricia Davis, The Art of Economic Persuasion (Ann Arbor: University of Michigan Press, 1998); Patricia Davis and Peter Dombrowski, ‘‘Appetite of the Wolf: German Foreign Assistance for Central and Eastern Europe,’’ German Politics 6 (April 1997): 1–22; Robert Mark Spaulding, ‘‘German Trade Policy in Eastern Europe,’’ International Organization 45, no. 3 (summer 1991): 343–68, and also idem, Osthandel und Ostpolitik.

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through the chancellorships of Kohl and Schro¨der. Throughout this period, leaders on both sides were well aware of the underlying economic dynamic. Russians recognized their country’s economic backwardness and its vulnerability to economic linkage, while Germans viewed economics as a source of power. Given the importance of Germany and Russia in the world—both in the past and today—anyone with a serious interest in international affairs should be concerned with the nature of their ties. This relationship has often made the difference between war and peace in Europe, and thus in the world. Since economic linkage is so important in the vital German-Russian relationship, it follows that an understanding of Germany’s ‘‘deutsche mark diplomacy’’ should be important to understanding many major historical events. For example, German reunification cannot be adequately explained without assessing the role of German economic aid to the Soviet Union. It was universally agreed at the time that the major obstacle to reunification was the opposition of the USSR. What made Moscow change its mind? As we shall see, economic aid was of central importance. Deepening our understanding of German-Russian relations and analyzing such important historical events is, in and of itself, a worthy focus of study. Perhaps more important, however, especially for readers primarily interested in studies of International Relations and International Political Economy, the case field of German relations with Russia is well suited to test the theories being developed in this work. First, a clear overall economic asymmetry has existed between the countries for a very long time. As I mentioned earlier, such an asymmetry is a vital precondition for the success of any economic linkage attempt. The economic gulf between Germany and its eastern partner can be seen in a number of macroeconomic indicators. In 2000, for example, German per capita GDP was estimated to be $22,700, Russian only $4,200.77 Because of this gap Russia, despite having a population almost twice that of Germany, has an economy only one-third as large—a GDP of about $620 billion as compared to Germany’s $1.86 trillion.78 Furthermore, the Russian economy is not only smaller than Germany’s but also much less developed. Thus it has long tended to export lowvalue-added raw materials and semifinished products to Germany, while importing machinery and other high-value-added products, a trade structure that is generally agreed to be unfavorable.79 77. CIA World Factbook 2000. 78. Ibid. 79. Of course, this is not always the case; one need only remember the economic power held by the OPEC states in the 1970s. Although they were inferior to the developed West in overall

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Specific measures of the economic interaction between Germany and Russia also clearly show asymmetrical interdependence. For the larger, technically advanced, open German economy, trade and investment ties with Russia have been relatively insignificant. For the smaller, backward, closed economy of Russia the same ties have been vital. This can be seen, for example, in examining the relative dependence of Germany and Russia on bilateral trade, as measured by the percentage of each country’s trade conducted with the other. As we shall see, before the First World War half of Russia’s trade was with the Wilhelmine Reich. This level of dependence was approached again in the late 1920s. Even during the depths of the Cold War, West Germany was generally Moscow’s leading Western trade partner, while East Germany led the way among its East bloc partners. Meanwhile, for Germany Russia has usually been less important, as can be seen by the figures cited in the appendix of this book. Even during periods of high economic interaction Russia rarely accounted for more than 10 percent of Germany’s foreign trade—and usually much less. In the post-1945 period West German trade with the Soviet Union rarely exceeded 2 percent of its total trade; the same is true today of Germany’s trade with Russia. By comparing these figures, we can see that bilateral trade has usually been five to ten times more important for Russia than for Germany. This has clearly been seen as a source of potential leverage by such diverse German leaders as Bismarck, Gustav Streseman, Hitler, Helmut Kohl, and Gerhard Schro¨der. Even when trade volumes were relatively low, as during the Cold War, Germany was often the leading Western trading partner for Moscow. Since economic ties to the West were vastly preferred by both the population and the leadership of the USSR—as shown by their insatiable hunger for Western currency, consumer goods, and technical products—relative German influence was even higher than its share of Soviet trade would indicate. In addition to trade, Germany’s role in other forms of economic ties to Russia, such as credit and investment, has served to increase German influence. Germany played a large role in investment in Russia before the First World War, and has begun to regain that role today. Similarly, Gereconomic power, their influence because of oil alone was still substantial. Similarly, in some periods the USSR’s natural resources were fairly important to Germany, which may have temporarily lessened Germany’s overall edge in economic power. This was true to some extent in 1939–41 (when Hitler’s military industries were cut off from trade with much of the world) and in the 1970s when oil shortages led Bonn to take a greater interest in Soviet reserves. On the 1939–41 period, see Edward Ericson, Feeding the German Eagle: Soviet Economic Aid to Nazi Germany, 1933–1941 (Westport, Conn.: Praeger, 1999).

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many has been an important source of financing for Moscow’s overseas debt since German financiers floated large loans to support Russia during the Crimean War and the Russo-Turkish War (1877–78). Today Germany is again by far the largest holder of Russian government debt, accounting for about half of the $48 billion owed to foreign governments as of mid-2001.80 Since this economic asymmetry has existed for such an extended period, Germany has been able to use economic sanctions in many different cases. This is another key advantage of studying the German-Soviet/Russian case field. The history of these ties is replete with cases of positive and negative linkage, some tied to specific political issues and some used in a general way to support a friend or hurt an enemy. Thus it provides a number of suitable cases to be examined, covering all four of the sanctions types outlined in the typology created for this study. Some may see the cases as unduly dissimilar, but that is precisely the point: only by examining a wide range of types of economic sanctions can we test which type is most effective. Additionally, the diversity of these cases in terms of the issues and instruments involved provides a strong test for the ability of any particular linkage type to be effective in a wide variety of situations. Linkage has been used on issues ranging from the most difficult high-political questions (such as German unification and membership in NATO) to relatively smaller questions (such as German minority rights and emigration issues). Linkage in these cases has involved a broad range of policy instruments, from tariffs, to investments, to foreign aid, to state-backed export credits. In addition to the great variety of instruments, issue areas, and sanction types involved in the German-Russian case field, one other key factor recommends this area for study. It is a relatively difficult case field, along the lines of the ‘‘least-likely’’ case study method discussed by Harry Eckstein,81 and thus is a good test of the true value of economic sanctions. As Drezner indicates, several factors might be expected to increase the likelihood that positive sanctions will work. He believes that democratic states will be more vulnerable to sanctions, as will states that are linked to the initiating country by a close international organizational tie, such as common membership in an alliance or trading bloc.82 It could be added that the relative overall power of the target state will be relevant as well; if it lacks other resources 80. Paris Club debt figure noted in ‘‘Reported U.S.-German Memo Irks Putin,’’ New York Times, May 23, 2001. 81. Harry Eckstein, ‘‘Case Study and Theory in Political Science,’’ in Fred Greenstein and Nelson Polsby, eds., Handbook of Political Science, vol. 7, Strategies of Inquiry, 79–137, here 118. 82. Drezner, ‘‘Complex Causation,’’ 195, 197–98, 201.

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to counter its economic weakness, it will be more easily overwhelmed by sanctions. Throughout most of the history of German-Russian ties, none of these factors has existed. This renders the case field a difficult one for the successful use of any form of economic sanctions, let alone the seemingly ‘‘gentle’’ weapon of economic incentives. First, Russia is a major power. It has historically had significant military resources to compensate for its relative economic weakness. As we shall see, in several cases—such as the Berlin Blockade, the building of the Berlin Wall, and the invasion of Czechoslovakia in 1968, Moscow was able to counter what it perceived as the dangerous lure of West German prosperity and economic inducements through military means. Admittedly, this power has varied. Not surprisingly, Germany may have been better able to use economic influence when Moscow was suffering through a period of unusually great economic vulnerability or when its military was in disarray. This is likely one reason for Germany’s success in negotiations with Gorbachev and Yeltsin. However, such weakness is relative; compared to most smaller states one would still expect that Russia—whether under the rule of tsars, commissars, or presidents—would be a difficult target for economic linkage. Second, German-Russian relations have often been extremely tense and militarized. Despite some periods of cooperation, the two states have rarely been formally allied and have more often been members of opposing blocs. Yet even during these difficult periods—such as the years leading up to the First World War or the Cold War era—Germany has been able to successfully employ economic linkage, especially of the positive variety. Third, Russia has rarely had a fully democratic government, with the possible exception of the period of the Provisional Government in 1917 and the years since 1991. For most of its history Russia has been run by either a tsar or a communist dictator. Such governments would presumably be relatively immune to one of the key mechanisms by which economic sanctions are said to work: the sanctions affect the general population or key economic interest groups, which then press the government to comply with the policy wishes of the initiating state. Yet, as we shall see, it is not only the relatively open regimes of Gorbachev and Yeltsin that have been influenced by economic linkage. Nondemocratic regimes in Moscow have also been influenced by such linkage. If economic instruments can be effective in such circumstances, this is important testimony to the power of sanctions. This is especially true for positive linkage—which is often regarded as weaker and less suitable for employment against hostile states.

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In sum, then, the case field in question provides a fair but difficult test for the value of positive sanctions. If such sanctions can be effective in a historically hostile setting, in influencing powerful target states, and across a wide variety of issue areas, regime types, and historical periods, then the value of positive sanctions will be demonstrated clearly. We have seen that the case field of German-Russian relations can provide a useful test for the effectiveness of various types of sanctions. Next, specific cases of economic linkage attempts must be identified from the history of these relations. In performing this task, this study has attempted to examine all possible cases rather than a restrictive subset. Frequently, as Baldwin has noted, critics of the effectiveness of sanctions choose to study only a few extremely difficult ‘‘crisis’’ cases, where economic sanctions had very little chance of succeeding.83 Conversely, supporters of sanctions may pick out a few cases where sanctions have been unusually successful. To avoid such selection bias, this study attempts to examine all identifiable cases of attempted linkage in German-Russian ties. How, though, are specific cases to be singled out from the complex ebb and flow of any bilateral relationship? Baldwin is probably correct to note that ‘‘the boundaries that delimit a particular case are not ‘discovered’ by the researcher; they are created by him.’’84 This process is especially difficult if sanctions are defined to include policies that link economic instruments to general as well as specific political goals. This study has relied on the statements of political leaders in Germany and Russia, open archival sources, and secondary literature to identify discrete sanctioning episodes and specify when such episodes begin and end. Sometimes it is quite obvious that a linkage attempt has been initiated. For example, in 1963 Chancellor Adenauer imposed a grain embargo on the USSR, which he linked quite explicitly to the goal of winning Soviet support for dismantling the Berlin Wall. Adenauer stated, ‘‘We will sell you food, but in exchange the wall must be taken down.’’85 In May 1990 Chancellor Kohl made a clear positive linkage attempt when he dispatched a top aide on a secret mission to Moscow to offer an emergency loan of DM 5 billion in the midst of the sensitive negotiations on German unification. The aide later wrote that Kohl had told him the loan would be agreed to ‘‘only if it was made clear in advance that the Two Plus Four talks [on Ger83. Baldwin, Economic Statecraft, 145–50. 84. Ibid., 146. 85. Quotation from a news conference by Adenauer on October 10, 1963, as cited in the Frankfurter Allgemeine Zeitung, October 11, 1963.

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man unity] would be concluded successfully,’’ that is to say, only if Moscow agreed to German demands in those talks.86 However, identifying linkage attempts is not always easy, particularly because one or both sides may have an incentive to avoid publicizing the linkage. As Long notes, the target state may be particularly reluctant to reveal the linkage, since it does not want to publicize its vulnerability to economic manipulation to either domestic or foreign audiences.87 Thus Russia has sometimes gone to great lengths to conceal an episode of German economic linkage from the public eye, even if the linkage was transparently obvious to both sides in the negotiations and to outside observers. Once a linkage attempt has been identified, it must be analyzed and coded. As many authors have noted, the problem of coding an economic linkage attempt as a ‘‘success’’ or a ‘‘failure’’ is a difficult one. Baldwin, for example, faults authors such as Hufbauer and Schott for their seemingly restrictive definitions of success. In many cases that they identify as ‘‘failures’’ of economic linkage, Baldwin sees at least partial successes, since the initiating state may be pursuing a multitude of goals simultaneously. Such complexities of interpretation are also seen in some cases in this study. For example, in the period from 1969 to 1974 Chancellor Brandt was pursuing a multi-pronged policy that involved using positive economic sanctions to help win concessions in interlinked talks on several different issues with the USSR, Poland, and East Germany. He was attempting to make progress on issues ranging from travel rights for citizens of West Berlin to preserving German unification as a possible future legal option. Evaluating overall German success in such a case, then, involves comparing official goals and levels of success in a number of different areas. In addition to the difficulty of evaluating multiple goals, coding is complicated by the problem of causality. Germany may ask Russia to make a political concession in a particular area, and offer an economic reward as an inducement. If Russia then makes the political concession, can one conclude that the inducement caused this action? Or might the concession have been made for a different reason? Here again, reliance on government documents, statements by leaders, and the secondary literature can be helpful. Such sources can enable us to follow the course of a set of negotiations in a ‘‘process-tracing’’ approach that shows interrelationships between issues.88 86. Horst Teltschik, 329 Tage: Innenansichten der Einigung (Munich: Siedler Verlag, 1991), 243–44. 87. Long, ‘‘Trade and Technology Incentives,’’ 100. 88. For more on this method, see Alexander George, ‘‘Case Studies and Theory Development: The Method of Structured, Focused Comparison,’’ in Paul Lauren, ed., Diplomacy: New Approaches in History, Theory, and Policy (New York: Free Press, 1979).

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For example, in a series of telephone calls to Chancellor Kohl in September 1990 Gorbachev threatened to refuse to sign the Two Plus Four Treaty on German unification unless West Germany immediately agreed to provide some DM 10 billion in additional grants to the USSR.89 Kohl agreed to the demand, and Gorbachev signed the treaty two days later. The record of these calls establishes the causal link quite conclusively. However, causation is not always this easy to demonstrate. Despite such well-known coding difficulties, this study will nonetheless employ a simple success/failure scale to analyze the cases selected from German-Russian relations. A case in which the majority of Germany’s stated goals were met would thus be coded as a success, while a case in which most of the goals were not met would be coded as a failure. This admittedly simplified approach has been adopted because it is necessary to code the outcomes of the cases in a clear fashion to test the validity of this paper’s central hypothesis: that positive sanctions can be more effective than negative ones. In all, this study will focus on twenty-one cases of attempted economic linkage in German-Russian and German-Soviet relations, ranging across the period from 1870 to the present. These cases are listed in summary form in Table 6.1, in the concluding chapter of this book. However, the study will also explore the period before 1870, showing how economic ties between Russia and the various German principalities helped to pave the way for the later dominant economic role of a unified German state. In examining each of the various historical cases of German-Russian economic linkage, this study will ask several questions. Based on the typology of linkage forms outlined in the previous section, what types of economic linkage were used by the Germans in each case? What specific instruments of linkage—for example, grants, loans, or trade incentives—were used? What were the reciprocal political or military concessions that were sought from Moscow? Can it be established that the economic leverage actually caused the Russian concessions? Why was the linkage used successful or unsuccessful? These issues will be discussed for each case, and the results will be discussed in the conclusion. In addition to the detailed examination of various German foreign policy actions, some comparisons will be made to other cases. An important purpose of this study is to show how widespread economic linkage is in world affairs; it is certainly not confined to the German-Russian cases detailed 89. Teltschik, 329 Tage, 359–63.

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here. Whether it be the U.S. attempt to influence Soviet international behavior during the de´tente period by promising Most Favored Nation trade status or the attempt of Kuwait to ensure its security by giving generous loans to Iraqi dictator Saddam Hussein, economic linkage is ubiquitous in world affairs. As this range of cases suggests, the ideas evolved in this work may be applicable to a wide variety of situations in international relations. This chapter has served several functions. First, it has outlined the major theoretical contributions of this work—the creation of a new four-part typology of economic sanctions and the conclusion that positive sanctions may be the most effective of these. It next located this study within the literature on sanctions, both past and present. It then discussed various reasons for the success of positive sanctions. Finally, it described how the cases analyzed in this book were chosen and the methodology that will be used to examine them. In all, this study will undertake to analyze German foreign policy and, at the same time, to come to significant conclusions about international relations in general. It is the contention of this study that even difficult political and security disputes may often be solved with treasure rather than with blood. Even dictatorial regimes with large countervailing military power may sometimes be vulnerable to economic linkage. Perhaps most surprisingly, the seemingly gentle weapon of positive economic sanctions— economic incentives—can often be quite effective in winning concessions. It is thus a weapon which should be better understood by political scientists, policymakers, and the general public.

2

German-Russian and German-Soviet Relations Before 1945

Russia has long been the most important partner in German relations with Eastern Europe, whether under the tsars, the Soviet Communist Party, or the present postcommunist leadership. Like smaller East European states, Russia has also long been the target of German attempts to link economic and political issues in bilateral ties. As we shall see, German economic influence in Russia can be traced back for centuries, and it has generally had significant political implications. In this chapter, Germany’s economic importance to Russia and the Soviet Union will be reviewed from the Middle Ages up to the end of the Second World War. After a unified German state was created under Chancellor Bismarck, this economic role took on new political significance as an instrument of foreign policy. As we shall see, in a number of cases the Wilhelmine, Weimar, and Nazi governments of Germany tried to use economic linkage strategies. Like later German governments, these regimes seemed to be most successful when using positive economic sanctions. This chapter will proceed as follows. First, we will examine the roots of the German-Russian relationship in the period before 1870. There are

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several reasons that this is vital for understanding later German economic linkage attempts. Patterns in economic ties became visible well before Germany existed as a unified state. These included Russia’s economic and technological backwardness, relative poverty, and limited role in world trade. Meanwhile, the German states played a larger role in world trade, were more developed, and were becoming more wealthy. In short, as we shall see, asymmetrical economic interdependence was already a structural fact in German-Russian relations even before a united Germany existed to draw political benefits from it. Some of the important later political issues between Germany and Russia were also rooted in the pre-1870 period. These include the question of the German minority in the Russian empire, which was in place as early as the Middle Ages, and the ‘‘Polish question,’’ arising from the partition of that nation in the 1790s. Furthermore, many of the actors who would shape German-Russian ties after 1870 were in place before that date. Prussia, which dominated Wilhelmine Germany, had a long history of economic and political interaction with Russia. Chancellor Otto von Bismarck, the key architect of German foreign policy from 1870 to 1890, was already experienced in the use of economic linkage in Russian relations from his years of leading the Prussian government. Even among major German private companies active in trade and investment links with Russia there is remarkable continuity; firms such as Siemens were heavily involved in the Russian empire well before 1870. Finally, the psychological effects of this history cannot be ignored. For example, Russia’s leaders had developed a clear view of Prussian/German economic efficiency and its importance as a model for Russia even before ‘‘Germany’’ existed on the map. Following the section on early German-Russian ties, the rest of the chapter will examine various periods in the two countries’ bilateral relations from 1870 to 1941. As we shall see, until about 1885 Chancellor Bismarck continued the policy of general positive linkage that Prussia had pursued since about 1850. After 1885, however, Germany swung sharply to a policy of negative linkage, which continued for most of the rest of the Wilhelmine period, with the exception of a brief interval under Chancellor Caprivi in 1894. Berlin used both general and specific negative linkage at different times during this period. Under the Weimar Republic, another sharp turn in German policy took place—back to general positive linkage. Finally, under the Nazi regime German plans for relations with the USSR were initially ambiguous. In 1939–41, however, Hitler authorized a policy of specific positive linkage, offering economic inducements to Stalin to speed the conclusion of the Hitler-Stalin Pact and free Germany to attack Poland and

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Western Europe. In all, then, German-Russian/Soviet ties from 1870 to 1941 provide a number of different cases of economic linkage, featuring all four linkage types mentioned in the previous chapter and involving a variety of issue areas and governmental types. This provides a good first testing ground for this study’s theories of economic linkage.

Russian Relations with German States Before 1870 German-Russian relations can be traced back to the earliest history of the two peoples. From the Middle Ages onward these ties have had a distinctive character, which has carried over to the present day. The German states were increasingly seen by Russia as more advanced economically, as a door to trade with the West, and as a source of technology and capital. Russia, meanwhile, was seen by the Germans as a vast, primitive market, producing raw materials and semifinished goods. Indeed, these differences hardened into national stereotypes, with both Germans and Russians agreeing that Germans were naturally more technical, harder working, and more organized than Russians. Such stereotypes were expressed in Russian literature, with stock characters of the ‘‘efficient German’’ seen in works by authors such as Pushkin and Goncharov.1 It became natural for the Kremlin to look to Germany for help with modernization, setting a pattern that would facilitate economic linkage when Germany eventually unified. The early and close ties between the two nations can be seen in the fact that the Russian word for ‘‘German’’ is nemtsy, meaning ‘‘the mute ones.’’ From this one can infer that the Germans were among the first peoples encountered by the Russians who did not speak a Slavic language. This was so unusual to the early Russians that they labeled their new neighbors nemtsy. In medieval and early modern times, in fact, all foreigners were lumped together as ‘‘Germans.’’ For example, the foreign quarter of Novgorod was known as the ‘‘German yard’’ (nemetskiy dvor) and the foreign quarter of Moscow as the ‘‘German settlement’’ (nemetskaya sloboda).2 1. As noted in a review of Christoph Gassenschmidt, Von der Revolution und der Partei geta¨uscht: Die Autonome Sozialistische Sowjetrepublik der Wolgadeutschen, 1924–1941 (Bonn: Kulturstiftung der deutschen Vertriebenen, 1999), by Kristian Gerner, in Slavic Review 60, no. 2 (summer 2001): 439–40. 2. On Novgorod, see Henrik Birnbaum, Lord Novgorod the Great: Essays in the History and Culture of a Medieval City-State (Columbus, Ohio: Slavica, 1981), 50; on Moscow, see, for example, Lionel Kochan and Richard Abraham, The Making of Modern Russia (New York: St. Martin’s Press, 1983), 96.

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The first major area of German influence and settlement within the lands that were later to be part of the Russian empire and the Soviet Union was the Baltic region. In 1204 the Brothers of the Sword, a Germanic religious and military order, was formed to forcibly christianize the pagan tribes of the Baltic states. In the 1220s, this group was augmented by the Knights of the Cross, and in 1237 the two organizations united to form the Teutonic Order, which soon controlled the Baltic states, although its advance into Russia was checked by Aleksandr Nevsky in a battle at Lake Peipus in 1242.3 The Order ruled the area for several hundred years, until it collapsed during the Reformation and was displaced by the Polish-Lithuanian state. As a result of the Order’s efforts, German settlers came to play an important role in the Baltics, particularly among the local ruling elites, until modern times. Under a succession of outside rulers—including the Swedes and, from 1721, the Russian empire—the Baltic Germans maintained their dominant position in the region. They felt no close affinity to the native Baltic peasantry, and thus were willing to control the area on behalf of the foreign rulers. For centuries, the Baltic German elite was known for its wealth, economic skills, and high level of education, attributes which allowed it to play a political and economic role far out of proportion to its limited numbers. This could be clearly seen in the prominence of Germans in the tsar’s court and in St. Petersburg society until 1917.4 As was the case in other East European states, the Hanseatic League, which was predominantly composed of German merchants, played an important role in Russia’s trade during the Middle Ages. Their influence was particularly strong in what would later become the Baltic States, where both Tallinn (Reval) and Riga were major Hanseatic ports. The influence of the Hanseatic league in this region was naturally facilitated by the concurrent political and military penetration of the Teutonic Order. The strength of the German influence can be seen in the fact that Riga, the most important Baltic city, continued to be ruled under its Hanseatic charter—with its strikingly medieval system of German-dominated craft and merchant guilds— until the end of the nineteenth century.5 However, the fate of the major Hanseatic trading center within what was to become Russia proper, the city of Novgorod, is indicative of the fact that Germanic economic and political influence was not unopposed. Russian 3. Birnbaum, Lord Novgorod the Great, 48. 4. See Anders Henriksson, The Tsar’s Loyal Germans. The Riga German Community: Social Change and the Nationality Question, 1855–1905 (New York: Columbia University Press, 1983). 5. Ibid.

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military force could sometimes successfully drive it back. This was to become a pattern in the two countries’ relations, as the USSR showed by using perceived German economic inroads to justify the building of the Berlin Wall in 1961 and the invasion of Czechoslovakia in 1968. Novgorod had a population of some thirty thousand in the mid-1400s, which was very large for the time, and ruled over a vast territory extending throughout northern and northwestern Russia. Novgorod formed the eastern terminus of the Hanseatic league, and its importance was shown by the fact that at least twenty German cities, including relatively small trading towns such as Goslar and Hildesheim, maintained permanent representatives in the city from the twelfth century onward.6 In fact, German merchants had a near-monopoly on trade with Novgorod, controlling the transport routes to Western Europe and the distribution of Russian products abroad. The economic influence of the Hansa, however, could not survive without adequate military or political protection. In 1478 the Muscovite Grand Prince Ivan III brutally conquered Novgorod, executing or exiling much of its patrician trading elite. To complete his conquest, Ivan closed the ‘‘window on the West’’ by ejecting the Hanseatic traders in 1494.7 Although the Hanseatic league was permitted by the Muscovite state to reopen its trading outpost in Novgorod in 1514, its influence had been decisively curbed. This seems to confirm a point made in Chapter 1: economic power alone cannot stand against the serious use of military force. It is instructive to compare the fate of Novgorod with that of Danzig, the main Hanseatic port on the coast of Poland. Danzig was allowed to remain largely independent, under the formal sovereignty of the Polish kings, for centuries. Indeed, its status as an independent city-state was so ingrained that the architects of the 1919 Treaty of Versailles did not hesitate to resurrect that status during the interwar period. Danzig remained a sore point for the Poles until they formally annexed it after the Second World War. Another advantage Russia had over states such as Poland was its greater size, and hence its relatively greater number of trading routes. By the mid1500s, for example, Russia was already trading with countries such as England directly, via its Arctic port of Arkhangel’sk.8 This gave Russia a con6. See Robin Milner-Gulland and Nikolai Dejevsky, Cultural Atlas of Russia and the Soviet Union (New York: Facts on File, 1989), 60. 7. Ibid., 61, and Birnbaum, Lord Novgorod the Great, 50. 8. Milner-Gulland and Dejevsky, Cultural Atlas, 66.

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siderable advantage, since it prevented any one trading partner from monopolizing Russian trade and thus gaining significant political leverage. This advantage was clear to the early Russian leaders; as Lionel Kochan and Richard Abraham note, Tsar Ivan IV (also known as Ivan the Terrible) was ‘‘only too willing to relieve his dependence on German traders’’ by opening the new trade connection with England.9 Here, too, one can see a distinct parallel to later periods of Russian and Soviet history, as in the 1880s when Russia turned to France to counterbalance German economic influence, and the 1960s when the USSR also reached over Germany to France, Italy, and other Western trading partners. Nonetheless, despite the attempts of the early Muscovite tsars to insulate their country from the effects of economic contact with Germans and other foreigners, contacts were maintained and remained important. Although Arkhangel’sk became the most important Russian port in the 1600s, with first England and (after 1650) Holland dominating the northern trade, trade with Germanic merchants remained significant. The traditional German ties with Novgorod and Pskov were still active, and German merchants in Reval (Tallinn) and Riga were important conduits to Central Europe and beyond.10 The long-established German presence in the Baltics was to continue to play an important role in Russia’s trade for some time to come. The trade structure of the young Muscovite state was also indicative of an emerging dependence on the West.11 Russian exports consisted of basic products of the land and forests. To the traditional exports of Novgorod— such as furs and wax—were added grain, leather, canvas, hemp, flax, lard, and caviar. While many Russian imports were also nonmanufactured goods at this time, a significant place was already occupied by imports of modern weaponry, such as muskets and artillery, which represented the most significant ‘‘high technology’’ products of the day.12 Muscovite backwardness in emerging technologies can also be seen in the fact that, despite the xenophobia of the time, foreign experts of various types—from architects and artisans to officers in the standing army—had begun to filter into the country and, by their very novelty, assumed political importance. As early as 1632, 9. Kochan and Abraham, Making of Modern Russia, 56. 10. Ibid., 85–88. 11. Most authors agree that some degree of ‘‘economic backwardness’’ vis-a`-vis the West can be traced back quite far into the tsarist era, even to Muscovite times, although the exact time at which this backwardness began to be visible is a matter of debate. See Alfred Reiber, ‘‘Persistent Factors in Russian Foreign Policy: An Interpretive Essay,’’ in Hugh Ragsdale, ed., Imperial Russian Foreign Policy (Cambridge: Cambridge University Press, 1993), 322–29. 12. Kochan and Abraham, Making of Modern Russia, 87.

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for example, an ironworks and armaments factory was set up in Tula with the help of the Dutch, setting a pattern of foreign help in technical modernization.13 In the period 1682–1725, under Tsar Peter the Great, Russia opened itself to ‘‘modernizing’’ Western influences on a far grander scale. Peter was a devoted westernizer from an early age. The nemetskiy sobor, or ‘‘German settlement,’’ was the source of many of his lifelong friends and of his first mistress, the daughter of a German banker. Indeed, Peter’s reign is noteworthy as the beginning of a tradition of intermarriage with West European—particularly German—noble families. In later years this was to have a major political impact on tsarist Russia. Throughout his life Peter affected Germanisms in his speech and official correspondence, referring to his military leaders as ‘‘Min Herr Feltmarshzal’’ and to his palace at Preobrazhenskoye, effectively the national capital for many years, as ‘‘Plezpurch,’’ or Pressburg.14 A number of German and other foreign officers participated in the war games staged by Peter at his country estate as a young man, and some of them were to remain close advisers in later years. They were joined by other Germans such as Peter’s foreign minister, the Graf Heinrich Johann Freidrich Ostermann (1686–1747), as Peter moved to create a relatively modern administrative structure in Russia. Peter was particularly interested in importing the high technology of his day, including shipbuilding and weapons technology, from the West. As several writers have noted, ‘‘even in the 18th century, the arrested nature of Russian technology by comparison with that of Western Europe was abundantly clear.’’15 Peter instituted the first Russian industrialization program, founding some two hundred enterprises, more than ten times as many as had existed before his reign. Predictably, these enterprises mainly served military purposes: Peter founded arms factories in Tula and near Petersburg, a ‘‘Weaving Court’’ near Moscow, which had 1,200 workers by 1719, and factories producing rope, leather, hats, paper, buttons, stockings, and linen and woolen goods.16 The technology needed to carry out this early program of ‘‘crash industrialization’’ was often imported from the West. Foreign merchants and investors also played a role, although Peter 13. Ibid., 89. 14. See Ian Grey, Peter the Great: Emperor of all Russia (Philadelphia: J. B. Lippincott, 1960), 209, and Milner-Gulland and Dejevsky, Cultural Atlas, 92. The French language was, of course, also important at the Russian court after Peter’s time. 15. Kochan and Abraham, Making of Modern Russia, 134. 16. Evgeni Anisimov, The Reforms of Peter the Great: Progress Through Coercion in Russia (Armonk, N.Y.: M. E. Sharpe, 1993), 72–74.

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was careful to keep the industrialization process under tight state control. Thus, for example (in a striking similarity to later Soviet practice), Peter generally granted temporary ‘‘concessions’’ to foreigners—as he often did to his own merchants—rather than allowing them to own factories outright. Similarly, the state could grant trade monopolies in particular goods, but could also revoke such privileges at will. Also, the state influenced budding industries through control of the workforce; because of serfdom, there were few ‘‘free’’ workers available, and entrepreneurs often had to hire workers from the state.17 German lands became a key source of new technology, for example, in the form of technical advisers and experts, who were ‘‘imported’’ into Russia by the thousands.18 On April 18, 1702, Peter signed a decree to encourage foreign workers to come to Russia, promising religious freedom, special legal rights, and even paid passage to Russia.19 Some of these experts were to achieve great influence. General Burkhard Mu¨nnich, for example, who was later to play a major political role under Empress Anna, began his career as a technical adviser under Peter. He was originally hired to design fortifications, later directed the construction of a canal around Lake Ladoga, and was a lieutenant general at the time of Peter’s death.20 Another important factor also increased German-Russian contact during the reign of Peter the Great: Peter’s territorial conquests. After the long Northern War against Sweden, the Treaty of Nystad (1721) confirmed Russian possession of the area at the head of the Gulf of Finland and of the Baltic states. The transfer of the Russian capital to the new city of St. Petersburg in 1712 symbolized the importance of the new lands and Russia’s new Western orientation. Furthermore, in 1713 Peter ordered the Russian merchants to shift their main trading base from Arkhangel’sk to St. Petersburg.21 While Peter’s main goal was to increase the importance of his new capital, the measure also served to reorient Russian trade from England and Holland back to the Baltic and Germany. With Russia’s advance into the Baltic, Prussia and Russia were now neighbors along the East Prussian frontier. Russia had gained a large number of German citizens in the Baltics as well. A vastly disproportionate num17. See ibid., 75–78, 170–76. 18. Although England and Holland, the leading European powers of the day, probably played at least an equal role. 19. Kochan and Abraham, Making of Modern Russia, 108, and Grey, Peter the Great, 204. 20. Mina Curtiss, A Forgotten Empress: Anna Ivanova and Her Era (New York: Frederick Ungar, 1974), 76–78. 21. Anisimov, Reforms of Peter the Great, 75.

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ber of Baltic Germans rose to influential positions in the tsarist administration, beginning during Peter’s reign. Among Peter’s key advisers, for example, was Johann Patkul, a leading Baltic nobleman. After taking over the Baltics, Peter proceeded to grant the area unprecedented local rights, recognizing the existence of the local assemblies in Livland (Latvia) and Estland (Estonia) and in the city of Riga, and giving these bodies autonomy in local affairs. Remarkably, the Lutheran Church was granted a special position, and German was confirmed as the official language of administration in the region, even for offices of the Russian crown. These ‘‘capitulations’’ of 1710 and 1721 were to remain in effect, with minor variations, until the late 1800s.22 In all, then, by the time of Peter the Great some of the patterns that would affect later German-Russian relations were well established. It should be noted that at the time of Peter the extensive economic and political influence of various ‘‘Germanic’’ organizations—from the Hanseatic League and the Teutonic Order to the Baltic Germans and the visiting German technical experts—did not result in extensive economic-political linkage on an interstate level, since there was no single powerful German state to unite and wield this influence. Peter dealt with a myriad of small German states both economically and militarily, ranging from Holstein to Saxony to Mecklenburg and Prussia, but no single state had a clear advantage and they could easily be played off against one another.23 By the mid-1700s, however, the Russians—like Germany’s other neighbors—gradually began to focus their image of ‘‘Germany’’ on one state: Prussia. Prussia had recently become a kingdom and was full of the expansionist, modernizing zeal that was to render it a model for the characteristics defining ‘‘Germanness’’ (including organization, discipline, efficiency, and technical proficiency) long before German unification was achieved in 1871. The ideal of ‘‘Prussia’’ began to exert a strong fascination on elements of the Russian ruling elite, and this could not help but have a political effect. After the death of Peter the Great, the political effects of his efforts to westernize Russia (or ‘‘Germanize’’ it, as many Russians feared), became clear. Russia entered a period of ‘‘German rule,’’ when Germanized Rus22. See Henriksson, Tsar’s Loyal Germans, 6 and 45–48. 23. Indeed, until the time of Peter Germany was often a passive object of actions by the European Great Powers of the day, Sweden, Austria, France, and Russia. In the Thirty Years’ War of 1618–48, foreign armies had ravaged Germany. After that time, incursions continued: for example, in 1689 the armies of Louis XIV plundered the Rhineland, and in the early 1700s the armies of Peter the Great himself contended with the Swedes for control of northern Germany.

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sian nobles and their German advisers seemed to have an inordinate influence. The high point of this trend was reached under Empress Anna, who ruled from 1730 to 1740. At this point, the court—and the country—were ‘‘economically and politically in the control of very modern and very able Germans.’’24 Anna, a niece of Peter the Great, had been decisively influenced by his policy of arranging political marriages. In 1710 she was married to the German Duke of Kurland (Latvia), and soon succeeded him as ruler of the principality. After twenty years in Kurland, Anna had become quite ‘‘Germanized’’ and was surrounded by a coterie of trusted German advisers.25 The leading German in Anna’s service was her grand chamberlain, Ernst Johann Bu¨hren (or Biron). His influence was so great that the period came to be known as the ‘‘Bironovshchina,’’ or ‘‘Biron regime.’’26 Other Germans in Anna’s inner circle included the engineer General Mu¨nnich and Foreign Minister Count Ostermann (mentioned above), as well as the brothers Reinhold and Karl Gustaf Lo¨wenholde, both from Kurland. Reinhold Lo¨wenholde headed the all-Baltic German Izmailovsky regiment, considered the most reliable of Anna’s troops. In the end, resentment of the German influence became so great that a reaction followed, under Empress Elizabeth, in which all of Anna’s German advisers were sentenced to death. Elizabeth commuted their sentences to lifelong exile. This was the first example of what was to become a recurrent cycle in Russian politics. First, Russia would recognize its economic and political backwardness, and foreign assistance would be welcomed; but when foreign influence became too great, a nationalist political reaction would follow. Several such cycles of westernization and conservative reaction can be identified, often started by the shock of Russian failure in a war: the first episode began with Peter the Great’s defeat by the Swedes at Narva in 1700, the next after Russia’s defeat in the Crimean War, and yet another after the disastrous Russo-Japanese War in 1905. In the Soviet period, too, there were several such cycles. In the early 1920s, during the de´tente era, and under Gorbachev the Soviets opened themselves to Western trade and technology. Under Stalin and in the late Brezhnev years the first two of these attempts ended in reaction. The third cycle of openness—started by Gorbachev—has continued under Presidents Yeltsin and Putin, although it is continually threatened by nationalist and communist forces who want to 24. Curtiss, Forgotten Empress, 1. 25. See Anisimov, Reforms of Peter the Great, 245–46, and Curtiss, Forgotten Empress, passim. 26. Curtiss, Forgotten Empress, 72.

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‘‘rescue’’ Russia from Western political and economic influence. These cycles of openness and xenophobia show clearly that Russian leaders have always been well aware that development is necessary, but also that economic linkage is the country’s potential Achilles’ heel. After Elizabeth’s death in 1761, her son became Peter III. During Peter’s brief reign, German influences again seemed to reach a disastrous extreme. Peter was another product of the prevalent intermarriage between Russian and German nobility; he had been raised solely in Germany by his father, the duke of Holstein, and like his father was a fanatical admirer of Prussia. Upon his accession to the throne, he pursued an openly pro-Prussian policy. His predecessor, Elizabeth, had been at war with Prussia, with such success that the Prussian king Frederick the Great was reportedly driven ‘‘to the verge of suicide.’’ Indeed, in 1760 Russian troops had occupied Berlin.27 Peter quickly stopped the war and even signed an alliance with Prussia. A relieved Frederick was careful to counsel his successors to ‘‘cultivate the friendship of these barbarians,’’ and indeed Prussia and, later, Germany were able to avoid military conflict with Russia until 1914.28 However, Peter’s admiration of Prussia went further; he saw that country as the model of a modern state, invited his Prussian-trained German cousins to head the Russian army, and even referred to Frederick as ‘‘our master’’ on a number of occasions.29 It was thus not surprising that, in a wave of nationalist revulsion, Peter was overthrown after only a year of rule. Peter III was replaced by his wife Catherine, who was to become known as Catherine the Great. Ironically, although Catherine was considered a defender of Russian tradition after Peter’s pro-German rule, she was herself a full-blooded German princess and daughter of a Prussian general. Nonetheless, she was careful to keep German influence at a relatively low level; for example, in selecting foreigners to help expand Russian industry, she turned mostly to England, partly in order to ‘‘balance out’’ her own background. Russian trade rose during her rule from an average 13.8 million rubles yearly in the 1760s to about 43.2 million yearly in the 1790s, with a small positive balance (3.6 million rubles) on average in the later years.30 Catherine was careful to pursue a diversified trade strategy, avoiding reliance on any one partner; at the time, this strategy was directed mainly against England, which had attempted to use its dominant trade position 27. 28. 29. 30.

Kochan and Abraham, Making of Modern Russia, 136. Ibid. Vincent Cronin, Catherine, Empress of All the Russias (London: Collins, 1978), 135–36. Ibid., 160 and passim.

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in an economic linkage strategy against Russia. In keeping with the traditions of the day, England sought to use subsidies and favorable trade arrangements to induce Russia to help the side it favored in various military conflicts.31 Here again, like Ivan the Terrible and several later Russian and Soviet leaders, Catherine showed that she knew that economic dependence on any one state should be avoided if possible, since it could lead to political dependence. However, in two respects Catherine did take actions that greatly furthered Russian-German contacts. First, with an ukase (proclamation) issued in 1762 she encouraged the settlement of German farmers on the rich but underpopulated lands of southern Russia. Catherine’s order, like the one promulgated by Peter the Great in 1702, provided generous incentives to foreign settlers: free lodging, seed, livestock, and plows and exemption from taxes for up to thirty years. By 1768 some 20,000 German families had arrived, and they were to form the nucleus of the second large area of German settlement in the Russian empire, centered around Saratov and Tsaritsyn on the Volga.32 This area would remain solidly German until the Second World War, providing a rich source of German influence—and, on occasion, a source of conflict with later German governments, which tended to feel that they had a right to intervene on behalf of German colonists throughout Central and Eastern Europe. The Volga Germans also stand as another example of the economic importance of German ‘‘specialists’’ in Russia, since they were recruited specifically because they had mastered farming techniques that were more advanced than those available in Russia at the time.33 Indeed, it was partly due to these colonists that Russia was able to increase its grain exports from 32,000 chetvert to over 4 million chetvert in the years between 1718 and 1795.34 Of at least equal importance in future German-Russian relations was Catherine’s decision to cooperate with Prussia and Austria in the three partitions of Poland, conducted in 1772, 1793, and 1795. This action gave Russia and Prussia a lengthy common border running through the heart of the 31. Reiber, ‘‘Persistent Factors,’’ 328. 32. Ibid.; Kochan and Abraham, Making of Modern Russia, 140. For more on the history of the Volga Germans, see Gassenschmidt, Von der Revolution und der Partei geta¨uscht. 33. In later years, the Volga Germans were frequently praised for their ‘‘uniformly high level of economic and social development,’’ which tended to ‘‘highlight the contrast between native and foreign levels of agriculture.’’ See David Saunders, Russia in the Age of Reaction and Reform, 1801–1881 (London: Longman, 1992). 34. One chetvert equals approximately six bushels. Kochan and Abraham, Making of Modern Russia, 140.

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former Polish state, and naturally greatly increased contacts—commercial and otherwise—between the two powers. For example, there was a persistent tendency for peasants and workers to migrate into the German part of Poland in pursuit of higher wages, while German industrialists and large landowners began to move into Russian Poland in search of cheap labor. Given the large gulf in economic development between the two sides, which deepened dramatically in the course of the following century, this movement seemed inevitable. In the period from 1800 to 1850, Russia is generally considered to have fallen dramatically behind the leading West European states in economic terms. At this time in England, and later in France and Germany, the industrial revolution was gathering speed. After its defeat by Napoleon in 1806, Prussia had instituted far-reaching social and administrative reforms that solidified its reputation as a well-run, technically progressive state. In 1834, the German Customs Union (Deutscher Zollverein) was set up, giving Prussia a further economic boost by opening the entire German market to its goods. By 1850 and soon thereafter, industrialization was beginning to take off in Prussia, under the influence of a new group of powerful banks.35 Meanwhile, in Russia economic growth was far slower, hindered by the continuation of serfdom and stultifying state control of the economy. The results of this divergence can be seen in various economic indicators: in the late eighteenth century, for example, Russia was roughly equal to Great Britain in its production of iron. By 1859, however, Britain produced twelve times more.36 Similarly, the growth of urban areas in Russia was slow. While the urban population did rise from 1.3 to 4.2 million from 1796 to 1859, this only represented an increase from 4 to 6 percent of the total population. Economic expansion was occurring; for example, the number of factories in Russia increased from about 4,200 in 1815 to 11,000 in 1857, and the number of factory workers from 73,000 to 513,000. Yet compared to Russia’s size and to the explosive growth in other West European states, Russian progress still seemed limited. This relative economic backwardness was also reflected in Russia’s position in international trade. Trade was growing; Russian exports rose from about 75 million rubles in 1800 to 230 million in 1861, while in the same 35. On economic developments in Prussia and Germany before 1850, see Manfred Pohl, Gescha¨ft und Politik: Deutsch-Russisch/Sowjetische Wirtschaftsbeziehungen 1850–1988 (Mainz: Hase und Ko¨hler, 1988), 2–3. 36. This and the following statistics are from Sergei Pushkonev, The Emergence of Modern Russia, 1801–1917 (New York: Holt, Rinehart, and Winston, 1963), 45–49.

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period imports increased from about 52 million to 200 million.37 Yet two factors served to limit the importance of this growth. First, given the lengthy time frame involved, the increase is not inordinately large in absolute terms. Second, and of at least equal importance, the structure of the trade remained extremely stagnant. Grain made up some 35 percent of Russia’s exports in the mid-nineteenth century, while other agricultural and animal products, timber, and other raw materials made up the remainder. Finished products composed only 3 percent of Russian exports. This actually represented a decline from the late 1700s; as Sergei Pushkonev notes, ‘‘The export of finished goods declined absolutely and became relatively insignificant.’’38 Apparently this is a reflection of declining Russian competitiveness on international markets and increasing technical backwardness. In political terms, the first half of the nineteenth century marked the beginning of a prolonged period of friendship with Prussia and, later, the united German Reich, which was to last until the late 1880s. Of particular importance was the fact that Russia and Prussia had a common enemy in the early 1800s—revolutionary France, led by Napoleon. The wars against Napoleon served to unite the conservative monarchies of Russia, Prussia, and Austria in common opposition both to France and to the ideals of the French Revolution. Russia played a significant role in liberating both Prussia and Austria from Napoleonic control, and Russian troops had reached Paris itself by the end of the conflict. At the Congress of Vienna in 1815, the three empires united in the ‘‘Holy Alliance,’’ vowing to cooperate to maintain order in Europe and suppress revolutionary movements. Russia lived up to this commitment, crushing revolts in Poland in 1830 and in Hungary in 1848. The later creation of the more formal Dreikaiserbund (Three Emperors’ League) uniting the Russian, Austrian, and German empires, was a natural outgrowth of this earlier cooperation. The period after 1850—particularly after the disastrous Crimean War of 1854–56—saw major changes in Russian economic policy, as another round of reform, industrialization, and opening to the West was set into motion, featuring the abolition of serfdom in 1861.39 Given Russia’s close relationship with Prussia and that country’s acknowledged economic strength, it was natural that Prussia, and soon, the Wilhelmine Reich, should become Russia’s leading foreign partner in the new modernization drive. 37. Ibid., 50–51. 38. Ibid., 45. 39. See ‘‘Historische Hintergru¨nde der russischen Wirtschaft bis zur Revolution von 1917’’ (unpublished manuscript provided by German Embassy, Moscow, April 1994).

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In all, this early period in German-Russian relations—from the Middle Ages up to the unification of Germany—set the stage for the later cases of state-to-state economic linkage this study will examine. Germany became a key partner in Russian trade, technology, and finance. In all these areas a relationship of asymmetrical interdependence developed which made economic-political linkage possible. Of course, as we have seen, Russia was also not without resources of its own; it could seek to curb German influence by turning to autarky, reaching out to other Western partners, or, ultimately, through the threat of military force. On both sides, these patterns in bilateral relations would continue in the years to come—indeed, they persist to the present day.

Prussia and Wilhelmine Germany: Economic Linkage Begins With Germany moving toward unification under the leadership of the ‘‘Iron Chancellor,’’ Otto von Bismarck, it now became possible for the first time for a single German state to use German economic power against Russia for political purposes. When Bismarck became chancellor in 1862, he realized that Russia needed German trade and capital, and used this need to continue the Prussian policy of exerting positive economic linkage on the tsarist state. For over twenty years, as chancellor of Prussia, the North German Federation, and finally a united Germany, he patiently used financial measures to help cement German-Russian friendship, a strategy referred to in this work as positive general linkage. This marks the first case of true economic/political linkage considered in this study. Before unification, Prussia had assiduously courted the Russian state, building on the long-standing ties of the Holy Alliance. In the Crimean War, for example, Prussia pursued a policy of benevolent neutrality. In 1863 Prussia offered its help in crushing a revolt in Russian Poland. The Prussian government’s positive attitude toward German loans for Russian state and private enterprises, direct German investment in Russia, and German-Russian trade can be viewed as part of this generally friendly policy. Here one can see clearly the importance of considering a number of different economic instruments in gauging a state’s true economic linkage policy. As was noted in Chapter 1, studies that concentrate on only one instrument may miss many episodes of linkage.40 40. For example, in his otherwise excellent study of German trade policy in the East, Robert Spaulding does not consider either private or government loans or investments in Russia. Thus he misses the main instruments of positive economic linkage under Bismarck and concludes that

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Secure in Prussia’s friendship, Russia did not object as Bismarck skillfully maneuvered Germany toward unification, fighting wars against Denmark (1864), Austria (1866), and France (1870) in the process. The culmination of Bismarck’s diplomacy was reached in the creation of the Dreikaiserbund in 1873.41 Germany, Russia, and Austria agreed to maintain a policy of benevolent neutrality if any of them were attacked by another European power. While the arrangement was not formalized in a written agreement at the time, it was greatly to Germany’s benefit, since it ensured that neither Austria nor Russia could ally with France—Germany’s mortal enemy since its humiliating defeat in the Franco-Prussian war. Until the close of the 1880s, Prussia (and later Germany) was the dominant supplier of foreign capital to Russia. Indeed, in 1886 Germany held over 60 percent of Russia’s state debt to foreigners, as compared to 15 percent for France.42 This role was rooted in the financial help provided to the tsar by Berlin bankers, notably the Mendelssohn house, during the Crimean War. In the midst of that war, when the other major Western credit markets were closed to Russia, Mendelssohn was able to float two Russian loans on the Berlin market, thus providing crucial support for the Russian state.43 Clearly, given the delicate political circumstances of these loans, they must be regarded as an act of positive economic linkage, not a purely commercial transaction. In the course of the 1860s and 1870s, the German credit role accelerated greatly. Beginning in about 1857, a ‘‘railroad fever’’ broke out in Russia; the Russian state, having seen in the Crimean War that its weak infrastructure could have military implications, encouraged railroad building on a grand scale. In the 1860s this trend accelerated further, with twenty-four new railroad companies founded between 1866 and 1875. Berlin was the key site for the sale of Russian railway bonds, with some 900 million reichsmarks (RM) being invested in the bonds by 1876, and another 548 million from 1881 to 1886.44 Russian agricultural reforms had also opened up a market for agricultural loans, secured by land. Berlin was also the center for this market, with some 130 million rubles in bonds issued by the Mutual Land Credit Association between 1868 and 1877.45 Bismarck favored depoliticized economic ties and ‘‘saw no need to support his allies with trade or financial considerations.’’ Spaulding, Osthandel und Ostpolitik, 24. 41. See Saunders, Reaction and Reform, 301. 42. George Kennan, The Decline of Bismarck’s European Order (Princeton: Princeton University Press, 1979), 225. 43. Pohl, Gescha¨ft und Politik, 7. 44. Ibid., 19–20, 31–33. 45. Ibid., 11. For purposes of conversion, it should be noted that the ruble/reichsmark con-

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Even this seemingly ‘‘private’’ system of loans was in fact a highly political affair. The railroad building program, for example, was a top priority of the Russian state, and the state guaranteed a high return on the railroad bonds. In the 1870s and 1880s, most of the private railroad companies were formally nationalized. On the German side, too, the government was involved. Each new issue on the Berlin market required government approval, and the government could also influence the market by its own financial strength, embodied in the Reichsbank and several other state-associated banks. It was particularly easy to influence the market, since only a few leading banks were involved in floating Russian issues in Berlin. Later, as we shall see, when the government changed its political view of Russia, it acted to cut the flow of private capital to that country. German bankers also continued to arrange direct loans for the Russian state, often under highly politicized circumstances. The Russian war against Turkey in 1877–78, like the Crimean War, drained Russia’s limited reserves and necessitated further borrowing abroad. Austria, Germany’s closest ally, was already suspicious of Russia’s motives in the Balkans, and because of this Chancellor Bismarck could not support Russia openly. Still, he cleverly balanced German neutrality and friendship with Russia by quietly arranging a substantial loan for Russia in the middle of the conflict. Gerson Bleichro¨der, a banker known to be close to Bismarck, was able to secure the large sum of 100–200 million gold rubles for the Russian government, which was promptly used to purchase arms.46 The political importance of this act of general positive linkage should not be underestimated. It helped significantly to ease the sting of Germany’s official neutrality in the war and of its cautious behavior at the Congress of Berlin in 1878—chaired by Bismarck—when Russia’s gains in the war with Turkey were reduced to please Austria and the other European powers. By its economic support, Germany was sending a message to the tsar, showing that it supported Russia despite the awkward necessity of balancing Russian and Austrian interests in the realm of high politics. Helped by this type of inspired balancing, Bismarck was able to convert the informal Dreikaiserbund into a formal treaty arrangement in 1881. In the summer of 1884, after the Dreikaiserbund treaty had been renewed for a second three-year term, Bismarck decided to reward the Russians by actively helping to arrange a large railroad loan. The consortium floating version rate varied between 3.24 RM/R (end of 1875) and 1.63 RM/R in March 1888, but was generally in the range of 2 to 2.5 RM/R. Ibid., 29. 46. Ibid., 22.

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the RM 300 million bond issue was led by Bleichro¨der and included the unprecedented direct participation of the Prussian state-owned Seehandlung bank. This political boost led to a huge private demand for the issue, and indeed created a spillover effect that led to an ‘‘infatuation with Russian obligations’’ on the Berlin market, much to Russia’s benefit.47 In addition to such ‘‘portfolio investments,’’ German banks and industrial firms also became involved in direct foreign investment in Russia on a grand scale during the thirty years after 1850. When the Russian state first permitted the formation of private banks in 1864, the German banking houses quickly formed close ties to them, often helping to found the banks by supplying a major share of the initial capital. German industry also rushed into the country, occupying roles that would be unusual for foreign ownership today, such as public utilities. German firms led the way in providing natural gas service in Russia, built the first telegraph system in the country, and later built the first electric streetcar systems and controlled the early Russian electrical utilities.48 Siemens and Halske provided electric lighting for the tsar’s winter palace in 1885, the biggest electrical lighting project in the world at the time, and the following year Siemens founded the St. Petersburg Society for Electrical Lighting, the city’s first electric company.49 German firms also became involved in more conventional investment projects, beginning with such early projects as the Hille and Dietrich canvas factory (1857) and the Siemens-owned Kedaberg copper mine in the Caucasus (1864). German firms helped to found the Baku oil industry and received concessions for manganese, cobalt, iron, and gold mining. The chemical giants Hoechst and BASF were operating plants in Russia by 1878.50 In all, from the 1860s to 1880s, German direct investment was clearly the dominant force in foreign investment in Russia. Meanwhile, trade also boomed between Prussia/Germany and Russia. In 1850 and 1857 Russia enacted relatively liberal tariff regulations, and this proved to be a great spur to trade. Tariffs were lowered again at the beginning of 1863. The Crimean War, in which Russia was opposed by Britain 47. Ibid., 33. 48. The German Continental Gas Company (Deutsche Continental Gas Aktiengesellschaft), formed in 1855; Neue Gas Aktiengesellschaft (1862); and Hamburg-Lodz Gas Gesellschaft (1869) were examples of this trend. German firms controlled many of the gas utilities in Russia. Ibid., 15. Siemens and Halske built the first Russian telegraphic system, beginning, remarkably, in 1848. The company had a full-time office in the country from 1853 and built and maintained all Russian lines for many years thereafter. Ibid., 16–17. 49. Ibid., 39. 50. See ibid., 14–15, 35–37, 40–41.

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and France, enabled Prussia to become the undisputed leader in the expanding trade with Russia, displacing the British. The growth in trade in this period was impressive. As before, trade between the two countries focused on Russian exports of raw materials and agricultural goods and German exports of more sophisticated goods such as machine tools and rolling stock for the burgeoning Russian railroad net.51 Indeed, as Germany industrialized, the share of its exports in more technical areas increased; by the 1870s and 1880s, the German machine-building, chemical, and electrical industries were already beginning to surpass those of its Western competitors. In the late 1870s about 44 percent of Russia’s imports came from Germany, and the Reich took some 34 percent of Russia’s exports.52 Table 2.1 Trade Between Prussia and Russia, 1860–1870 (in millions of rubles) Year

Russian imports

Russian exports

Russian balance

1860 1865 1870

36.6 51.1 136.1

25.2 33.0 76.1

ⳮ11.4 ⳮ18.1 ⳮ60.0

In all, then, by the 1880s Germany’s essentially positive economic policy seemed to have a clear record of success. Bismarck’s policy of encouraging trade and capital transfers to Russia had made Germany the dominant force on the Russian economic scene. As noted in Chapter 1, this ability to induce economic dependency is a key advantage of positive sanctions. The political payoff was also clear: Germany’s positive policy toward financial links between the Reich and Russia was a major prop for the two countries’ political ties. As we have seen, at several junctures the Prussian/German state intervened to support loans to Russia, always with a clear political intent. During the Crimean War and the Russian-Turkish war, and following the renewal of the Dreikaiserbund in 1884, this intervention was particularly clear. Each time, the aid helped the Germans to pursue another agenda on the highpolitical level—by remaining neutral in the Crimean and Turkish wars, and ‘‘tilting’’ toward Austria in the Balkans in the early 1880s—without alienating Russia. Throughout this period, German friendship was reciprocated by the Russian tsars, as seen in Russia’s vital political support of German reunification and of the successive Dreikaiserbund arrangements. This initial case of German-Russian political linkage can be summed up as follows: 51. Ibid., 4–5, 18. 52. Kennan, Decline of Bismarck’s European Order, 228.

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Case 1 1850–85 Linkage type

German goal(s)

Results

Positive general (loans in Crimean and Turkish wars; bonds for Russian railroads)

Russian support of German unification; alliance with Russia (Three Emperors’ Treaty)

Successful: both goals achieved

Such summaries will be given at the end of each case throughout this work, and will be brought together in Table 6.1 in the concluding chapter. Yet German-Russian relations soon soured—a change accelerated by Bismarck’s shift by the mid-1880s to the use of negative economic linkage. Politically, the Russian-German relationship was put under pressure, as was noted above, by Germany’s need to cater to its ally, Austria-Hungary, on sensitive Balkan questions. Rising Russian nationalism, particularly after the accession of Alexander III to the Russian throne in 1881, led to increasing resentment of the perceived German ‘‘tilt’’ toward Austria.53 The nationalism of Alexander and his administration was also reflected in their treatment of the German minority in Russia. In 1885 a ‘‘russification’’ campaign was begun in the Baltics, and soon thereafter the right of German citizens to buy land and factories in Russian Poland was restricted.54 Economically, too, some difficulties were emerging. Already by the late 1870s Russia and Germany were drifting into a tariff war. At first, the increased tariffs were not viewed as a form of economic-political linkage by either side, but merely as necessary steps taken for domestic reasons. In 1877, in order to raise money for the Turkish War, the Russian finance minister decided to require all tariffs to be paid in gold rather than paper rubles. Since the paper ruble was worth less than the gold equivalent, this resulted in an effective 30–50 percent increase in tariffs.55 In 1879, Bismarck began to raise tariffs against Russian grain exports, largely in order to protect the Junker estate owners who formed an important part of his political base. Bismarck probably did not intend for this gesture to be perceived as an attack on Russia; after all, at this time and for several years to come he was 53. This subject is covered in much more detail in Kennan, Decline of Bismarck’s European Order. 54. Alexander III showed his desire to russify the Baltics from the outset of his reign, when he became the first tsar to refuse to extend the Petrine Capitulation of 1710. In 1885 a major wave of russification began, with the powers of the German-dominated local assemblies being dramatically reduced and Russian introduced as the language of education and official business. For details of the campaign, see Henriksson, Tsar’s Loyal Germans, especially chap. 4. On the restrictions imposed in Russian Poland, see Kennan, Decline of Bismarck’s European Order, 342. 55. Kennan, Decline of Bismarck’s European Order, 230.

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trying to send positive economic signals to the tsarist regime, particularly through his help in arranging loans to Russia. Yet the decision to raise tariffs did have an impact, helping to spark further retaliation and slowly poison the political climate between the two states. Soon, however, Germany made the fateful decision to turn openly to negative economic linkage. Apparently Bismarck believed that Germany’s positive actions up to about 1885 had been ineffective in halting the gradual slide toward hostility in Russian-German ties, and the time had come to impose harsher measures. As a senior German official later confirmed, ‘‘We wished, by our refusal to cooperate, to render this adversary [Russia] less belligerent.’’56 Germany’s decision to begin to regard Russia as an ‘‘adversary,’’ although it was still linked to the Reich by the Dreikaiserbund and, later, by the Reinsurance Treaty (1887–90), was in retrospect a tragic error. Germany thus began to treat Russia in much the same way that the West would later treat the Soviet Union—with a policy of negative general linkage, a policy of increasingly severe economic sanctions designed to generally weaken an adversarial state. George Kennan and others writing on the origins of the First World War see the emergence of the French-Russian alliance in the late 1880s and early 1890s as a key turning point for Europe as a whole, indeed as perhaps the decisive event in sending Europe down the path to war.57 As Kennan notes, in explaining the emergence of this alliance, one must focus on the Russian side. Russia was linked to Germany by close dynastic ties, a common conservative ideology, and a common desire to control Poland. No serious issues seemed to divide the two states; even in the Balkans Russia’s real opponent was Austria. Yet the Russians decided nonetheless to align with France, despite such obstacles as that country’s unabashedly republican governmental system. What caused this crucial realignment? Part of the answer lies in the contrast between Germany’s negative economic policy of the time and the consistently positive policy pursued by France. Germany was to follow an essentially negative economic policy toward Russia for most of the period from 1886–87 until the First World War, and the results were nothing short of disastrous. By the mid-1880s, the RussoGerman tariff war had escalated and was being increasingly seen by the Germans not just as an economic question but as part of a political strategy of 56. See ibid., 230, 344. The quotation is from the memoirs of Ludwig Raschdau, at the time head of the Overseas Desk of the Commercial Policy Department at the German Foreign Ministry. 57. Ibid., 5–6.

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negative linkage. Similarly, in 1887 Bismarck issued the Lombardverbot, which had the effect of freezing Russia out of the German capital market. The broadest political aim of the negative linkage policy was to influence the Russian government to turn away from an increasing orientation toward France and remain neutral or pro-German. In addition, as would be the case in later examples of German economic linkage, other secondary political goals were pursued, such as improvements in the position of the Baltic Germans and of German settlers and investors in Russian Poland. However, the negative policy instruments chosen—high tariffs and limitations on loans to Russia—proved to be ineffective, and in fact helped to cement the alliance between Russia and France and to worsen the lot of the Germans in Russia. First, Germany continued and deepened its tariff war with Russia. In 1882, Russia had raised tariffs on German imports, particularly of iron and steel products. Throughout the following years, Russia steadily increased its restrictions on imports of German manufactured and capital goods, largely in an effort to protect infant industries, while Germany continued to squeeze Russian agricultural exports. Over the period 1879–85, Germany increased its tariff on Russian grain exports by 500 percent.58 In December 1887 Germany raised its tariffs on Russian grain yet again.59 In 1891 Russia again raised its tariffs on manufactured and capital goods, and in the next several years the two sides imposed openly discriminatory duties against each other; Germany phased in a special grain duty which applied only to Russia, and Russia in turn imposed higher tariffs on German manufactured goods than on those from other states.60 Admittedly, in the course of the tariff dispute both Russia and Germany had increased their restrictions; yet Germany could have more easily afforded to back down from the dispute, given its superior economic strength. Instead, it chose to continue to punish Russia economically, hoping that the tsar’s government would give in to German economic and political demands. By 1888–90 Germany’s share of Russia’s imports had slipped to 34 percent from the 46 percent it had controlled in 1878–82. Shipments to Russia fell in value by 29 percent, although overall German exports had risen 14 percent in the 1880s.61 As this study would predict, negative sanctions were eroding Russia’s dependence on Germany, undercutting the basis for future sanctions. 58. Ibid., 230. 59. Pohl, Gescha¨ft und Politik, 25. 60. For an account of the German-Russian trade dispute in these years, see Sidney Harcave, ed., The Memoirs of Count Witte (Armonk, N.Y.: M. E. Sharpe, 1990), 182–86. 61. Spaulding, Osthandel und Ostpolitik, 23

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In addition to its restrictive tariff policy Germany also moved to limit Russia’s access to loans on the German capital market. In early 1886 a major effort by German bankers to float a loan to Russia fell apart, in large part because the German bankers were ‘‘heavily influenced by Bismarck’s reluctance to support the enterprise.’’62 In December 1886 Bismarck issued an order to his Foreign Ministry ‘‘to make [demand for] Russian securities as slack [flau] as possible.’’63 Finally, on November 10, 1887, Bismarck issued the Lombardverbot against Russian securities.64 In part, the order was in retaliation for Russia’s decision in May 1887 to restrict the sale of land and property in Russian Poland to foreigners, which impacted primarily Germans. Yet it should be recalled that on June 13, 1887, the Russians had signed the Reinsurance Treaty, which was politically of far greater importance. Although this was only a bilateral treaty and thus not a direct continuation of the expiring Dreikaiserbund arrangement, it still contained the provision that was most crucial for German security, namely, that Russia would remain neutral in the event of war between Germany and another European power. Thus Germany was still protected from a Franco-Russian alliance. Yet despite this fact, Bismarck chose to keep up the economic pressure against Russia by issuing an order that played a large role in discouraging lending to Russia. The effect of the Lombardverbot and other accompanying measures was clear; Russian securities suffered a major decline in value in Berlin, and many were sold to Russian or other foreign—notably French—buyers. Also, the Russian Finance Ministry became increasingly desperate to find alternate sources of capital. It was eager to consolidate the many small loans issued to Russia in earlier years into a few large new loans, and Bismarck’s actions had blocked this goal. Bismarck was pleased by Russia’s financial difficulties, hoping in Kennan’s words that they would serve to ‘‘soften the Russians up and make them more responsive to German pressures.’’65 However, Bismarck’s hopes were not to be fulfilled, since Russia had other options than bowing to German pressure. 62. Kennan, Decline of Bismarck’s European Order, 226, 232. 63. Pohl, Gescha¨ft und Politik, 24. 64. See Hugh Seton-Watson, The Decline of Imperial Russia, 1855–1914 (New York: Praeger, 1967), 177–78. See also Kennan, Decline of Bismarck’s European Order, 342–45, and Pohl, Gescha¨ft und Politik, 25. Formally, the Lombardverbot was merely a statement that Russian state bonds would no longer be accepted by the German Reichsbank or other state-owned banks as collateral for loans to Russia. 65. Kennan, Decline of Bismarck’s European Order, 380. Kennan notes that on March 4, 1888, Bismarck issued a secret directive to pro-government newspaper editors, urging them to give prominent play to Russia’s financial difficulties and its inability to find new loans.

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Germany’s negative trade and lending policies played into the hands of Russian nationalists such as the newspaper editor M. N. Katkov, who had derided Russia’s ‘‘economic and commercial state of subservience’’ to the Reich in an influential 1886 editorial.66 Although the tsarist state was not a democracy, public opinion did matter to some extent. Nationalists, industrialists, and agricultural interests were all outraged by Germany’s actions— either for patriotic reasons or because their economic interests were being affected. As was predicted at the start of this study, while positive sanctions can win allies among politically important interest groups in a targeted state, negative sanctions tend to alienate these groups. Bismarck’s actions seemed to show that Germany’s economic influence was indeed dangerous. This helped to provoke a reaction that has recurred again and again in German-Russian relations: when the political strings attached to German economic dominance become too clearly visible, a nationalist backlash may follow, as has been seen periodically from the time of the early tsars to the late Brezhnev era. Such a backlash is especially likely if negative economic instruments are used, since, as noted in Chapter 1, they are much more likely to cause feelings of resentment in the target state than positive measures. Meanwhile, the French government was working actively behind the scenes to fill the gap left by Germany’s fading economic support for Russia. Perceptive French diplomats had sought for years to achieve ‘‘the advantage of attaching that country [Russia] to our own, even in advance of any political understanding, by the only bonds that count these days: namely the financial ones.’’67 On November 17, 1888, this objective became a reality when a French consortium signed an agreement to lend 500 million francs to Russia to retire old Russian obligations from the Berlin market. By the spring of 1889, two even larger agreements had been reached, totaling some two billion francs. These agreements set the pattern for the transfer of Russian borrowing from Berlin to Paris, which by 1914 would result in a flow of capital that would ‘‘make the Russian debt to France, at that time, the greatest body of indebtedness of one country to another that the world had ever known.’’68 One notable reason for the failure of Germany’s ‘‘lending embargo’’ against Russia deserves to be emphasized: as was noted in Chapter 1, nega66. Kennan, Decline of Bismarck’s European Order, 179. 67. General Chanzy, 1880, cited in Kennan, Decline of Bismarck’s European Order, 237. General Chanzy was the French ambassador to Russia at the time. 68. Ibid., 389–91.

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tive economic measures can generate economic incentives that lead to their own collapse. French bankers did not need to be prodded to lend to Russia; in fact, they were able to profit by doing so—just as Australian farmers profited by breaking the U.S. grain embargo against the Soviet Union under President Carter. The profits involved were so great that they tempted even German firms to circumvent their own government’s measures. German bankers covertly purchased shares in the fall 1888 and spring 1889 loan issues abroad in order to profit from the clear successes of both.69 Germany maintained its ‘‘tariff war’’ and the Lombardverbot throughout the period 1887–94 as the Russian-French alliance steadily solidified. In 1890 Kaiser Wilhelm II, having dismissed Chancellor Bismarck, refused to renew the Reinsurance Treaty, a gratuitous political move that further reduced any hope of German-Russian reconciliation. Meanwhile, Russia and France signed a secret military convention in 1892 and by 1894 were openly allied. Russia had reoriented itself both economically and politically. Nor had the German action helped the lot of Germans in Russia; in fact, rising political hostility between Russia and Germany merely helped to further convince the tsar’s government that the minority was an ‘‘alien’’ presence that could not be fully trusted. This case of failed linkage can be summed up as follows: Case 2 1885–94 Linkage type

German goal(s)

Results

Negative general (Russian bonds barred from German market— Lombardverbot; tariff war)

Preserve Russian alliance; protect German settlers in Poland and the Baltics

Unsuccessful: Russia aligns with France; russification of German minority proceeds

In all, as Kennan notes, ‘‘Bismarck miscalculated in his belief that [economic] punishment would have an appreciable effect on softening Russian policies towards Germany in the political field.’’70 In fact, the opposite was true. In the early 1890s, under Chancellor Caprivi, Germany began to rethink its negative policies. Caprivi saw that the Reich’s tariff policies and the embargo on lending to Russia were driving the tsarist government away from Germany. Accordingly, for a brief period Berlin moved to a more positive policy toward Russia. Germany signed a ten-year economic agreement with 69. Ibid. 70. Ibid., 345.

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Russia that ended the tariff war in February 1894, and then lifted the Lombardverbot in October of the same year. Yet the policy shift was unsuccessful—a classic case of ‘‘too little, too late.’’ Caprivi’s moves were part of a general policy of tariff reductions for political purposes. The trade pact with Russia had been preceded by agreements with Italy and Austria-Hungary, designed to, in Caprivi’s words, serve Germany’s ‘‘interest in strengthening our allies.’’71 This policy of strengthening one’s allies and potential allies through preferential trade agreements is one that has been used often in world affairs, as Lars Ska˚lnes showed in his study of British trade with the United States in the 1930s.72 Caprivi aimed to obtain similar political results through a trade treaty with Russia. As he put it, this would create ‘‘a strong new wire’’ linking Germany and Russia, after the earlier ‘‘wire’’—the Reinsurance Treaty—had been cut by the 1890 decision to allow the treaty to lapse. If the new trade treaty did not succeed in fully winning back Russia’s friendship, it would at least curb the growth of radical pan-Slavic and anti-German feeling in Russia and thus lessen the military danger from the East. The key obstacle to a trade treaty was German agricultural tariffs, particularly the levy of five reichsmarks per 200 kilograms of imported grain. Grain was by far Russia’s most important export to the Reich, accounting for over half of its export sales in the 1880s.73 Reductions in the tariff were hotly opposed by the conservative Junker class of Prussia, normally a political ally of the kaiser’s government. Yet Caprivi pressed ahead, ordering a new treaty to be concluded with a grain tariff of only RM 3.50. With this concession, the treaty was successfully signed, and was passed by the Reichstag in March 1894. It was supported by a strange (and temporary) alliance of conservative industrialists, who sought to increase sales of manufactured goods to Russia, and social democrats, who wanted to safeguard industrial jobs and to reduce food prices for the lower classes through Russian agricultural imports. To accompany this measure, the government decided to eliminate the notorious Lombardverbot as well, allowing Russia some access to German capital markets. However, despite Caprivi’s brief flirtation with a policy of positive general linkage, Russia maintained its realignment toward France. Two reasons can be cited for the failure of this linkage attempt. First, Germany’s conces71. Quotations from Caprivi in the paragraph are from Spaulding, Osthandel und Ostpolitik, 42–43. 72. Ska˚lnes, ‘‘Grand Strategy.’’ 73. Spaulding, Osthandel und Ostpolitik, 22.

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sions were not large enough to outbid the French. France not only offered generous trade concessions but permitted private investors to make large loans to Russia as well. Germany did not offer government-backed loans or other economic ‘‘carrots’’ to Moscow. Hence, the political effect of the positive sanctions was muted; at most, it seemed they might be able to temporarily limit the increasing German-Russian hostility. Second, the Caprivi interlude was not especially long lasting. Caprivi was voted out of office in late 1894, largely because of his trade policy. Agrarian conservatives were outraged both by the specific content of his policy—lowering German tariffs on agricultural products—and by the political implications of a policy that aimed to buy Russia’s friendship rather than impressing Moscow with Germany’s military might. As one agrarian deputy, Count LimburgStirum, said in the Reichstag, ‘‘It is not our opinion that the German Reich is today in a position to [have to] pay anyone for his alliance.’’74 In all, this case of positive general linkage can be summed up as follows: Case 3 1894 Linkage type

German goal(s)

Results

Positive general (trade treaty, lifting of Lombardverbot)

Return to friendship with Russia—possible end to French alliance

Unsuccessful: no change in Russo-German relations; French alliance formalized; Caprivi dismissed

This case makes clear that, as noted in the first chapter of this study, positive sanctions are not always a panacea. Certain conditions must be met before they can be successful. If the instruments used are too weak, they will fail. If the sanctions are applied inconsistently or for too short a time, they will fail. And if the initiating state is ‘‘outbid’’ by a highly motivated competitor, the sanctions will fail. After Caprivi, successive chancellors returned to an essentially negative economic policy toward Russia, denying loans and vowing to gut the relatively generous 1894 treaty when it came up for renewal in 1904. In particular, it was clear that the key agricultural tariff concessions made by Caprivi would not be renewed. This attitude was matched by a negative political attitude toward Russia, as bilateral ties were frozen and Europe’s two opposing alliance systems were solidified. In the early 1900s, particularly in the period 1904–6, Germany again had 74. Ibid., 44.

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a chance to act to move Russia away from its close ties to France, and again its negative economic policies only helped to cement the Franco-Russian alliance. By this time, some Russians had come to realize that Russia’s financial dependence on France was now as great as its former dependence on Germany. In 1886, Germany had held about two-thirds of Russia’s foreign debt; now the French held the same percentage.75 As Alfred Reiber notes, France used this dependence to influence the tsarist state, for example, pressing it to use French loans to build strategic railroads for transporting Russian troops to the German border.76 The long alliance with France was not the ‘‘free hand’’ that Russian nationalists had sought when they broke with Germany in the 1880s. The moderate conservative Sergei Witte, for example, the tsar’s influential finance minister and, after 1905, prime minister, had flirted with the idea of a tripartite agreement between France, Germany, and Russia as early as 1897.77 In this case, for the first time, it seemed that there was the potential for Russian nationalist reaction to foreign economic influence to work in Germany’s favor. In 1904–5, the Russian state had stumbled into a crisis of serious proportions, which resulted in a desperate need for an infusion of foreign capital. An unsuccessful war against Japan in the Far East had drained the state’s reserves, and it was followed by the revolutionary upheaval of 1905. During this period of uncertainty, Germany saw the possibility of breaking the Franco-Russian alliance and might have succeeded. An important reason it did not was its negative attitude toward Russia’s economic needs. In July 1904, in the midst of the Russo-Japanese War, Witte traveled to Germany to negotiate the renewal of the economic agreement signed in 1894. The kaiser’s government chose to exploit Russia’s weakness at the time, demanding that Russia conclude an agreement that would recognize the sharply higher tariffs Berlin had unilaterally imposed in 1902. These new rates included a boost in the wheat tariff to RM 5.50 per 200 kilograms, and in the rye tariff to RM 5.00—figures at or above the prohibitive rates in effect before 1894.78 Witte reluctantly agreed to sign the treaty, but only on the condition that Germany open its financial markets for Russian borrowing, since war and revolution had virtually bankrupted the tsarist state. Foolishly, the Germans did not see this request as an opportunity to wean Russia away from French influence, and Witte had great difficulty in win75. 76. 77. 78.

Seton-Watson, Decline of Imperial Russia, 285. Reiber, ‘‘Persistent Factors,’’ 328. Harcave, Memoirs of Count Witte, 267–68. Spaulding, Osthandel und Ostpolitik, 73–74.

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ning German agreement to his demand.79 Ultimately, Berlin would renege on this promise of a possible loan, which angered the Russian leadership greatly. In July 1905, Kaiser Wilhelm was able to persuade the Russian tsar, Nicholas II, to sign a new bilateral treaty at Bjo¨rko¨ (Finland). The agreement essentially broke the French-Russian alliance by stipulating that Germany and Russia would each come to the other’s aid in the event of an attack by any European power. That fall Witte also met with the kaiser, at Wilhelm’s hunting lodge in Romintern, and again discussed a plan for a RussianFrench-German alliance.80 These breakthroughs made it clear that the French-Russian alliance was fairly fragile, although a reluctant Nicholas did agree to suspend the Bjo¨rko¨ agreement as being totally incompatible with the French alliance. Yet the kaiser’s actions later in 1905 and in 1906 in the financial area helped to undo this progress. Loan negotiations between Russia and France and Germany were complicated in the winter of 1905–6 by the Algeciras conference. This conference of the major European powers was called to decide the future of Morocco. Would it become effectively a French colony, or would it remain open to the influence of other states, including Germany? Algeciras was a crucial test of the Russian-French alliance; Russia had to decide whether to support its ally or the Germans. France offered a decisive inducement: a promise that a large loan could be arranged if Russia supported France at the conference. Germany made no such promise. The French offer, which this study would classify as specific positive linkage, carried the day. Germany refused to accept defeat, dragging out the Algeciras conference; Witte saw the delay as an example of specific negative linkage— economic pressure tied to a single foreign policy issue. Germany, he felt, wanted to derail any loan to Russia in an effort to ‘‘place the Czar’s government in as difficult a position as possible in order to make it more tractable [on the Morocco issue].’’81 Germany compounded its defeat by issuing an order on March 23, 1906, forbidding German banks from taking part in any loan to Russia, thus breaking its commitment of 1904 to open German capital markets to Russia.82 Finally, on April 3, 1906, a French consortium 79. See Harcave, Memoirs of Count Witte, 387–91. 80. George Katkov and Michael Futrell, ‘‘Russian Foreign Policy, 1880–1914,’’ in Erwin Oberla¨nder et al., eds., Russia Enters the Twentieth Century: 1894–1917 (New York: Schocken, 1971), 29. 81. Harcave, Memoirs of Count Witte, 564. 82. Pohl, Gescha¨ft und Politik, 48–49.

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granted Russia a massive loan, totaling 2.25 billion francs, thus cementing the French-Russian alliance. And again, as had been the case in 1888–89, German bankers defied their government and covertly backed the French loan. Germany’s actions had again backfired; the new loan embargo, like the one of 1887, only angered the Russians. Witte judged it harshly: ‘‘Having failed to drive us off the gold standard by its delaying tactics at Algeciras, the German government now resorted to this treacherous step.’’83 Russian public opinion agreed; as had been the case at the time of the Lombardverbot, sober industrial and agricultural groups, seeing their economic interests affected, were swept up in a frenzy of nationalistic hatred of Germany.84 Predictably, negative sanctions had only served to alienate both the tsarist leadership and key interest groups in Russia, as the discussion in Chapter 1 would predict. And once again, negative sanctions had opened the door for a competing power, France, which was willing to use a more generous policy. As Hugh Seton-Watson concludes, in examining the reasons for Germany’s failure to break the Russian-French alliance, ‘‘Perhaps the decisive factor was financial.’’85 The failed attempt to use negative specific linkage at the time of Algeciras can be summarized as follows: Case 4 1905-1906 Linkage type Negative specific (loan embargo at time of 1905 crisis in Russia)

German goal(s)

Results

Russia’s support at Algeciras Conference against France; progress in breaking Franco-Russian alliance

Unsuccessful: Russia supports France after France offers large loan; resentment of Germany increases

Even after this episode Germany continued to pass up opportunities to break into the Russian financial market, persisting in a basically negative economic policy. In the fall of 1908 another large multinational loan consortium was being set up, and the German government again prevented German banks from participating. The Foreign Ministry agreed with the argument of Arthur Gwinner, then head of the Deutsche Bank, that participating in an international coalition would result in ‘‘hardly any political credit’’ in St. Petersburg for Germany.86 Germany’s nonparticipation, however, only succeeded in further lowering its standing in Russia’s eyes. 83. 84. 85. 86.

Harcave, Memoirs of Count Witte, 569. Spaulding, Osthandel und Ostpolitik, 88–90. Seton-Watson, Decline of Imperial Russia, 315. Pohl, Gescha¨ft und Politik, 50–51.

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In all, it seems clear that the negative economic linkage policies pursued by the German Reich in the later Wilhelmine period (with the brief exception of 1894) were strikingly ineffective, whether they aimed to generally weaken the Russian state or to win specific concessions as at Algeciras. As we have seen, Germany did seem to have a fairly strong structural basis for linkage, rooted in its dominant position both in trade with Russia and in providing capital for Russian state and private needs in the 1870s and 1880s. However, this power was not used wisely. Germany neglected the first maxim of using negative economic pressure: it failed to realize that, unlike positive sanctions, negative sanctions generally require coordination with other nations and enforcement mechanisms to be truly effective. When Bismarck issued the Lombardverbot against Russian loans in 1887, he created a powerful economic incentive for other financial centers to take over this lucrative trade. Russian bonds, with their high, state-guaranteed yields, were not difficult to place on other markets. In addition to this economic incentive, Germany’s archenemy France had a strong political incentive to undermine Germany’s ‘‘financial embargo’’: its desire to find a European ally to oppose German power. For both of these reasons, France soon arranged a series of large loans to tsarist Russia, thus causing Bismarck’s measure to fail both economically and politically. In the period as a whole, Germany’s economic linkage strategy had the same effect as its overall foreign policy in this era: it was full of bluster and implied threat, and succeeded only in driving other European powers to unite against the perceived German threat. It is clear in retrospect to some observers that a policy of continued positive economic linkage would have been more effective for Wilhelmine Germany. As was noted in Chapter 1, two prime advantages of a positive linkage strategy are that it does not provoke resentment and opposition in the ‘‘target’’ state and that it does not provide an economic incentive for other international actors to undermine the policy. As we have seen, for example in the case of the Lombardverbot, both these factors played a large role in leading to the failure of the German policy. If Germany had instead offered Russia more loans, on generous terms, the results might have been different. First, the tsarist regime would not have perceived a ‘‘German threat’’ behind such actions, and thus would have been less likely to be receptive to the idea of an anti-German alliance. Second, there would have been no economic incentive for France to oppose the German action. True, France would have still had a political motivation to attempt to win a costly ‘‘bidding war’’ for Russia’s favor, although Germany’s superior economic

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strength would have given it an advantage in such a contest. Still, this would have been a more promising policy for the Reich than the negative strategy of the Lombardverbot. Pushkonev notes, referring to both the Lombardverbot and the decision to deny loans in 1905–6: ‘‘If Germany had offered financial assistance on a massive scale [in 1905–6], she might have been able to outbid France and to persuade Russia to change her partner. But just as Bismarck in 1887 had failed to understand the political implications of loan policy, so now Wilhelm II and his diplomatic advisors appear to have ignored the financial factor.’’87 Another major disadvantage of Germany’s tactic of pursuing negative linkage while other states took a more positive course was that Germany’s relative economic importance to Russia—and hence, the potential for future German linkage—went into a noticeable decline. This violated an elementary maxim of economic linkage discussed by Hirschman: in order to use economic linkage, favorable economic ties must first exist.88 The decline in Germany’s role was particularly true in the area of loans and investments. By the time of the First World War Germany’s previously dominant position among Western countries investing in Russian had clearly eroded (although it remained important in some sectors such as textiles and the electrical industry). Germany’s role in the financing of Russia’s state debt was even lower. In 1914 it was estimated that some two-thirds of Russia’s foreign state debt—or about four billion rubles out of the six billion ruble total— was in French hands.89 In the area of trade, Germany’s role continued to be larger. This may have been due in part to the fact that Russia found it easier to divert its Table 2.2 Foreign Investment in Russia, 1914 Country

Share (%)

France Great Britain Germany Belgium United States Total from these states

32 22.5 16–20 15 5–6 90.5–95.5

Source: Seton-Watson, Decline of Imperial Russia, 285–86. 87. Pushkonev, Emergence of Modern Russia, 316. 88. Hirschman discusses this point in the context of Hitler’s strategy of trade penetration in Eastern Europe in the 1930s, but it is equally true for other periods. For example, Brandt’s Ostpolitik was partly designed to increase economic links with the East with a view to later increasing (peaceful) German economic influence in the region. 89. Seton-Watson, Decline of Imperial Russia, 285.

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financial ties to geographically distant markets than to do the same for trade flows, which are more dependent on geographic proximity. Also, while much of Russia’s foreign debt was directly or indirectly under the control of the state, much of Russia’s trade was conducted by private corporations, who were more impressed by Germany’s strong trade palette than by political considerations. In any case, Germany’s share of Russian trade on the eve of the First World War was quite large when compared to the share of Great Britain, the second most important trading partner. Also, in keeping with another pattern that was to become familiar in German-Russian and German-Soviet trade ties, this trade was at least five times more important to the Russian side than to the Germans. Although in 1913 German exports to Russia accounted for some 47 percent of Russia’s total imports, they amounted to only 8.7 percent of total German exports.90 In sum, though, despite Germany’s trade successes, the late Wilhelmine era cannot be regarded as a very successful period in the use of economic linkage. Both before and immediately after 1870, a policy of general positive linkage was followed, and this helped to reinforce the generally positive bilateral ties of that time. However, the switch to negative linkage in the mid- to late-1880s was to prove disastrous, especially since Germany’s rival, France, was only too willing to fill the economic and political void caused by declining German ties with the Russia. With the brief exception of 1894, Germany generally maintained its negative economic stance until the First World War, missing several opportunities to adopt a more positive course, notably the 1904 renewal of the Russian-German Economic Agreement and the 1906 opportunity to participate in a major loan to Russia. As a result, on the eve of the First World War Germany had little economic influence on imperial Russia, despite its notable strength in the area of trade. Table 2.3 The Role of Germany and Britain in Russian Foreign Trade Before 1914 1909 (in millions of rubles)

1911 (in millions of rubles)

1913 (in millions of rubles)

1913 (as a percentage of total Russian trade)

German exports German imports

355 387

477 490

643 453

46.8% 29.8%

British exports British imports

128 289

154 337

170 267

12.4% 17.6%

Source: Seton-Watson, Decline of Imperial Russia, 288, and own calculations. 90. . E. H. Carr, German-Soviet Relations Between the Two World Wars: 1919–1939 (Baltimore: Johns Hopkins Press, 1951), 52.

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Worse yet, negative sanctions had generated a negative political spillover effect, as predicted in Chapter 1. As Robert Spaulding notes, focusing on the one-sided trade treaty of 1904, ‘‘The Russian perception of the 1904 agreement as an economically damaging treaty that Russia would not renew emerged as a major source of Russian-German friction in the decade before World War One.’’91 German economic policies hence were one cause of that war, which destroyed the Second German Reich. Following the war, Germany would show that it had learned from this failure by adopting a very different economic-political linkage strategy.

The Weimar Republic and Bolshevik Russia During the Weimar years, from 1918 to 1933, Germany embarked on a new strategy in its ties with Moscow.92 Overall, once the two states reestablished diplomatic ties in 1921 at the end of the Russian Civil War, Berlin followed a consistent course of positive general linkage. Germany sought to support its generally friendly ties with the USSR through a variety of economic inducements, including such novel measures as government-supported trade credits. The results were generally favorable, with cooperation blooming in economic, military, and political realms. As the First World War ground to a close, Russia and Germany both found themselves in a state of turmoil. Both had been defeated in the war and now had radically new forms of government as a result of revolutionary upheaval; Bolshevik communism had triumphed in Russia, and parliamentary democracy in Germany. As a result of these disruptions, both economic and political ties between the two states were initially extremely limited. Naturally, memories of the harsh Treaty of Brest-Litovsk, which Imperial Germany had imposed upon the young Bolshevik state in early 1918, did little to improve relations. Also, for the first several years after the war, ideologues in both states harbored serious hopes of overthrowing the other state’s government. The Prussian General von der Goltz, for example, based in the Baltic states, sent his own troops into battle against the Bolsheviks after 1918 and also supported local Russian anticommunist forces.93 On 91. Spaulding, Osthandel und Ostpolitik, 88. 92. For a good overall description of this period, see Aleksandr Nekrich, ed., Pariahs, Partners, and Predators: German-Soviet Relations 1922–1941 (New York: Columbia University Press, 1997). 93. See ibid., 13–15.

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the Russian side, officials of the Comintern promoted a communist revolution in Germany, even after other leading Soviet officials seemed to have at least temporarily abandoned the idea. Given their respect for German economic prowess, many Bolsheviks thought that a Soviet Germany would be by far the best possible partner for their young state. As Lenin put it, ‘‘By a queer trick of history, socialism has been realized in our day in two separate halves: the economic half in Germany, and the political half in Russia.’’94 Once the two sides had reconciled themselves to recognizing their respective governments, however, they soon found that they had a strong basis for cooperation, both in economic and political terms. Politically, the states were, in the words of the British leader Lloyd George, ‘‘the two pariahs of Europe.’’95 Each had strong reasons to oppose the Western Entente powers—Britain, France, and the United States—the ultimate victors of the First World War. Germany was humiliated by the harsh terms of the Versailles peace treaty, and Russia feared that the Entente powers represented the core of the ‘‘capitalist alliance’’ that would attempt to strangle the infant Communist movement in Russia. Indeed, for several years after the war both states had Entente troops on their soil; in Germany’s case as occupation troops under the terms of the Versailles agreement and in Russia’s case as expeditionary armies supporting the White forces in the Russian Civil War. Additionally, both countries had another common enemy in Poland. The Polish state, resurrected after 120 years of partition, occupied land that had formerly belonged to both Germany and Russia. This in itself would probably have been enough to guarantee negative relations between the two states and Poland, but the Poles seemed to worsen matters by exploiting the two states’ weakness immediately after the war to expand as much as possible. Poland seized areas along its Western border that were ethnically German, including parts of the ethnically mixed area of Upper Silesia. Meanwhile, it conducted a successful war against Soviet Russia in 1920–21, annexing large tracts of land to the east that were mainly populated by Byelorussians and Ukrainians. Even the most moderate German and Russian leaders could never forgive the Poles for these actions. Thus, the stage was set for German-Soviet political cooperation; both states felt themselves to be outcasts on the international stage, and they also shared an extensive list of common enemies. 94. As quoted in ibid., 27. 95. Quoted in Werner Beitel and Ju¨rgen No¨tzold, Deutsch-sowjetische Wirtschaftsbeziehungen in der Zeit der Weimarer Republik: Eine Bilanz im Hinblick auf gegenwa¨rtige Probleme (BadenBaden: Nomos Verlag, 1979), 23.

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Economically, too, the two countries seemed to be ideally matched. Germany’s pre-1914 position as Russia’s leading trading partner and as only a secondary supplier of capital proved to be a blessing after the war. While Britain and France—particularly the latter—suffered huge losses when the Bolsheviks repudiated the debts of the tsarist regime (which had reached the amazing sum of forty-two billion rubles by 1917)96 and nationalized foreign-owned businesses, Germany was affected to a far lesser degree. It would soon become clear that for the Bolsheviks, with their distrust of foreign capital, trade would be the major source of foreign interaction. Here Germany, with its strong prewar record, was in a very competitive position. As it had before the war, Russia needed manufactured goods and machinery, which Germany was well equipped to supply. As the Soviet Union pressed ahead with ever-more ambitious industrialization plans in the late 1920s, Germany’s particular strength in precision-built machinery (the high technology of the day) would become even more important. Because of the economic embargo imposed by the Entente powers immediately after the Bolshevik revolution, Russian reliance on Germany was increased still further. Meanwhile, Germany, too, was facing economic hostility from the Entente states, with markets largely closed to German products and huge demands for reparation payments. Also, Germany had lost all its colonies, and therefore had a greater need than before to find agricultural products and raw materials on the world market. Thus Germany was also thrust toward economic cooperation with the Bolshevik regime. The influential Bolshevik leader Karl Radek was among the first to clearly perceive this economic logic, publishing a pamphlet in December 1919 which stated: ‘‘Germany and Russia need economic relations with one another because neither country can hope to get from the Entente alone what it needs and because they can help one another in many ways.’’97 The economic and political cooperation between the states was destined to play out along the well-worn lines of German-Russian relations: Germany would bring to the relationship predominantly economic strength, while Russia provided mostly strength in the area of high politics, primarily in the form of military power. The results of the First World War had only heightened the two states’ natural strengths in those respective directions. While the German empire had of course suffered economic damage in the war, its factories and managerial and technical class remained largely intact. 96. Pohl, Gescha¨ft und Politik, 61. 97. Carr, German-Soviet Relations, 23.

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The damage to Germany’s military structure was more severe. Under the Versailles Treaty, Germany was forbidden from possessing modern airplanes and submarines, saw its naval forces dramatically reduced, and was limited to an army of no more than 100,000 men. Thus, while before the war Imperial Germany had been both a military and economic power (much like the United States after 1945), and could therefore employ either form of influence at will, now the Weimar Republic was forced to rely much more heavily on economic instruments. As Gustav Stresemann, foreign minister from 1923 to 1929, bluntly stated, if Germany wanted to have any influence in the world it would have to use ‘‘the one area in which we are still a great power—our economic power.’’98 Russia, meanwhile, despite its progress in the late tsarist period, remained economically backward. Even in 1913, fully 75 percent of the Russian workforce was still on the land and only 13.3 percent of the population lived in urban areas. Russia had been weakened further by the war and revolutionary upheaval. Most of the fighting on the Eastern front had taken place within the Russian empire, resulting in great destruction. After the war, Russian Poland, Finland, and the Baltic provinces—the most economically advanced areas of the empire—all seceded to form their own states. Furthermore, Russia’s already small class of entrepreneurs and technical specialists was thinned further by the Bolshevik Revolution, with many emigrating to the West. The Soviet Red Army would soon equal and then surpass the strength of the tsar’s forces; yet the Soviet economy would need years to recover from the war and revolution. Accordingly, it was clear that both the USSR and Germany could benefit from an arrangement in which German economic aid would be reciprocated by Soviet cooperation in high politics—a policy of positive economic linkage. Since the German aid was linked to an overall policy of close relations with Moscow, involving political cooperation on many issues over a number of years, it can appropriately be considered positive general linkage, rather than specific linkage. Soon after the end of the First World War, both Germany and Russia gradually began moving toward a rapprochement, a movement that was to lead to the dramatic conclusion of the Rapallo agreement in 1922. As has been noted, the rapprochement was hindered at first—despite its seeming political and economic logic—by ideological differences and by the sheer chaos of the immediate postwar era. At the end of the war, neither side even had an ambassador in the other’s capital; the German ambassador had been 98. Cited in Spaulding, Osthandel und Ostpolitik, 110.

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murdered in Moscow by leftist anti-Bolshevik elements, and the Russian ambassador in Berlin had been expelled in the last hours of the kaiser’s regime for his support of German communists. The Russian Civil War would not be resolved until mid-1921; while it raged, diplomacy—and, of course, trade—were extremely difficult. Similarly, the Weimar government was hardly sturdy for its first few years, withstanding uprisings by both the Right and the Left and the disastrous hyperinflation of 1923. Nonetheless, progress was made in interlocking economic, military, and political talks along the road to Rapallo. In October 1919, Germany announced that it would not join the Entente powers’ economic embargo against the young Bolshevik state.99 On May 21, 1921, a trade agreement was signed between Germany and Soviet Russia. By concluding this agreement, Germany recognized the right of the Bolsheviks to speak for Russia and also extended de jure recognition to the Soviet governmental monopoly on trade, both controversial steps at the time. Germany and Russia also mutually granted each other Most Favored Nation tariff status, a decision much to the advantage of the Soviets.100 E. H. Carr notes that this treaty was concluded on the day after the Western powers had presented Germany with its official reparations bill, and concludes that the treaty ‘‘may be an early instance of a pattern which later became regular in German foreign policy: the playing off of Soviet Russia against the Western allies.’’101 Germany’s economic generosity thus had an important political payoff, in demonstrating to the West that Germany could turn to the Soviets if the West pressed it too hard. This was an important early move in what would later become known as the Schaukelpolitik (See-saw Policy). Germany’s friendly policy toward Russia also helped to smooth the way for secret military cooperation that began at the same time. Negotiations in this area began in the spring of 1921 and were discussed at a meeting of the Soviet Politburo on September 10; Lenin commented that 99. Carr, German-Soviet Relations, 49. 100. For details of the trade treaty provisions, see Beitel and No¨tzold, Deutsch-sowjetische Wirtschaftsbeziehungen, 32. Although the granting of MFN was done on a mutual basis, it will immediately be clear to those who understand the nature of East-West trade that this agreement was an economic concession to the Soviets. The Soviet Union, with its governmental trade monopoly, could control its imports through direct administrative means; tariffs played almost no practical role. In Western countries, however, where importing decisions are made by private, profitseeking corporations, tariffs played a large role. Thus a Soviet decision to grant MFN status had little economic importance, while a Western decision to grant this status was of great importance. This can be seen from the fact that the granting of such a status to the USSR was always a matter of great controversy in Western states, as for example in the United States in the 1970s. 101. Carr, German-Soviet Relations, 49–51.

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‘‘the idea of combining military and economic negotiations [with Germany] is correct.’’102 The negotiations that resulted in the Rapallo agreement itself also combined elements of ‘‘low’’ and ‘‘high’’ politics. The final negotiations were carried out in Italy, where both countries’ foreign ministers were attending the Genoa world economic conference. Russia had hoped that this conference would result in a loosening of the Western countries’ opposition to economic and political ties with the USSR. The Soviets were in dire need of economic aid and even proposed that the West grant their country a loan package of some three billion rubles. Western nations were incredulous at this demand, coming as it did from a state whose existence they barely tolerated. They refused to discuss any credits until Russia agreed to compensate Western countries for its actions in nationalizing foreign property and repudiating the tsarist debt. Germany, however—after much prodding from the Soviet side—was more accommodating. It is important to note that here, and on several other occasions, the Soviet side showed itself to be much more interested in ties with Germany than the German side was in ties with the USSR. Essentially, the Germans had more options: they could work either with Russia or with sympathetic Western nations, particularly the United States and Great Britain. However, the Soviet side saw little chance for close relations with any of the Entente powers, and thus felt it necessary to align with Germany. Admittedly, Germany did sometimes fear that the USSR might switch to an alignment with the Western allies; at Rapallo, for example, it briefly seemed possible that Moscow would agree to repay tsarist-era debts to the West in return for a share of the reparations to be taken from Germany.103 At the time, though, none of the Entente powers was eager to outbid Germany economically, as France had consistently outbid Wilhelmine Germany in the period from 1887 to the First World War. This made it easier for a policy of positive linkage to succeed. In the Treaty of Rapallo, signed on April 14, 1922, the Soviets were able to firmly separate the Weimar government from the commercial ‘‘united front’’ against the USSR.104 While Germany was not able to provide large loans at the time, it did agree to effectively renounce compensation for its 102. Ibid., 58. The quotation is from notes taken by Trotsky, preserved in the Trotsky archives. 103. See the description of the Rapallo talks in Carr, German-Soviet Relations; Beitel and No¨tzold, Deutsch-sowjetische Wirtschaftsbeziehungen, 20–22; and Spaulding, Osthandel und Ostpolitik, esp. 183–84. 104. The text of the Treaty of Rapallo can be found in the Reichsgesetzblatt, 1922, pt. 2, p. 677.

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nationalized property. This undermined the Entente powers’ compensation demands.105 The treaty also reiterated the two states’ mutual granting of MFN status and contained a promise by the German government to facilitate links between the USSR and private German firms. In fact, the actual text of the Rapallo agreement is heavily weighted toward economic concerns, although it is often considered mainly a political agreement.106 And the economic provisions were vital in opening the door for closer political ties; as Spaulding notes, ‘‘The economic portions of Rapallo were vital prerequisites for a political understanding.’’107 German observers agreed that the Rapallo agreement showed that Germany was working to strengthen the Soviets for reasons of high politics. As the influential Reichswehr leader General von Seeckt said in a confidential memorandum to the chancellor on September 11, 1922, ‘‘We want a strengthening of Russia in both economic and political terms, and thus our own strengthening by means of supporting a future possible ally.’’108 This is a classic example of positive general linkage—a return to the policy favored by Bismarck before 1885 and by Caprivi in 1894, in contrast to the negative economic policy of the rest of the Wilhelmine period, which aimed to weaken a potential foe. The new German ambassador to the USSR was even more direct about Germany’s political goals: ‘‘The evil of Versailles can be corrected from Moscow.’’109 In the aftermath of Rapallo, Soviet concessions in secret bilateral military talks followed quickly. On July 20, 1922, a ‘‘Preliminary Commercial Agreement’’ was signed which formalized Germany’s right to use Soviet territory for military purposes.110 This action was of major strategic importance, as it allowed Germany to circumvent the military restrictions of the Versailles Treaty. German factories were set up in Russia to manufacture tanks, artillery and munitions, aircraft, and even poison gas. The German army used Russian territory to conduct military maneuvers using tanks and poison gas and for pilot training. These military concessions were of great importance to Germany’s security, and were hardly easy for the Soviets to make politi105. Specifically, the Germans agreed to renounce compensation unless other states were compensated, an action which both sides knew was extremely unlikely. 106. As van Oudenaren notes, the Rapallo accord, ‘‘for all its political notoriety, was essentially an economic agreement.’’ John van Oudenaren, Detente in Europe: The Soviet Union and the West since 1953 (Durham, N.C.: Duke University Press, 1991), 255. 107. Spaulding, Osthandel und Ostpolitik, 184–85. 108. Quoted in Beitel and No¨tzold, Deutsch-sowjetische Wirtschaftsbeziehungen, 25. 109. Quoted in Carr, German-Soviet Relations, 68. 110. The agreement and its provisions are discussed in ibid., 60, and Beitel and No¨tzold, Deutsch-sowjetische Wirtschaftsbeziehungen, 27.

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cally; after all, the German Reichswehr had forcefully suppressed several communist revolts and thus was not an ideologically compatible partner. The economic results of the Rapallo treaty also were noteworthy. Germany’s share of Russian imports, which had been reduced by the destruction and chaos in both countries immediately after the war, rose from 25 percent in 1921 to 32.7 percent in 1922.111 This rise again placed Germany in the position of Russia’s most important trading partner, a status that would be maintained until the end of the Weimar period. The overall development of bilateral trade during the Weimar period can be seen in Table 2.4. For comparative purposes, it should be noted that the Soviet share of German trade was much lower during the entire period, once again clearly showing the greater Soviet dependence on bilateral trade (see Table 2.5). Comparison of the two tables shows that German exports to the USSR were almost fifteen times more important for the Soviets than for Germany in 1924, and in 1928 about eight times more important. Table 2.4 German-Soviet Trade in the Weimar Era Soviet Exports Year 1913 1918 1919 1920 1921* 1921/22** 1922/23 1923/24 1924/25 1925/26 1926/27 1927/28 1928*** 1929 1930 1931 1932

Soviet Imports

(millions of (% of total (millions of (% of total rubles) exports) rubles) exports) 1968.7 2.8 — — 2.5 36.2 186.7 291.0 382.7 488.9 740.7 815.3 230.6 942.3 900.1 566.5 440.2

29.8 7.7 — — 5.7 13.0 32.0 17.9 15.6 16.5 21.7 23.8 24.3 23.3 19.8 15.9 17.5

2860.7 1.6 1.1 28.1 160.2 367.1 269.1 198.1 449.7 771.2 707.9 1088.5 212.8 852.6 1098.6 1798.6 1435.3

47.5 0.3 8.1 22.3 23.1 30.9 41.4 19.4 14.2 23.3 22.6 26.3 23.9 22.1 23.7 37.2 46.5

Balance to USSR (millions of rubles) ⳮ892.0 Ⳮ1.2 ⳮ1.1 ⳮ28.1 ⳮ157.7 ⳮ330.9 ⳮ82.4 Ⳮ92.9 ⳮ67.0 ⳮ282.3 Ⳮ32.9 ⳮ273.1 Ⳮ17.8 Ⳮ89.6 ⳮ197.6 ⳮ1232.1 ⳮ995.1

Source: Beitel and No¨tzold, Deutsch-sowjetische Wirtschaftsbeziehungen, 208; Soviet trade figures; author’s calculations. * ⳱ January–September. ** ⳱ September–September 1921–28. *** ⳱ October–December. 111. Beitel and No¨tzold, Deutsch-sowjetische Wirtschaftsbeziehungen, 55.

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Table 2.5 Soviet Share of German Exports, 1924–1932 Year

Share (%)

1924 1925 1926 1927 1928 1929 1930 1931 1932

1.3 2.9 2.5 3.1 3.3 2.6 3.6 7.9 10.9

Source: Statistisches Jahrbuch fu¨r das Deutsche Reich, various issues.

Furthermore, Germany’s exports were concentrated in sectors that were highly important for the development of the Soviet economy. For example, as had been the case before the war, Germany was particularly important in supplying the young Soviet state with technologically advanced capital goods. Machinery was a major area of German exports, since the Russian side was especially weak in this area. Additionally, the Rapallo accords set the stage for German firms to begin to participate in a variety of joint ventures and concession arrangements in Russia. These arrangements were possible under the Soviet New Economic Program (NEP), phased in by mid-1921. The Soviet side was in desperate need of foreign capital—after all, on the eve of the First World War, at least one-third of all capital investment in the country had been foreign.112 Joint ventures and concession agreements provided a way to gain access to this capital without permitting outright foreign ownership, and were thus particularly favored by the Soviets. By the middle of 1928, by which time the concession program was being phased out, ninety-seven concessions were in operation; of these, thirty-one were German. The United States (with fourteen) and Great Britain (with ten) ranked second and third in concessions.113 The German role in joint companies was also large. Some of the German-Soviet joint companies formed in the early 1920s are listed in Table 2.6. While the joint companies and concessions did not play a dominant role in the Soviet economy—the mixed companies marketed a maximum of 6 percent of Soviet foreign trade, and concessions accounted for an even 112. Pushkonev, Emergence of Modern Russia, 286. 113. Beitel and No¨tzold, Deutsch-sowjetische Wirtschaftsbeziehungen, 119. There is some indication, however, that in terms of capital invested the British and American investments were as important as the German concessions.

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Table 2.6 Selected German-Soviet Joint Companies Economic Sector Transport Transport Trade Oil Oil Metal Agriculture Agriculture

Name of Company German-Russian Transport Company (DERUTRA) German-Russian Air Transport Company (DERULUFT) German-Russian Trade Company (RUSSGERTORG) German-Russian Naphtha Marketing Company (DERUNAPHT) German Marketing Company for Russian Oil Products (DEROP) German-Russian Metal Utilization Company (DERUMETALL) German-Russian Mixed Company ManytschKrupp German-Russian Seed Company (DRUSAG)

Date Founded May 13, 1921 November 24, 1921 October 9, 1922 — — October 10, 1921 — —

Source: Data adapted from Pohl, Gescha¨ft und Politik, 72–74, and Beitel and No¨tzold, Deutschsowjetische Wirtschaftsbeziehungen, 110.

lower percentage of new Soviet investment, perhaps only 1 percent—they played a qualitative role which was much larger.114 The next major agreement between the Weimar Republic and the Soviet Union was the comprehensive economic treaty, signed on October 12, 1925, in Moscow. This agreement, like earlier bilateral accords, was clearly designed as a piece of positive general economic linkage. At the same time, Germany was negotiating the Locarno agreement with France, which marked the high point of the Weimar Republic’s effort to achieve a rapprochement with the Entente powers. Germany recognized that to retain its ‘‘special relationship’’ with Russia it would need to quickly balance the Locarno agreement with an action favorable to the Soviets. As a result, Berlin agreed to an economic agreement that was quite generous to the Soviet side, so much so that even companies heavily involved in the Russian trade did not support it initially.115 In choosing to make economic concessions to one partner to balance political concessions to another, Germany was repeating the tactics used so skillfully by Bismarck in his early years as chancellor, when he offered economic assistance to Russia on several occasions in part to offset the necessity of pursuing a relatively pro-Austrian policy in the Balkans.116 114. On the role of joint companies, see Pohl, Gescha¨ft und Politik, 74; on the role of concessions, see Beitel and No¨tzold, Deutsch-sowjetische Wirtschaftsbeziehungen, 118. 115. Beitel and No¨tzold, Deutsch-sowjetische Wirtschaftsbeziehungen, 99–100. 116. The comparison between Bismarck’s balancing techniques and those of the Weimar Re-

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Specifically, the economic agreement of 1925 was an umbrella for seven smaller accords: a general economic agreement, and specialized agreements regulating sea trade, railroad transport, tax arrangements, the right of German companies to set up branches in the Soviet Union (Niederlassungsabkommen), and the establishment of special trade courts to resolve bilateral economic disputes. In Article 1 of the economic accord both sides agreed to work to restore trade to its pre-1914 levels.117 When one recalls the dominant German role in prewar trade with Russia, the importance of this commitment becomes clear. Article 2 again recognized the Soviet foreign trade monopoly. Another important point of agreement was the need for Germany to provide more generous financial help to Russia in the form of favorable trade financing arrangements. Just before the signing of the economic agreement, in fact, a significant start had already been made on the question of financing German-Soviet trade. The Deutsche Bank had issued a loan of RM 100 million to the Soviets. The political importance of this loan was clear; as Izvestiya noted, ‘‘This agreement is significant in principle as well as practice. It has made the first break in the credit blockade directed against the USSR.’’118 On April 24, 1926, the Germans and Soviets signed the Friendship and Neutrality Treaty in Berlin, which also was designed in part to compensate for a perceived ‘‘pro-Western’’ tilt in German foreign policy since Locarno. This treaty, too, contained an important German economic concession to the Soviet state. Each side committed itself not to join economic boycotts against the other. This provision amounted to a practical renunciation of negative economic linkage on Germany’s part, which was an enormous boon to the Soviets. At the same time, Germany was preparing a plan to definitively address Russia’s concerns about trade financing. It had long been recognized that Germany’s private banks were reluctant to assume the risks involved in making large, long-term loans to the USSR. The loan of RM 100 million made by the Deutsche Bank in 1925 was seen as being the most that private bankers could provide on their own. In addition to the concerns of individual bankers, the fact was that Germany was itself a major debtor nation, public was made by contemporary authors and is found in the memoirs of some Soviet officials as well, as noted by Beitel and No¨tzold, Deutsch-sowjetische Wirtschaftsbeziehungen, 29. See also Carr, German-Soviet Relations, 85–86. 117. For a discussion of the entire treaty package and specific provisions, see Beitel and No¨tzold, Deutsch-sowjetische Wirtschaftsbeziehungen, 33. 118. See Pohl, Gescha¨ft und Politik, 79–80.

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because of its need to meet crushing reparations payments under the Versailles Treaty. However, the political importance of trade with the USSR was such that the German government decided to create a system of state guarantees for private export credits, a system that was unique at the time. On April 21, 1926 (three days before the signing of the Friendship and Neutrality Treaty), the government announced its plan: RM 300 million in loans to the Soviet Union would be guaranteed by the government, with 35 percent covered by the central Reich government and 25 percent by various German states (La¨nder), for a total coverage of 60 percent. To actually provide the loans, a large consortium of twenty-seven banks was founded under the leadership of the Deutsche Bank.119 After the Second World War, this innovative system of public/private export financing would be revived as the Hermes credit insurance system, which plays a major role in German trade policy—and economic linkage strategy—to this day. In 1927–28, as the Soviet leadership debated plans for the upcoming First Five-Year Plan, the importance of foreign economic links to Moscow increased still further. The Five-Year Plan called for a massive increase in imports from the West, and for a particularly large increase in machinery imports. Overall imports were to rise by 226.7 percent and imports of machinery by a whopping 388.3 percent.120 Both of these provisions were important in expanding German-Soviet ties, particularly the latter, since Germany played an especially strong role in Soviet machinery imports. This can be seen in data from Werner Beitel and Ju¨rgen No¨tzold’s Deutsch-sowjetische Wirtschaftsbeziehungen in der Zeit der Weimarer Republik, which show that for the period 1925–33 as a whole Germany accounted for fully 55 percent of the Soviet Union’s machinery imports, while the United States supplied only 16 percent and Great Britain 14 percent.121 Additionally, the Five-Year Plan called for the Soviet Union to take on large foreign credits and employ additional foreign specialists.122 In all, the importance of the foreign component of the Five-Year Plan was enormous. The Soviet Union simply could not produce—or operate—much of the advanced machinery required for its industrialization plans, and all domestic sources of capital were already being ruthlessly exploited, to the point that mass starvation was breaking out in some areas of the country. 119. See ibid., 80–89, for more details about the creation and functioning of this system. 120. Beitel and No¨tzold, Deutsch-sowjetische Wirtschaftsbeziehungen, 47. 121. Ibid., 122. 122. See ‘‘Resolution of the XV Congress of the CPSU(b) on Directives for the Five-Year Economic Plan,’’ in Stenographic Report of the XV Congress of the CPSU(b) (Moscow, 1928), 1292.

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The period of the First Five-Year Plan marked the high point of interwar German-Soviet trade and credit ties. The financing arrangements pioneered in 1926—a private banking consortium would make loans, which the government would back through export credit guarantees—were continued and vastly expanded during these years. A series of credit consortia made up of various German banks, always under the leadership of the Deutsche Bank, came into existence. Between 1929 and 1932 ten consortia were formed, which issued a total of almost RM 850 million in credits, as detailed in Table 2.7.123 The credit program was extended under the so-called Pyatakov agreements of 1931 and 1932 between the USSR and Germany.124 The highly political nature of these credits is made clear by two facts: first, at this time Germany was making state-guaranteed credits available only to the Soviet Union, and second, these guarantees could not be issued lightly, since Germany itself was deeply dependent on Western capital and was struggling with the Great Depression at the time. It was also during this time that the importance of technical assistance agreements and foreign specialist workers reached its height. In part this was due to the fact that foreign concessions and joint stock companies were being phased out by the Stalinist leadership, since they seemed to give too large a role to foreign ownership. Technical assistance agreements and the hiring of specialist workers offered a way to obtain foreign technology without allowing even partial foreign ownership. In both of these areas, GerTable 2.7 German Credits to the USSR, 1926–1932 Consortium Number

Number of Banks

Date

Amount (in millions of reichsmarks)

1 2 3 4 5 6 7 8 9 10 10a

27 23 22 14 13 17 13 12 6 12 14

September 1926 December 1929 April 1930 December 1930 February 1931 September 1931 December 1931 April 1932 August 1932 September 1932 December 1932

180 20 20 14.5 100 150 45 136 14.1 110 60

123. For a detailed description of the various bank consortia, see Pohl, Gescha¨ft und Politik, 90–101, and Beitel and No¨tzold, Deutsch-sowjetische Wirtschaftsbeziehungen, 67–73. 124. Pohl, Gescha¨ft und Politik, 91. Pyatakov was the director of the State Bank of the USSR (Gosbank).

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many played a prominent role. By 1929–30 some 134 technical assistance agreements were in operation, 53 of which involved German firms.125 During the First Five-Year Plan, German involvement in sending individual technical specialists to the USSR also reached its peak. At any one time, it is estimated that some 5,000 foreign engineers and specialists were employed on an individual basis in the USSR, with many others working there because of technical assistance agreements between their companies and the Soviet government. In this area, too, Germany was the most important Soviet partner, with some 2,360 German specialists active in Russia in early 1932.126 The generous financial arrangements, as well as Germany’s acknowledged export strength in the areas of high demand under the Five-Year Plan, resulted in a large increase in Germany’s trade role, to the point where the ambitious goal set in the 1925 economic agreement—reaching levels comparable to those seen before the First World War—was actually achieved in 1932. In that year, Germany accounted for 46.5 percent of the Soviet Union’s imports, as compared with 47.5 percent in 1913.127 Yet even given the huge increase in Soviet orders and the decline in orders from other countries caused by the Great Depression, German dependence on the Soviet market was far lower; only 10.9 percent of German exports went to Russia in 1932.128 This suggests that, even in 1932, bilateral trade was over four times more important for Moscow than for Berlin. In the 1920s–1930s, as in the post-1945 period, trade with Western nations was far more important to Germany than trade with Russia, increasing Germany’s ability to use economic linkage against the Soviets. The structure of the trade also makes clear the extent of the asymmetrical economic interdependence in favor of the Germans. While the USSR was importing mainly equipment of vital importance to the Five-Year Plan, So125. In this area the United States was of equal importance; American companies had signed fifty-five such agreements by 1929–30. See Beitel and No¨tzold, Deutsch-sowjetische Wirtschaftsbeziehungen, 107. 126. ‘‘Deutsche Ingenieure in der Sowjetunion,’’ Ost-Europa Markt 12, no. 6 (June 1932): 302. The United States ranked second in this area. 127. See Table 2.4. 128. See Table 2.5. The figures in this table help to refute the notion that German exports to the Soviet Union were of crucial importance in mitigating the effects of the Great Depression in Germany, and that trade with Russia was thus economically vital for Germany. At no time did exports to Russia account for over 0.7 percent of the German GNP or 2 percent of total German industrial production. Beitel and No¨tzold, Deutsch-sowjetische Wirtschaftsbeziehungen, 131. The authors conclude that Soviet orders were too low and were concentrated in too few years to have a real impact on stabilizing the German economy during the Great Depression. Ibid., 175.

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viet exports were much less important to Germany. As had been the case with the prewar tsarist state, almost all Russia’s exports were of agricultural and other primary products. There were some changes in the relative distribution of the products exported; under Stalin, exports of oil and wood products rose, while grain exports fell after the NEP period as Soviet agriculture declined.129 Yet the role of Soviet exports remained the same: they were relatively unimportant to Germany and Russia’s other Western trading partners. Also, the value of Soviet exports was low, and thus was wholly inadequate to pay for Soviet imports, resulting in large deficits and a further increase in the USSR’s need for foreign credits. The fact that the extensive German-Soviet economic ties were also of political importance can be seen, as has been noted, in the apparent connection between economics and the various political and military agreements between the two sides. Especially by the latter 1920s, when the basis for German-Soviet ties was well established, most of the new German financing arrangements do not seem to have been reciprocated by a specific Soviet political concession; the Germans were content that the general thrust of Soviet policy continue to be pro-German. This policy fits well with the concept of positive general linkage advanced in the first part of this study. Military cooperation continued between the Reichswehr and the USSR, and the Soviet government generally supported Germany’s opposition to the Versailles Treaty. Ties with Russia also continued to give Germany a key bargaining chip in its negotiations with the Entente states over such issues as reparations. The United States and Great Britain were especially wary of pressing Germany too hard and causing it to explicitly ally with Soviet Russia, and were willing to make concessions to prevent this. In 1927, for example, Great Britain held secret talks with Germany and reportedly offered numerous concessions, including even the possible return of some German colonies, if Germany would break off its economic ties with Russia.130 Carr and others note that in the early 1930s, as the Soviet Union began to drift toward more positive ties with the Entente states and the League of Nations, economic relations became a more and more crucial element in supporting the German-Soviet political ‘‘special relationship.’’131 129. Beitel and No¨tzold, Deutsch-sowjetische Wirtschaftsbeziehungen, 76. This work also outlines in detail how the decline in grain exports, resulting from the collectivization of agriculture, dramatically worsened the Soviet balance of payments during the First Five-Year Plan. Ibid., 77–88. 130. As discussed in Carr, German-Soviet Relations, 111–12. 131. Ibid., 102.

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The Soviet side’s reemerging fears of economic dependence by the end of the Weimar period are another sign that economic links had importance in the political area. Even in the mid-1920s, the Soviet leadership was worried that German specialists and engineers would influence their Soviet colleagues to the point that an anti-Bolshevik ‘‘technocracy’’ would be created that could cause domestic problems for the communists. At the time, as A. C. Sutton notes, ‘‘Soviet industry was run by a partnership of German and prerevolutionary engineers, independent of nominal party control.’’132 As a result, one of the first of the celebrated Soviet show trials, the Shakhty case, was directed against German engineers who were accused of the trumped-up charge of ‘‘wrecking.’’ Soon thereafter a group of Soviet technocrats with close links to foreign advisers were tried on the charge of organizing an ‘‘Industrial Party’’ to oppose the communist movement. Reiber cites the Shakhty and Industrial Party affairs as a typical example of a xenophobic reaction to foreign economic superiority, part of a cycle of welcoming and then rejecting foreign economic influence which has characterized Russian and Soviet foreign policy for centuries.133 In addition to domestic concerns, the Soviet leadership worried that any dependence on a Western state in the areas of trade or credits could lead to dangerous economic/political linkages in the foreign policy area. Such worries have been a constant in Russian and Soviet foreign policy, and are justified given the country’s persistent economic backwardness. In part due to concerns about foreign influence, the USSR made a conscious effort throughout the 1920s and 1930s to diversify the sources of its foreign technology and advisers. Yet diversification was difficult; only the United States, and to a lesser extent Great Britain, seemed to have the technical expertise possessed by Germany, and neither of these states was particularly friendly to the USSR or willing to offer generous credits.134 While it is certainly true that some of the Soviet reaction to ‘‘foreign penetration’’ was due to paranoia—especially after Stalin became dominant in the leadership—the reaction also reflected a real sense of vulnerability to economic linkage. The period of cooperation between the Weimar Republic and the Soviet state is noteworthy for several reasons. First, it again confirms the value of 132. Anthony Sutton, Western Technology and Soviet Economic Development (Stanford: Stanford University Press, 1968), 1:346. 133. Reiber, ‘‘Persistent Factors,’’ 328. 134. In the 1920s, the exclusive position of Germany, the United States, and Britain is seen in the fact that these three states held a share of over 80 percent in world machinery exports. Beitel and No¨tzold, Deutsch-sowjetische Wirtschaftsbeziehungen, 58.

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positive economic linkage in German-Russian ties. As in the period from the 1850s to about 1885, German economic aid in the form of loans and other positive inducements played an important role in supporting positive bilateral relations on the plane of high politics. Also, the Weimar period is noteworthy as a model for Germany’s next major swing toward a positive economic Ostpolitik, in the late 1960s. The Weimar period saw the birth of several elements of the postwar economic Ostpolitik, notably the system of export credit guarantees (later to be known as the Hermes program), and the Rußlandausschuß der deutschen Wirtschaft (Russia Committee of German Business), a grouping of German businesses interested in trade with Russia which was to serve as the model for the influential postwar Ostausschuß der deutschen Wirtschaft. Finally, the overall tenor of German-Soviet relations at this time was decisively influenced by the nature of the two governmental systems involved: Soviet communism and Western-style parliamentary democracy. In this sense, too, Russian-German relations during the Weimar period were in some ways a model for West German policy after 1945.135 However, it should also be noted that German-Soviet ties in the Weimar era were more intense, particularly in the political sense, than would be the case during the Cold War era. This was mainly true because Germany was embedded in the Western system to a much greater degree after the Second World War than before. During the Weimar era a true Schaukelpolitik, an equidistant relationship between Russia and the West, was possible; during the Cold War, West Germany resisted the occasional temptation to use such a strategy, preferring to remain firmly allied to the West. Thus Germany’s freedom to use various linkage strategies at will for any political ends was more restricted—although not altogether eliminated—in the 1945–91 period. The results of economic linkage in the Weimar period are summarized below. There were several reasons for the success seen at this time. First, in contrast to the Wilhelmine era, the USSR lacked an attractive alternative partner; the Entente powers were basically hostile. Germany, in contrast, was able to increase its diplomatic options through a Schaukelpolitik which aimed to bolster ties with both the West and the Soviets. Yet the very nature 135. This point is a major theoretical underpinning of Beitel and No¨tzold’s study (Deutschsowjetische Wirtschaftsbeziehungen, 11–17). They stress that the economic and political links between the Weimar Republic and Soviet Russia were uniquely intense, with no other Western state enjoying such relations with the USSR until the 1970s. Thus, writing in the late 1970s, they believed that the German-Soviet ties of the Weimar era offered a useful model of the promise and pitfalls of such ties to Western policymakers who were then intensifying economic links with Russia.

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of positive sanctions also played a large role; each German economic concession engendered more trust in Moscow because of the positive spillover effect seen in this form of linkage. Germany also pursued a clear and consistent policy for a number of years and offered economic inducements that were of major value to Moscow, in contrast to the less successful positive general linkage tried briefly by Chancellor Caprivi in 1894. Case 5 1921–33 Linkage type

German goal(s)

Results

Positive general (1921 trade accord; German renunciation of payment for property seized in 1917; 1925 economic treaty; creation of world’s first government-backed export insurance for GermanRussian trade (1926); German credits despite huge debt to West

Russian support against the ‘‘Versailles Order’’ and its supporters (Poland and the West)

Successful: Rapallo agreement (1922), military cooperation (1922); military and political cooperation continues to end of Weimar period

Hitler and Stalin On January 30, 1933, Adolf Hitler assumed the leadership of the German government. This development naturally marked a watershed in GermanSoviet relations, as it did in so many other political questions.136 During the early Hitler years, German-Soviet ties—in both the economic and political senses—worsened noticeably. However, this did not appear to be due to a deliberate policy of negative economic linkage; indeed, by 1935–36 some revival could be seen. Hitler’s economic policy toward the USSR in the first six years of his reign can best be described as neutral. In 1939, though, positive economic overtures were a major factor in reviving bilateral ties, helping to seal the Hitler-Stalin Pact. This episode of sanctions can be regarded as positive specific linkage, since it aimed to win Stalin’s agreement to a specific treaty which Germany needed to safeguard the impending invasion of Poland. This positive policy, which seemed to be successful, was of 136. On this period see among other works Nekrich, and Edward Ericson, ‘‘Karl Schnurre and the Evolution of Nazi-Soviet Relations, 1936–1941,’’ German Studies Review 21 (May 1998): 263–84, and Feeding the German Eagle: Soviet Economic Aid to Nazi Germany, 1933–1941 (Westport, Conn.: Praeger, 1999).

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course temporary. It was abruptly abandoned in 1941 when the German army invaded the Soviet Union. After all, the ultimate goal of Hitler’s Ostpolitik—the destruction of the Slavic nations to create Lebensraum for the German race—could not be accomplished through economic inducements. The decline in German-Soviet economic and political ties in the first several years after Hitler’s rise to power had several causes. First, of course, the nature of the new German regime caused profound distrust on the part of the Soviet leadership. Hitler had long been noted for his hysterically anticommunist rhetoric, and his rapid repression of the German Communist Party after assuming power seemed to confirm that the rhetoric had real substance. Additionally, Hitler’s rapprochement with Poland and other states in East Central Europe—as signaled by the German-Polish nonaggression treaty of January 1934—was seen as an ominous sign. After all, common opposition to Poland had long been a cornerstone of the GermanSoviet special relationship. Yet for the first five years of his rule, Hitler maintained generally good ties with Poland, motivated by his ideological affinity for the conservative nationalist regime in that country, but also by the realization that Poland, like its small East European neighbors, was much smaller and weaker and thus more easily controlled—economically and politically—than the massive Soviet Union.137 However, the Soviet side also had reasons of its own, not directly related to Hitler’s policies, for wanting to curb ties with the West and Germany in particular. As I mentioned earlier, the Shakhty and Industrial Party trials of the late 1920s, as well as the decision to phase out foreign concessions and joint companies at the start of the First Five-Year Plan, showed that Stalin was worried about the implications of Western ties for his political control even before 1933. Since German experts and German capital played such a large role in Russia at the time, these decisions naturally reduced the German presence. Also, Stalin became increasingly worried about the effects of the rapidly rising Soviet foreign debt. During the First Five-Year Plan, Russian debt had soared as a ruthless industrialization program was pursued. It seemed important to structure the Second Five-Year Plan, to run from 1933 to 1938, to avoid further foreign indebtedness, which could reduce the Soviet Union’s freedom of action in vital foreign policy questions. Thus the USSR, which had owed Germany RM 1.1 to 1.2 billion at the end of 1932, deliberately cut back on German imports and increased exports, 137. This point is supported by the work of Hirschman. As noted in Chapter 1, Hirschman documents that Germany’s economic shift toward Poland and other smaller East European states was motivated by these states’ great vulnerability to German economic linkage.

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reducing net debt to a mere RM 75 million by the end of 1935.138 Also, of course, the speed of the industrialization drive had created many domestic problems—including disastrous episodes of famine—and even Stalin could see that a period of slower growth and consolidation was necessary. Such a consolidation would entail a reduction in the urgent need for machinery imports that had characterized the First Five-Year Plan. Thus there were ample reasons, stemming from both domestic and foreign policy concerns, for Stalin to want to reduce economic ties with the West, and with Germany in particular. Hitler’s rise to power strengthened these reasons considerably. The impact of these various factors on German-Soviet bilateral relations, in both the economic and political areas, was quite clear. German-Soviet trade, which had already declined slightly in 1932, fell rapidly from 1933 to 1935, both in absolute terms and as a share of the two states’ total foreign trade. This can be seen in trade figures for the prewar years of Hitler’s rule, listed in Table 2.8. Similarly, the Soviet share of Germany’s exports declined from 5.8 percent in 1933 to 1.5 percent in 1934 and a mere 0.9 percent in 1935.139 Politically, too, German-Soviet relations had entered a hostile phase. Germany had left the League of Nations in October 1933. After a last unsuccessful visit to Berlin in June 1934, Soviet Foreign Minister Litvinov pursued a policy of ‘‘Collective Security’’ against the growing German threat. The Soviet Union thus joined the League of Nations in September 1934 and became a staunch supporter of collective action against fascism. This policy was supported by alliance treaties signed with France and CzechosloTable 2.8 German-Soviet Trade, 1933–38

Year

(millions of rubles)

(% of Soviet exports)

(millions of rubles)

(% of Soviet imports)

Balance to USSR (millions of rubles)

1933 1934 1935 1936 1937 1938

375.6 431.1 289.3 116.2 107.7 88.3

17.3 23.5 18.0 8.6 6.2 6.6

648.5 126.0 95.1 308.5 200.5 67.2

42.5 12.0 9.0 22.8 14.9 4.7

ⳮ272.9 Ⳮ305.1 Ⳮ194.2 ⳮ191.9 ⳮ92.8 Ⳮ21.1

Soviet Exports

Soviet Imports

Source: Beitel and No¨tzold, Deutsch-sowjetische Wirtschaftsbeziehungen, 208 (from Soviet sources), and author’s calculations.

138. Spaulding, Osthandel und Ostpolitik, 269. 139. Statistisches Jahrbuch fu¨r das Deutsche Reich, various issues.

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vakia in 1935.140 Germany had some reason to fear that Moscow would turn to the West—economically as well as politically. While German exports to the USSR fell, Britain, France, and the United States gained increasing shares of the Soviet market. By 1934–36 Britain supplied 17.6 percent of Soviet imports, as compared to 9.5 percent in 1931–33. The rise in U.S. imports was even more dramatic; the U.S. share, already 11.8 percent in 1934– 36, reached 28.5 percent in 1938.141 Despite his distaste for the USSR on both racial and ideological grounds, Hitler did not want to drive the Soviets into outright alliance with the West. His policy toward the Soviets in 1933–39 can best be described as ambiguous; as Spaulding puts it, the Nazi leadership felt that ‘‘Germany need have no fixed attitude toward Russia as long as relations were neither too close nor too hostile.’’142 This ambiguity was reflected in economic policy. Even in the 1933–35 period, when German-Soviet ties reached their lowest interwar ebb, some special economic arrangements continued. Only a month after Hitler’s accession to power in January 1933, a bank consortium ¨ berbru¨ckungskredit (transitional credit) of RM 200 million to issued an U help the Soviets meet payments on the massive loans they had taken out from Germany in the preceding years.143 The banking consortia led by the Deutsche Bank also continued for a brief period to issue new loans for German-Soviet trade under the existing system of state-guaranteed export credits. After some hesitation on the part of the new Nazi government, Consortium 11 was allowed to issue new credits in July 1933 worth about RM 50 million.144 Finally, one last credit deal—initiated under the Weimar government—was completed at this time: a credit of RM 40 million for the purchase of German pipe for Soviet oil and gas pipelines.145 However, after that point the German government’s willingness to fund further credits seemed to evaporate. In mid-1935, the Nazi regime undertook another step to revive GermanSoviet trade. On April 9, 1935, the two states signed an economic agreement providing for a five-year credit to the Soviet side of RM 200 million, to 140. Carr, German-Soviet Relations, 114–16. 141. Spaulding, Osthandel und Ostpolitik, 273. 142. Ibid., 270. 143. Pohl, Gescha¨ft und Politik, 101. 144. As Pohl notes, the new Nazi finance minister at first denied state backing for this loan (in a decision issued in April 1933), but in early July he reversed himself. Pohl, Gescha¨ft und Politik, 104. 145. Ibid., 104–5. This deal is interesting because it is a forerunner to the great German-Soviet pipeline deals of the 1970s. The structural continuity in Soviet trade needs is remarkable in this case.

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be guaranteed to 70 percent by the German government.146 In order to implement this loan, yet another bank consortium was formed in July 1935, Consortium 12. Hjalmar Schacht, the Nazi finance minister, was particularly supportive of this plan, as he was the architect of the German effort in the mid-1930s to create strong trade links with the weaker states of Eastern Europe, thus gaining access to raw materials and simultaneously reducing German dependence on the markets of the Western countries. As a result of this effort, Soviet imports from Germany rose sharply in 1936 and remained fairly strong in 1937, as can be seen in Table 2.8. The agreement was also seen by the Soviet side as a sign that Germany wanted a rapprochement in the political area as well; when Schacht visited Moscow in July 1935, he was sounded out by the Russian leadership on various political issues. Schacht attempted to follow up on the 1935 agreement by negotiating a larger credit, of RM 500 million, which would be linked to Soviet purchases of RM 160 million yearly for ten years. However, Hitler had not yet fully embraced a positive policy toward the USSR; he turned down the proposal, since the Soviet side demanded that half the German shipments should be of war goods, including ships, planes, and submarines.147 Hitler kept up the political pressure on Russia with his actions in the Spanish Civil War and by signing the Anti-Comintern pact with Italy and Japan. Thus, in 1936–37, any vague hopes for improved ties with the USSR faded. At the same time, trade with Russia reached a new low point; by the first half of 1937, only some RM 1.5–2 million in new orders were being received from the Soviets each month.148 By 1938, however, the Soviet Union had begun to change its views on the desirability of close ties with the Third Reich. The decisive cause of this volte face was the weakness displayed by the Western powers, Britain and France, in countering Hitler’s continued threats. The high point of this weakness was reached with the signing of the Munich accords on September 29, 1938, which codified British and French consent to the dismemberment of Czechoslovakia. In contrast to the situation faced by the tsarist 146. Heinrich Schwendemann, Die Wirtschaftliche Zusammenarbeit zwischen dem Deutschen Reich und der Sowjetunion von 1939 bis 1941: Alternative zu Hitlers Ostprogram (Berlin: Akademie Verlag, 1993), 26–27. There is an interesting footnote to this loan. When Germany invaded Russia in 1941, most of the loan—151 million RM—still had not been repaid. In the midst of the war, the banking consortium was able to negotiate a deal with the Nazi government, finalized in April 1943, to sell the outstanding debts to the Reichsbank, thus clearing the balance sheets of the private banks. Pohl, Gescha¨ft und Politik, 107–8. 147. Ibid. 148. Ibid., 29.

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state in the Wilhelmine period, Stalin did not feel he had a strong alternative alliance partner available in the West. At this point, Stalin began to seriously consider ‘‘bandwagoning’’ with Hitler rather than ‘‘balancing’’ against him. Additionally, Russia’s trade relations with its then-largest supplier, the United States, were not ideal. The Americans could certainly supply the advanced equipment needed by the Soviet side, but they did not need Soviet agricultural products and raw materials; thus the USSR was running large deficits in its trade with the United States. Germany, by contrast, seemed to be a more natural economic partner, since it not only could provide the needed imports, but also was willing to purchase greater quantities of Soviet exports. Also, the Germans were willing to provide long-term credits, while the Americans were not. Meanwhile, some on the German side, too, were again ready to advocate increased German-Soviet cooperation. The increasingly urgent need for raw materials to fuel the German war machine was persuasive even to the most anti-Soviet Nazi leaders. Hermann Go¨ring, who had been placed in charge of economic ties with Russia in 1936, came to agree with Schacht that trade with Russia should be increased, even if it involved the shipment of some military goods. In 1938, he began working on a new plan for credits and trade with the USSR. As a result of these efforts, negotiations were begun in December 1938 for a new German-Soviet economic agreement, negotiations which also had great relevance in the arena of high politics. Russia was offered a new credit of RM 200 million with a six-year term. German exports of war materials and technology would be reciprocated by Soviet shipments of wood, grain, oil, phosphate, flax, cotton, and asbestos. As a sign that the German side was serious in its offer, the Soviets were told that the German government would guarantee 100 percent of the loan. In previous credit agreements, only 60–70 percent had been guaranteed.149 In the final months before the outbreak of the Second World War, Germany wooed the USSR with a simple message: agreement with us will bring many benefits, while alignment with Britain and France will bring only heavy costs. While some of the ‘‘costs and benefits’’ referred to were of course in the arena of high politics, economic considerations also played a role. In fact, the ongoing discussions of Go¨ring’s economic plan provided an arena for the two sides to begin to discuss the political arrangements that would become the Hitler-Stalin pact. The Germans were increasingly 149. Ibid., 36.

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eager for a political deal, since they were moving ahead with plans to invade Poland. Stalin and his foreign minister Vyacheslav Molotov, meanwhile, clearly gave priority to the economic deal; they decided to stall on signing the political agreement desired by Hitler until the economic agreement had been signed, in an attempt to extract the largest possible economic concessions from the German side. As Molotov bluntly stated in a meeting with the German ambassador, Werner Graf von der Schulenberg, ‘‘The economic agreement must be concluded first.’’150 On August 19, 1939, an economic pact was concluded, clearing the way for the signing, on August 23, 1939, of the infamous Hitler-Stalin Pact.151 The trade treaty and the Hitler-Stalin Pact were clearly part of a package deal, in which Germany offered economic benefits to help induce reciprocal political concessions from Stalin. Since the linkage in this case appeared to involve one specific political agreement, it would be considered an example of specific positive linkage in the terms of this study. The Hitler-Stalin Pact, of course, provided major political/strategic benefits to the German Reich. It was freed to make easy gains in Poland, and even more important, was ensured that it could fight Britain and France without becoming embroiled in a two-front war. The agreement also assigned large tracts of Eastern Europe to Soviet control, providing a major gain in the area of high politics for the Soviet side as well. Additionally, Hitler did not forget to ‘‘rescue’’ as many of the German settlers in the new Soviet sphere of influence as possible. Under a special German-Soviet agreement, for example, the members of the 750-year-old community of Baltic Germans in Lithuania, Latvia, and Estonia were evacuated to the Reich.152 As a result of the Hitler-Stalin pact and the economic agreement associ150. Protocol of August 18, 1939, meeting cited in Spaulding, Osthandel und Ostpolitik, 277. 151. On the economic pact, see Robert Gibbons, ‘‘German-Soviet Trade Agreements of 1939– 1941,’’ in Joseph L. Wieczynski, ed., The Modern Encyclopedia of Russian and Soviet History (Gulf Breeze, Fla.: Academic International Press, 1979), 12:160, and Schwendemann, Die Wirtschaftliche Zusammenarbeit. For many years, the details of the Hitler-Stalin pact and its secret protocol and of the entire range of German-Soviet relations during 1939–41 were kept secret by the Soviets. Finally, on December 2, 1989, a commission of the Congress of Peoples Deputies decided to acknowledge the existence of the secret protocol. This soon led to a number of studies based on newly revealed Soviet archival material. See, for example, Bernd Bonwetsch, ‘‘Vom Hitler-StalinPakt zum ‘Unternehmen Barbarossa’: Die deutsch-russischen Beziehungen 1939–1941 in der Kontroverse,’’ Osteuropa 41 (1991): 562–79; Ingeborg Fleischhauer, ‘‘The Molotov-Ribbentrop Pact: The German Version,’’ International Affairs (Moscow), August 1991, 114–29; and Lev Besymenski, ‘‘Niemand kann uns u¨berfu¨hren,’’ Der Spiegel, January 14, 1991, 104–12. 152. See ‘‘ ‘Freude am scho¨nen Titel’: Die verha¨ngnisvolle Rolle der Deutschen in Estland, Lettland, und Litauen,’’ Der Spiegel, September 16, 1991, 212–22.

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ated with it, German-Soviet trade and credit ties increased sharply in the years 1939–41. While war raged in Europe, Germany and Russia pursued cooperation along the traditional lines of their bilateral relations. This included a new German credit line to support trade relations. A new credit consortium was formed to support the ‘‘Sondergescha¨ft 1939’’ (special trade of 1939), and was empowered to grant RM 200 million in credits. However, the credit was only partially used when Germany broke its treaty with the Soviet Union in 1941.153 On February 11, 1940, after several months of difficult negotiations, Germany and Russia signed a detailed agreement fixing the size and nature of trade deliveries for the year. Almost exactly one year later, on February 10, 1941, an agreement was reached for even larger trade shipments in 1941. In 1939, German-Soviet bilateral trade had amounted to only RM 61 million, a postwar low. In 1940 this increased to over RM 600 million, and in the first half of 1941 trade rose still further, to RM 425 million.154 Germany sent Russia industrial goods and equipment and even arms and arms-manufacturing technology. For example, Germany agreed to send the Soviets a complete battle cruiser, naval and field artillery, thirty-eight airplanes, and two complete production lines for heavy artillery shells. Russia, meanwhile, shipped raw materials and agricultural products to the Reich. The 1940 agreement included 1 million tons of grain, 900,000 tons of petroleum products, 500,000 tons of iron ore, and 100,000 tons each of manganese and chromium ore. In 1941, Russian shipments were to be increased to 2.5 million tons of grain and nearly 1 million tons of oil, as well as 200,000 tons of manganese ore.155 The disruption of world markets by the war made this trade particularly important; in fact, as one author notes, ‘‘After the summer of 1940 [Russia] was the most important supplier of raw materials to the German Reich, which was isolated by blockade from the world market.’’156 Stalin evidently felt that this extensive trade, so vital for the Reich’s war effort, was a large factor in making a German attack on Russia virtually impossible.157 153. Pohl, Gescha¨ft und Politik, 108. The slow Soviet utilization of this credit is a sign that Stalin did not expect a German attack in 1941; if he had, presumably purchases of German goods would have been speeded up dramatically. 154. Schwendemann, Die Wirtschaftliche Zusammenarbeit, 13. 155. For details of the 1940 and 1941 agreements, see Gibbons, ‘‘German-Soviet Trade Agreements,’’ 161–63. 156. Schwendemann, Die Wirtschaftliche Zusammenarbeit, 13. 157. As Gibbons puts it, Stalin was probably ‘‘attempt[ing] to build an economic relationship which would be too valuable to be jeopardized by war.’’ Gibbons, ‘‘German-Soviet Trade Agreements,’’ 163. The Soviet Union’s behavior with respect to trade shipments also suggests that Stalin did not expect an attack from Hitler. In 1941, Russia agreed to a ‘‘front-loaded’’ trade

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In reviewing German-Soviet relations during the period from 1933 to 1941, it seems clear that it was only the extreme nature of Hitler’s objectives—the conquest and depopulation of the Slavic lands to the east of Germany—that prevented Germany and the USSR from maintaining a mutually satisfactory modus vivendi. German scholar Heinrich Schwendemann suggests that the economic cooperation between Germany and the USSR between 1939 and 1941 was extremely beneficial to Germany, and should have been maintained, since it was a more rational policy for the Reich than invading the Soviet Union. Other experts, such as Robert Gibbons and Edward Ericson, clearly agree.158 It was unfortunate for Nazi Germany—but in the long run, fortunate for the rest of the world—that Hitler chose invasion over cooperation. After having a neutral attitude toward economic and political relations for the first six years of Hitler’s reign, the Nazis tried in 1939–41 to convince the Soviets that cooperation with the Reich could be more rewarding than confrontation, in both the political and economic sense. This policy found its ultimate expression in the Hitler-Stalin Pact of 1939 and its accompanying economic accord and trade agreements in early 1940 and 1941. Again, as had been the case in the Weimar period, economic inducements—in the form of credits and generous trade terms—played a role in helping Germany to meet its political objectives in relations with the USSR. However, unlike the Germany of the Weimar period, Germany under Hitler relied much more heavily on military rather than political power, and as has been noted, pursued much more extreme political goals. In both of these factors, of course, the Third Reich also differed dramatically from the postwar German Federal Republic. Nonetheless, on its own terms the 1939–41 economic linkage must be considered a success. This is due to several factors. First, positive linkage again showed its ability to generate goodwill and a positive spillover effect, generating trust which helped to boost political ties. In fact, unfortunately for the Soviet Union, Stalin seems to have trusted Hitler so much that he foolishly discounted all warnings of an imschedule, thus sending most of its exports to Germany before the German invasion of June 21. Germany, meanwhile, cleverly delayed most of its exports to Russia. 158. Schwendemann, Die Wirtschaftliche Zusammenarbeit, 13, notes that Russia’s economic cooperation ‘‘took away the only logical reason for [Hitler’s] eastern expansion goals.’’ Similarly, Gibbons observes that ‘‘German officials pressed the economic realities on Hitler’’ in attempting to dissuade him from invasion. Gibbons, ‘‘German-Soviet Trade Agreements,’’ 163. However, the German leader—in contrast to his more calculating subordinates like Hjalmar Schacht—was not operating strictly by the rules of conventional logical reasoning and placed his ideological concerns above rational economic and even strategic considerations.

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pending German attack in 1941. Second, as had been the case under different circumstances in the Weimar era, the Soviets again found that the world’s other large economic powers—the United States, France, and Great Britain—were unwilling to ‘‘outbid’’ the economic incentives offered by Germany. Case 6 1939–41 Linkage type

German goal(s)

Results

Positive specific (economic agreement August 19, 1939)

Hitler-Stalin Pact (August 23, 1939)

Successful: economic cooperation one reason for pact

Conclusion Clearly, economic linkage has been an integral part of German-Russian relations for centuries. This linkage has been made possible by the fact that Germany has long been more developed economically than Russia, leaving Russia in a long-term position of what Keohane and Nye would call asymmetrical economic interdependence. The reality of this asymmetrical interdependence becomes clear again and again in various time periods, stretching back to the Middle Ages. Across the entire period studied, Russia has depended more on its trade with Germany than Germany has upon its Osthandel. Martin Kreile points out two reasons for this.159 First, the structure of the trade makes it more important for Russia than for Germany. Russian exports have historically been simple raw materials and semi-processed goods, which have generally been easily available to Germany elsewhere.160 German exports to Russia, in contrast, have been of commodities that were vital for that country’s modernization efforts. Second, Germany has long been more competitive in the world marketplace than has Russia. Thus it has been able to trade heavily with other Western lands, diluting the importance of trade with Russia. This was as true in the 1870s and 1920s 159. See Martin Kreile, Osthandel und Ostpolitik (Baden-Baden: Nomos Verlag, 1978), 173–74. Kreile discusses these issues in the context of comparing similarities between Germany’s trade with the USSR in the 1920s and 1970s, but his analysis is equally valid for the tsarist era and present-day German-Russian relations. 160. As we saw earlier, there was one brief period where Russian exports assumed a somewhat greater role for Germany—in 1939–41, when Germany was cut off from other raw materials exporters by the Second World War.

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as it is today.161 Also, of course, for much of its history—both under the tsars and under communist rule—Russia was hampered in its foreign trade by the lack of a convertible currency, which tended to make it more economically dependent on states such as Germany, which could finance trade by providing hard currency credits. A similarly one-sided relationship can be seen in other areas, such as technology exchange and investment ties. Simply establishing the evident fact of the asymmetrical economic interdependence in Germany’s favor is in itself a valuable conclusion, given that even specialists on German–Russian relations have frequently made the inaccurate suggestion that Moscow is just as able to exercise economic linkage in its economic ties with Germany as Berlin has been with Russia.162 Relative economic strength has been a structural factor that has shaped German Ostpolitik under a variety of regimes and in a variety of historical periods. Meanwhile, the same economic facts have shaped the Russian responses to German policy. As Dietrich Geyer perceptively notes, ‘‘In the time of the Czarist Empire as in the Soviet Union foreign policy was formulated under conditions of late [nachholender] modernization; the strategy of modernization was an integral part of this policy.’’163 Thus it is pointless to attempt to simplistically divide Russian foreign policy into a political and an economic component, as some analysts do.164 The economic need to modernize has always impinged on the political side of the state’s foreign policy. Given this long-term, structural economic backwardness vis-a`-vis its Western neighbors, Russia and the Soviet Union have naturally been subjected to a variety of economic linkage attempts over the centuries, as this chapter has shown. The evidence presented also seems to fit well with this study’s classifica161. As Kreile admits, even during the Great Depression, when some saw trade with the East as a cure-all for Germany’s economic woes, the German machine-building industry (the branch most dependent on trade with the USSR) still exported more machinery to the West than it did to the East. Leaders of the German Machine Building Association said at the time that ‘‘the machine-producing countries are each others’ best customers.’’ Cited in Kreile, Osthandel und Ostpolitik, 174. This point is an important one. Some analysts have mistakenly argued that, merely because Germany is dependent on trade in general, it must somehow automatically be dependent on Russian trade, and thus unable to use that trade for political linkage. 162. See, for example, Angela Stent, ‘‘The USSR and Germany,’’ Problems of Communism 30 (September-October 1981): 10, 12, and 13–14. Stent even suggests that, in the early 1980s at least, West Germany was more vulnerable to Soviet economic linkage than the USSR was to German linkage (14). Government and business leaders on both sides, however, have always been well aware of which side held the economic advantage. 163. Cited in Kreile, Osthandel und Ostpolitik, 134. 164. One of many examples of this tendency can be found in Beitel and No¨tzold, Deutschsowjetische Wirtschaftsbeziehungen, 157–58.

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tion of various types of economic linkage, outlined in the introductory chapter. In general, each period of German-Soviet relations can be classified by the various types of linkage used. This has proved to be a helpful system for summing up complex developments over time.165 In the period before German unification in 1870, it is of course difficult to cite specific instances of German-Russian economic linkage. However, toward the end of this period, when Prussia emerged as the dominant German state, one can begin to see linkage in relations between Prussia and Russia. As was discussed above, Chancellor Bismarck pursued a policy of positive general linkage with St. Petersburg, both before and after German unification, and this policy seemed to be successful in supporting bilateral political relations. After the mid-1880s, however, Bismarck shifted to a strategy of negative general sanctions, which apparently helped to drive Russia into the arms of Germany’s enemy, France. This negative policy essentially continued through most of the rest of the Wilhelmine period, as for example in the specific negative linkage seen during the 1905–6 Algeciras crisis, but continued to be unsuccessful. The sole example of positive linkage in this period was Chancellor Caprivi’s brief, unsuccessful experiment with positive general linkage in 1894, when Bismarck’s Lombardverbot was lifted and a fairly generous trade treaty was signed with Russia. After the First World War, however, there was a clear change of direction. The government of the Weimar Republic returned to a consistent and comprehensive policy of positive general linkage. As in the period from 1850 to 1885, this policy seemed to be successful in helping to induce Russia to cooperate with German political objectives. The Nazi regime was at first uncertain about the value of its ties with Moscow and allowed its economic relations with the Soviet state to stagnate. By 1939, however, the Nazis realized that economic links could help to win Moscow’s consent to the so-called Hitler-Stalin Pact, and they accordingly offered Moscow a generous economic package as part of the treaty package (positive specific linkage). This successful strategy was, however, abandoned when Hitler decided to invade the USSR. The outcome of each of these cases can be explained by referring to the concepts developed in Chapter 1, particularly the various advantages of positive sanctions and the conditions for successful linkage. It seems clear that negative sanctions were generally less successful. In both the late Bismarck years and later in the Wilhelmine period, their use only served to deepen 165. For a complete summary of the cases discussed in this chapter, see Chapter 6, particularly Table 6.1.

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German-Russian hostility and drive Russia closer to the Reich’s enemy, France. In the introduction it was speculated that negative sanctions generated a negative spillover effect that could poison other aspects of bilateral ties; this seems to be confirmed by these cases. Additionally, as seen by the reaction of public opinion in tsarist Russia when Germany imposed negative sanctions, such sanctions serve to alienate key interest groups in the target state—as both their political pride and their economic interests are negatively impacted. For example, Russian nationalists, industrialists, and agricultural interests were all outraged by Germany’s behavior in forcing a restrictive trade agreement on Russia in 1904 and loudly called on the tsar’s government to stand firm against Germany. Another key disadvantage of negative sanctions is also confirmed by these cases; they can generate economic incentives which help to undermine their effectiveness. Germany’s decision to restrict economic ties to Russia—for example, by Bismarck’s Lombardverbot—opened a profitable opportunity to other European lenders, making it all too easy for France to replace Germany as the tsarist government’s main creditor. Supporters of the negative linkage of these periods might argue that, as was noted in Chapter 1, such linkage is sometimes necessary to weaken a hostile power. In the face of clear military threats, security must sometimes be given priority over building political ties. As we shall see, in the aftermath of the Second World War, facing a hostile Soviet regime, it did seem that West Germany had little choice but to join other Western states in imposing a negative economic regime. Some might argue that tsarist Russia was also hostile to Wilhelmine Germany. Yet it should be noted that in this period Germany’s turn to negative linkage began while Russia was still linked to the Reich by the Dreikaiserbund and the later Reinsurance Treaty. Furthermore, Germany deliberately cut this link by failing to renew the Reinsurance Treaty in 1890. Hence, it seems that Germany was not using sanctions against an enemy; its use of sanctions helped to create an enemy. Germany compounded the error by continuing its essentially negative economic policy after 1900, despite increasing evidence—such as the Bjo¨rko¨ agreement—that Russia could be persuaded to abandon its alliance with France. Meanwhile, the much greater success seen in the cases of positive linkage seems to confirm several concepts about their effectiveness expressed in Chapter 1. Here the spillover effect is positive; the sanctions inspire trust and goodwill, which affects other aspects of bilateral ties. This could be seen clearly during the early Bismarck years and again under the Weimar Republic. In both cases, the Russian side spontaneously stepped forward

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with reciprocal political concessions, for example in offering military ties to the German Reichswehr during the 1920s. In both of these periods economic ties were used consistently and patiently over a long period to gradually improve German-Russian ties. In 1939, the timetable was shorter—here, positive sanctions were more clearly linked to specific, immediate Soviet political concessions, since the Nazis were eager to complete the Hitler-Stalin pact. But again, positive spillover could be seen, as German economic concessions helped to convince Stalin of Hitler’s overall trustworthiness. In all three of these cases—before 1885, from 1921 to 1933, and from 1939 to 1941—Germany also benefited from the fact that positive sanctions are costly, not profitable, to break. To break these sanctions opposing states would have had to ‘‘outbid’’ Germany, and they were not willing or able to do so. Finally, these cases show that—as predicted at the start of this study—positive sanctions also work by increasing economic ties with the target state, thus increasing its dependence. The one case of failed positive sanctions discussed in this chapter, however, sounds a cautionary note. Chancellor Caprivi decided in 1894 to sign a trade treaty with Russia that contained important concessions, most notably a reduction in grain tariffs, and the Lombardverbot was also lifted. However, there was no improvement in political ties with Russia. This attempt appears to have failed because it was ‘‘too little, too late.’’ After the Reinsurance Treaty lapsed in 1890, Russo-German political ties were very weak. Caprivi’s package was not enough to reverse this trend. Also, his policies were highly controversial within Germany and were abandoned very quickly; he was dismissed as chancellor within three months of the trade treaty’s passage in the Reichstag. In Chapter 1 it was noted that positive sanctions—like any sanctions—must have clear objectives, must employ instruments which are equal to these objectives, and must be employed consistently. Caprivi’s policy failed in all these regards. Finally, in this case Germany was also being outbid by France, which was finalizing an alliance with Russia and had supported it with extensive loans. As was discussed in the introduction, a highly motivated opponent can outbid a positive sanction attempt. The historical background discussed in this chapter, stretching from the Middle Ages to the 1940s, sets the stage for the dramatic developments in German relations with Moscow in the postwar era and, indeed, for presentday ties. It is vital to understand the long history of economic linkage between Germany and Russia if one wants to explain the sudden breakthrough in bilateral relations in 1989–90 that led to German reunification. Just as important, the long history of German–Russian interaction is vital

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for understanding bilateral relations in the evolving post-reunification era. With the end of the Soviet period, many scholars believe that it is crucial to place present-day Russia in a historical context that includes not just Lenin and Stalin but Catherine the Great and Peter the Great as well. Similarly, with Germany now reunited and more influential than at any time since 1945, comparing and contrasting today’s Germany with previous regimes seems more important than ever.166

166. See, for example, my recent article comparing Germany’s role in Eastern Europe today with that seen between 1870 and 1945. ‘‘Germany and Its Eastern Neighbors: Patterns of Continuity and Change,’’ Debate 7 (November 1999): 140–56.

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After the Second World War German-Soviet relations resumed, but in a radically transformed setting. Germany was occupied and divided, and became caught up in the new rivalries of the Cold War. In some ways it seemed that this new setting might limit the scope of German economic linkage against the USSR. Part of Germany was now controlled by the Soviets; logically, one would expect that their occupation zone, later the GDR (German Democratic Republic), would satisfy some of Moscow’s need for German capital and products. The remaining section, which became the Federal Republic of Germany, was smaller and weaker than the prewar Reich. Also, it was integrated into the West, which reduced both its economic ties to the USSR and its political maneuvering room in relations with Moscow—no new Rapallo would be permitted. How, then, could West Germany effectively use economic linkage to pursue its own national goals vis-a`-vis the USSR? Despite these obstacles, though, it soon became clear that West Germany—like the Wilhelmine Reich, Weimar Republic, and Nazi Germany— was indeed well positioned to use linkage strategies. After wartime

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reparations were extracted, East Germany eventually proved to be an economic liability to the Soviets. The USSR continued to fall further and further behind the West, particularly in new technologies. West Germany, meanwhile, already several times larger than the GDR, soon surpassed the former German Reich in the size and modernity of its economy. It quickly returned to its advantageous position in the asymmetrical interdependence that had long characterized German-Russian relations. German economic linkage was back—although now exercised from Bonn rather than Berlin. Once again, Germany was able to export high-value-added products much desired by the Soviets in return for raw materials and semi-finished goods that Germany could easily buy elsewhere. Once again, such exchanges were far more important to the Soviets than to the Germans. And once again, the mark, now called the deutsche mark, became a convertible currency much in demand in the East, giving Germany great financial leverage. Indeed, in some ways West Germany was in a stronger position than Germany had been in earlier years. The deutsche mark became a stronger, more influential currency than the reichsmark had ever been. Also, before the war the Osthandel (Eastern Trade) had been of real importance to some sectors in Germany, although the USSR was always the more dependent partner. After the war, the Federal Republic’s close ties with Western states meant the Eastern trade now was economically insignificant for Germany. Hence, particularly in the heady days of the economic boom of the 1950s and early 1960s, the Bonn government faced little pressure from domestic groups that wanted to influence the trade for economic reasons. Thus it was able to give political factors undisputed priority.1 Meanwhile, there was no shortage of important political disputes between the two states that could potentially be influenced by the Federal Republic’s economic leverage. Most important, West Germany sought to protect the isolated enclave of West Berlin, to improve the lives of the citizens of the GDR, and, ultimately, to achieve reunification. No progress could be made on any of these issues without the consent of the Soviets. Given this setting, it is not surprising that West Germany began to use 1. Spaulding (Osthandel und Ostpolitik), stresses this point in great detail. In his view, in the Wilhelmine and Weimar periods German efforts at economic linkage had sometimes been hindered by disputes between domestic groups that favored trade with Russia (manufacturers, especially those making technologically advanced products) and groups that opposed trade, fearing Russian competition (especially agricultural interests). After the Second World War, he argues, both sides lost interest in the issue. The USSR was unable to produce agricultural surpluses for export, and manufacturers saw the East as an unimportant market compared to their huge sales in the West. This gave the Bonn government a free hand to use linkage policies.

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economic linkage on the USSR almost immediately. Over the following forty years the Bonn government tried a wide range of tactics, covering all the different types of linkage identified in the first chapter of this study. Initially, from 1949 to 1955, trade was strictly limited—a policy of negative general linkage. Bilateral ties remained frozen. Soon, however, a number of small positive steps were taken. Positive specific linkage was used successfully at the Adenauer-Khrushchev summit of 1955, again in negotiating the first West German–Soviet trade agreement (1957–58), and again when the agreement was renewed in 1960. Each time the Germans were able to pry free small but important political concessions from the Soviets. In 1962 and 1963, though, the Adenauer government turned to negative linkage, first with an embargo on large-diameter pipe and then with one on wheat. In both cases the linkage only enraged the Soviets, and was not effective. From 1964 to 1968, the Erhard and Kiesinger administrations tried a very cautious positive policy. However, like Chancellor Caprivi’s short-lived positive linkage of 1894, this weak initiative failed in the face of Russian distrust and more attractive opportunities offered by other Western powers. Under Chancellor Brandt West Germany turned for the first time to a more generous policy of positive general linkage, giving economic benefits that were not linked to immediate political payoffs. However, as we shall see, on some occasions even Brandt made the linkage more specific if an important issue had to be resolved promptly. The positive general linkage continued, albeit less successfully, under Chancellor Schmidt—although in this case much of the blame can be laid on the deterioration in U.S.-Soviet relations by the end of the 1970s. By the end of the Schmidt period, German economic linkage policy entered a phase of uncertainty, from which it emerged only after Mikhail Gorbachev came to power in the Soviet Union. This event, as we shall see in the next chapter, ultimately opened a new and decisive period of linkage diplomacy. The outcome of the various cases profiled below confirms the most important conclusion of the previous chapter: positive economic sanctions seem to be more effective than negative ones. All the attempted negative sanctions employed in the 1949–87 period seemed to be unsuccessful; none brought about political concessions from the Soviets. In contrast, positive sanctions were often, although not always, effective. This conclusion is especially striking for this period, since the prevailing East-West tension made it very difficult to win Soviet concessions, and the Federal Republic, allied to the West, lacked political maneuvering room. As we shall see, however, the qualities outlined in Chapter 1 that make positive sanctions effective still

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applied. Negative sanctions seem to add to bilateral hostility and also provide a strong incentive to other suppliers to undercut the sanctions. Positive sanctions, in contrast, build dependence and do not provide economic incentives to ‘‘sanction breakers.’’ They also help to build trust and reciprocity—a particularly important factor after 1945, given the deep hatreds caused by German actions in the Second World War.

Old Patterns in a New Era: 1945–1949 On May 9, 1945, at the Soviet headquarters in Karlshorst, Germany signed the instrument of surrender that ended the Second World War on the Eastern front. As we shall see in this section, the legacy of the war shaped both bilateral German-Soviet ties and the objective international position of the two states. In addition to these longer-term, overall impacts, a more direct effect of the war played a key role from 1945 to 1949. Germany had been defeated and occupied and thus had no ability to set its own foreign economic policies. Hence, it could not independently practice economic linkage. German-Soviet bilateral relations were destined to be influenced for decades to come by the events of the Second World War. Soviet perceptions of Germany were decisively shaped by the war. Hitler had unilaterally broken the Hitler-Stalin pact and its accompanying agreements by attacking Russia. The war on the Eastern front had begun with a German advance deep into the heart of the USSR, resulting in massive destruction and enormous casualties—both from the fighting itself and from the German atrocities that followed. The German occupation of large parts of the Soviet Union caused deep scars that have not fully healed to this day. Inevitably, then, the war would color Soviet political perceptions of Germany in succeeding years, greatly reducing the USSR’s trust in any political overtures from the German side. Germany’s occupation of the USSR was also in part a grotesque parody of traditional German-Soviet economic relations, which tended to discredit ‘‘normal’’ economic ties in the postwar years. Germany ruthlessly exploited Soviet agriculture, raw materials, and unskilled labor during its occupation. Thus, for years after the war, ‘‘normal’’ German-Soviet trade—in which the USSR would naturally export products such as raw materials—awakened unpleasant echoes on the Soviet side. Similarly, Germany’s technical and organizational expertise, formerly so admired by the Russian elite, was seen

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during the war only in the form of well-designed tanks and well-organized massacres. Naturally, for some years to come the traditional Russian inclination to look to Germany as a reliable source of technology and a reliable purchaser of primary products was greatly reduced. Meanwhile, German perceptions of the USSR were also shaped decisively by the actions of the Soviets during the war and in its immediate aftermath. Soviet troops entered Germany more as conquerors than liberators, and were very abusive toward the German population. On the level of high politics, the USSR also treated its defeated enemy harshly. It annexed the northern part of East Prussia and the city of Ko¨nigsberg, an area that had been German since the thirteenth century. It was the main power that supported Poland’s annexation of even more extensive areas of Germany; for years many Germans believed that Poland would never have taken these lands if the Soviets had not forced them to. The USSR was also responsible, in the eyes of most Germans, for the eventual division of the remainder of Germany into two hostile states, the GDR and the Federal Republic. Finally, the USSR was harsh in its occupation policies, enforcing political obedience in its occupation zone and also seizing large amounts of German property as reparations. German resentment of these policies grew steadily in the years after the war, peaking at the time of the Soviet-imposed blockade of Berlin in 1948–49. It was obvious to most Germans that a country that would try to starve an entire city to achieve its political objectives was not to be trusted. Meanwhile, the much less harsh policies of the Western powers in the aftermath of the war seemed to give Germans a clear alternative to relations with the USSR. Thus the seeds were planted for the free parts of Germany to align closely with the West, in marked contrast to earlier periods of German diplomacy when the state had been unaligned and able to choose its diplomatic and economic partners at will. Accordingly, during the 1945–49 period what would become West Germany had already begun a sharp turn toward the West—a turn that was clear in economics as well as security affairs. The ‘‘Bizonal’’ and later ‘‘Trizonal’’ administration was integrated ever more closely into Western multilateral economic organizations such as the Organization for European Economic Cooperation and GATT. For example, the Western occupation zones were given full MFN status by the other Western GATT members in 1948.2 Measures such as this ensured that firms in western Germany had a huge incentive to trade with the United States and other Western states. This 2. Ibid., 309.

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integration would only deepen in the 1950s with the creation of the European Coal and Steel Community and the European Economic Community. Meanwhile, on the other side of the nascent Iron Curtain, Moscow was careful to ensure that its satellite states in Eastern Europe—including the Soviet zone of Germany—would be economically linked to other East bloc states. Thus, economic reality played a large role in reducing East-West trade, even before a formal Western boycott of the East began to be enforced. The objective international position of both the USSR and Germany had also been changed by the war, as the respective power of the two states shifted radically. To an even greater extent than after the First World War, these changes reinforced the status of the Soviet Union as a military power and Germany as an economic one. The USSR had emerged from the war with the world’s largest army and would soon be seen as one of the world’s two superpowers, while Germany had been demilitarized to an extent far beyond that mandated by the 1919 Treaty of Versailles. The German armed forces were now not merely reduced, but entirely abolished. When West Germany’s armed forces were rebuilt in subsequent years, they were subordinated to the multilateral NATO command, and thus could not be used for uniquely German national goals. Economically, the damage to both sides was far greater than that seen in the First World War; yet West Germany had seeds of hope in this area. Its intact corps of technical experts and long-established, well-run banks and corporations would soon produce the German Wirtschaftswunder (Economic Miracle) under the leadership of Finance Minister Ludwig Erhard. Clearly, then, the war and its aftermath merely accentuated Germany’s traditional tendency to rely on economic linkage in its relations with the USSR. In addition to this change in the quality of power, though, there was a large change in quantity as well: Germany had become by any measure far weaker than the USSR, and was to remain so for some time. The nation was divided and its sovereignty had been lost to the Four Powers occupying the country. Until 1949, when the two German states were created, full control was vested in the various allied occupation forces. Even after the creation of the Federal Republic, the state was still limited in its exercise of sovereignty in some areas until the mid-1950s.3 Germany’s strength in the economic area was not yet visible in 1945, although it was well known that 3. Indeed, some residual occupation rights were in effect until October 2, 1990, when the Four Powers finally suspended those rights in connection with German unification.

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the potential for such strength existed. The military might of the USSR, in contrast, was all too real. This imbalance would set unprecedented limits to any German diplomatic policy which sought to influence the USSR. Nonetheless, as will become clear, even the constrained, weakened West Germany of the early 1950s was soon able to begin to make some economic linkage attempts—a fact that again offers striking testimony to the effectiveness of this form of influence. In the immediate postwar years Germany was merely an object on the world stage, with the Western powers and the USSR vying for control of the country. From 1945 to 1949, as has been noted, no German state even existed. The postwar policies of both the West and the Soviet Union showed, however, that the two sides were well aware that German power— particularly economic power—would soon again be a crucial factor in world affairs. Both sides realized that the part of Germany occupied by the United States, Great Britain, and France had greater economic potential than the eastern sector. Accordingly, the Soviet side exerted great effort to either gain a voice in controlling this power or, if control was impossible, to weaken the western zones economically. Soviet policy vis-a`-vis the western zones in the early postwar years was dominated by the USSR’s attempt to secure maximum reparations from the area and to force the Western allies to accept direct Four Power control of the heavy industry of the Ruhr region, giving Russia a means to influence the heartland of western Germany’s industrial power. The United States also realized that the industrial potential of western Germany would be crucial in determining the worldwide balance of power, and thus created the Marshall Plan to support the economic rebuilding of the region and of Western Europe as a whole.4 Before 1949, in the absence of any recognized German government, the occupying powers determined the course of ‘‘German-Soviet relations.’’ In the Soviet zone, these ‘‘relations’’ were under direct Russian control, as they were to remain, to a large degree, even after the creation of the GDR. In the western zones, however, which were to become the Federal Republic of Germany—the main subject of this study in the postwar period—the Western allies played a decisive role. On January 1, 1947, Britain and the United States created a body called the Joint Export-Import Agency (JEIA) to control the foreign trade of their occupation zones; in October 1948 its purview expanded to include the French sector, thus covering all of western 4. See, for example, William E. Griffith, The Ostpolitik of the Federal Republic of Germany (Cambridge: MIT Press, 1978), 33–35.

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Germany. By the end of 1947 the JEIA had signed trade agreements with most East European countries, including Poland, Czechoslovakia, Hungary, and Bulgaria—but not with the USSR, Romania, or Albania.5 Accordingly, trade with the USSR was extremely low. Russian exports to ‘‘Trizonia’’ were valued at only $1.8 million in 1948, fell to $35,000 in the first quarter of 1949, and then ceased altogether. Soviet imports from the three Western zones were a mere $174,000 in 1947, $83,000 in 1948, and $41,000 in the first half of 1949.6 Trade was also limited by increasingly strict JEIA regulations, with permits required for all shipments to the East. In the following decade the early role of the JEIA would be of great importance in West German–Soviet economic relations. Where JEIA accords had been reached, the Bundesrepublik was able to simply continue the agreements after it came into existence in 1949. With the USSR, however, the Bonn regime faced the necessity of negotiating an entirely new agreement. Given Stalin’s hostility toward the Federal Republic and the many unresolved political questions between the West German and Soviet governments, a trade agreement was not ultimately reached until 1958. Thus German-Soviet economic interaction was at first even more limited than the relatively modest German contacts with other East European states. In all, then, in many ways it seemed that the new Federal Republic would not face an easy task in implementing any economic linkage strategy. Its ties with the USSR were minimal, lacked a legal foundation, and were largely under the control of the Western occupying powers. Authors since Hirschman have suggested that economic linkage is not possible until fairly valuable economic links are first created. How could the Federal Republic influence Stalin when it had virtually no trade with Moscow? Still, there was reason to hope; Germany was regaining its economic strength, and that area—while constrained—would soon be far more usable for German national purpose than the military arena or any other power instrument. Also, the low level of German-Soviet economic ties was an advantage in a way. The loss of these ties hurt the USSR and inspired a strong desire in Moscow to regain these benefits. Hence, as will become clear in the next section, even the restoration of minimal trade ties eventually proved to be a valuable instrument of positive linkage for Bonn. 5. Stent, ‘‘The USSR and Germany,’’ 31. See Spaulding, Osthandel und Ostpolitik, chap. 7, for a detailed description of German-Soviet trade during the occupation period. 6. Figures cited in Spaulding, Osthandel und Ostpolitik, 317.

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The Adenauer Years: 1949–1963 Under the leadership of Konrad Adenauer, chancellor from 1949 to 1963, the Federal Republic immediately began to try to employ economic linkage to the best of its ability. At first, until 1955, it was somewhat constrained by the partial control the Western allies exerted over German foreign relations. Nonetheless, already during this period Adenauer felt he was serving Germany’s national interests through supporting the Western economic embargo of the USSR—a policy of general negative linkage. While this policy did not win any political concessions from Moscow, and thus can be seen as largely unsuccessful, it was probably inevitable, given the fact that war with Russia seemed imminent at the time. Soon, though, Adenauer turned to more positive measures, using positive specific linkage successfully to win some political concessions from the Soviets in 1955, 1957–58, and 1960. Toward the end of his rule, though, Adenauer returned to more negative policies, cutting off German shipments of large-diameter pipe in 1962–63 and of grain later in 1963. Both of these gestures enraged the Soviets and seemed to set back German-Russian relations. When it made its debut on the world stage in 1949, the Federal Republic of Germany faced a number of problems. Given the weaknesses of the newly created state, both in its own strength and in its position in the world, patience would obviously be required in any attempt to meet the country’s goals in international relations. The paramount, long-term political goal was of course the restoration of the country’s unity. Lesser political goals were also important, including the maintenance of the closest possible contact between East and West German citizens, protecting Germans still living elsewhere in Eastern Europe and Russia, and achieving the release of German soldiers and civilians still interned in the USSR. In 1949, even these lesser goals seemed far beyond West Germany’s grasp. Over the next forty years, though, the Federal Republic would pursue an effective strategy in meeting its objectives—although, admittedly, the entire sweep of the strategy was not clear to many politicians until many years later.7 First, the country achieved reconciliation with the West. This safeguarded the country’s 7. The notion that the entire sweep of German Ostpolitik from 1949 to the 1970s and beyond forms in some sense a coherent whole is controversial. Certainly most writers in the 1970s saw a dramatic discontinuity between Adenauer’s pro-Western policies and Willy Brandt’s later opening toward the East. Yet the views of Timothy Garton Ash, who stresses the logical continuity and interrelation between the policies of Adenauer and Brandt, are arguably more persuasive. See Timothy Ash, Im Namen Europas (Munich: Carl Hanser Verlag, 1993), 37–38, 53, or the Englishlanguage version, In Europe’s Name (New York: Random House, 1993).

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physical existence and also provided a secure setting in which West German sovereignty and influence could gradually be restored. Only after this process had been completed could Germany begin to reach out to the East, gradually building links to countries such as the Soviet Union and Poland, which had been its most bitter former enemies. Throughout the entire period, West Germany successfully stressed economic rebuilding and growth in its domestic policy. By the end of the process, the country had again become a leading economic power and was regarded with trust by both the East and the West. Then, at last, real progress could be made toward meeting the country’s preeminent foreign policy goal, the achievement of German reunification. In 1949, though, these developments lay in the future, and West Germany’s Ostpolitik was of necessity relatively passive. The Federal Republic did not even have diplomatic relations with the Soviet Union until late 1955, six years after the creation of the state, and was unable to establish diplomatic ties with any other East European member of the Soviet bloc until 1967.8 This passive policy was driven by the reality of Germany’s weakness and by the determination of Chancellor Adenauer to give priority to firmly embedding his country in the Western economic, military, and political community. Given this paramount concern for building firm links to the West, Adenauer was careful to avoid giving the impression that he was plotting a ‘‘new Rapallo’’ with the USSR. A Schaukelpolitik between East and West, which had been pursued by Germany in the interwar years, was now clearly no longer possible. Another decisive factor in Germany’s passive Ostpolitik in the early years of Adenauer’s rule was the residual role of the Western occupying powers, who continued to exercise a significant direct role in controlling the Federal Republic’s foreign policy until Germany joined NATO and regained its sovereignty in 1955. For example, during this period the United States ensured that Germany maintained controls on exports to the USSR and its communist allies that were every bit as strict as its own and noticeably stricter than the controls of other Western states.9 An important instrument of America’s restrictive economic policies was COCOM, the Coordinating Committee of the Consultative Group, founded in November 1949 to regulate Western trade with the Soviet bloc. In the first years of its existence, COCOM limitations were restrictive and well enforced. In April 1953, for example, when 8. In that year, relations were established with Romania. Relations with other East European states were not established until the period 1970–73. 9. Pohl, Gescha¨ft und Politik, 115–17, and Spaulding, Osthandel und Ostpolitik, 349–58.

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Adenauer first visited the United States, one of the important topics of conversation between the chancellor and the U.S. secretary of state, John Foster Dulles, was the American belief that Germany was not doing enough to control exports to the East bloc.10 In years to come, Germany would be able to adopt a more independent view on this issue; at the time, however, because of the supervisory role of the Allied High Commissioners, it seemed necessary for Adenauer to follow the U.S. lead carefully. Nonetheless, Germany’s participation in the West’s policy of strictly limiting trade with the USSR during the 1949–55 period must also be considered a deliberate German policy. Adenauer genuinely supported the policy and believed it served German interests. It fit well with his overall policy of solidifying Germany’s place in the West, in both security and economic terms. Also, as Michael Mastanduno points out in his study of the views of other West European governments at the time, there was good reason to believe—especially in the period from 1950 to 1953—that Stalin’s USSR might invade the region at any time.11 In such an extreme situation, a negative economic policy seems inevitable; no country would logically give economic benefits to a state that is about to invade it. As a result both of West Germany’s restrictive policies and the strong Soviet inclination toward autarky in the early 1950s, German-Soviet economic ties were extremely limited during this period. Trade data show, in fact, that West German trade with the USSR was negligible until after the death of Stalin in 1953. In the following two years a modest revival occurred, with German exports increasing from a minuscule DM 7 million to 112 million, and imports rising from DM 65.7 million to 150.9 million. Nonetheless, this level of involvement was quite low, as can be seen by comparing the percentage of total German exports purchased by the USSR in 1955 (0.44 percent) with the corresponding percentage for 1932, the peak year of interwar German-Soviet trade (10.9 percent).12 The low importance of German-Soviet economic contact at this time is highlighted when one considers that other forms of cooperation which had supported trade in the 1920s and 1930s—such as credits, technical assistance agreements, and the 10. Konrad Adenauer, Memoirs: 1945–53 (Chicago: Henry Regnery, 1966), 447. 11. Michael Mastanduno, ‘‘Trade as a Strategic Weapon: American and Alliance Export Control Policy in the Early Postwar Period,’’ International Organization 42 (winter 1988): 121–50. Mastanduno does not explicitly mention West Germany in this paper, but his discussion of the views of other West European leaders at the time applies to the Germans as well. 12. For both absolute trade figures and the percentage of German trade going to the USSR, see the appendix.

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hiring of German specialists to work in Russia—were nonexistent in the early 1950s. While West Germany was consolidating its position in the Western bloc, the USSR was solidifying its dominance in the East. It also appeared to be following a policy deliberately calculated to reduce its vulnerability to any form of Western economic linkage. There are clear echoes here of Russian policy after Peter the Great, in the 1880s, and during the early 1930s—in each case, after a wave of modernization efforts in which foreign (especially German) technology, trade, and capital were welcomed, a xenophobic reaction followed. In the Fourth and Fifth Five-Year Plans (1946–50 and 1951–55) the Soviet Union was largely successful in rebuilding its heavy industrial base. In this effort it was aided by the shipment of many East German industrial facilities back to the Soviet Union as war reparations.13 Russia also often forced German technical specialists to come to Russia to set up and service the captured machinery. Naturally, this entire effort focused on areas in which the Soviet Union had previously been dependent on German technology. Thus it provided a valuable cushion in years to come when Soviet technology again began to lag. Additionally, the Soviets tied the new German Democratic Republic and other Eastern European states to a common economic organization, the Council for Mutual Economic Assistance (CMEA or COMECON), founded on January 25, 1949. However, in the course of the 1950s and in the years to follow it became increasingly clear that the infusion of technology and capital goods in the form of war booty would eventually become irrelevant, and the Soviet Union would again begin to lag behind the West economically. In fact, the CMEA states, including the GDR, would eventually turn into major economic liabilities to the Soviets.14 Even before the Federal Republic regained its foreign policy sovereignty 13. Pohl, Gescha¨ft und Politik, 114, notes, for example, that much of the famous Carl Zeiss works in Jena was shipped back to Russia. Many other examples could also be cited. 14. See Michael Marrese and Jan Vanous, Soviet Subsidization of Trade with Eastern Europe: A Soviet Perspective (Berkeley: Institute of International Studies, University of California, 1983). These authors have documented how the USSR’s Eastern trading partners had by the 1970s clearly become an economic liability. By that time, Russia’s exports of oil and other relatively valuable raw materials were being used to purchase shoddy, outdated East European manufactured products, and the exchange was costly to the Soviets. In effect, the USSR was carrying on its own economic linkage program with these states, subsidizing them for political purposes—to ensure that they remained loyal allies. The limited value of East European technology for the USSR by the 1970s and 1980s was confirmed by studies such as Steven Popper, ‘‘Eastern Europe as a Source of High-Technology Imports for Soviet Economic Modernization,’’ RAND Report R-3902-USDP, 1991.

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in 1955, it was becoming clear to both Germans and Russians that the country was rebuilding rapidly and was becoming a desirable economic partner for the USSR. As Stent notes, even in this early period, ‘‘Given Soviet import needs and financial problems, West Germany had a relative advantage in economic diplomacy, because there was nothing the USSR wanted to sell to the FRG that Germany could not purchase elsewhere. Furthermore, Germany did not lack export markets in the West.’’15 Essentially, this statement would remain true until the collapse of the USSR. The economic asymmetry would only increase over time as Germany gained economic strength and improved its economic links with the West through the creation of the European Community. Soon the USSR was ready for improved ties; yet Bonn continued to follow an essentially negative policy until 1955. After the death of Stalin in March 1953, tentative economic contacts were established with West Germany almost immediately; in April German companies participated in the Moscow World Trade Conference, and German steel producers met with the Soviet deputy minister of foreign trade, Borisov, in Copenhagen in August.16 On December 17, 1953, the Ostausschuß der deutschen Wirtschaft (Eastern Committee of German Business) was formed and was well positioned to manage these emerging ties. This organization was in many ways the direct successor of the Rußlandausschuß der deutschen Wirtschaft, which had played a large role in German-Soviet trade in the Weimar period. It was even chaired by Otto Wolff von Amerongen, whose father had earlier led the Rußlandausschuß.17 The Ostausschuß was a remarkable hybrid body: while it was composed entirely of private companies and banks, it was legally empowered to negotiate trade agreement with Eastern states on behalf of the German federal government, since Bonn had no diplomatic representation in those countries. At a 1953 meeting of the Economic Commission for Europe, the USSR approached German delegates about negotiating a trade pact, but was rebuffed for political reasons.18 West Germany’s reluctance to negotiate at this time was certainly influenced by anger over the suppression of the uprising in the GDR in June 1953. Also, German leaders may have adopted a ‘‘wait and see’’ attitude because of the instability of the Soviet government at the time. There were rumors that some in the post-Stalinist leadership 15. 16. 17. 18.

Stent, ‘‘The USSR and Germany,’’ 34. Kreile, Osthandel und Ostpolitik, 47. Stent, ‘‘The USSR and Germany,’’ 37. Ibid., 34.

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in Moscow, including Malenkov and Beria, were willing to consider a plan for German reunification.19 In June 1954, Wolff von Amerongen was scheduled to travel to Moscow with an Ostausschuß delegation to finalize a German-Soviet trade pact. However, at the last minute the delegation’s visit was canceled by the West German Foreign Ministry. It was considered too risky to Germany’s ties with the West to proceed with a major overture to Moscow at the time, since West German foreign policy was still under the nominal supervision of the Western occupying powers.20 Also, the USSR was not making any significant political concessions to secure the trade agreement, and the Foreign Ministry believed that the ‘‘trade card’’ should not be given away so cheaply. The Adenauer government refused to enter into trade talks with the USSR in 1953–54 at least in part because the Germans ‘‘linked the expansion of economic relations to progress on political issues.’’21 Thus, it was clear that Bonn was continuing its policy of using negative linkage to try to coerce the Soviets into making concessions. In all, the period from 1949 to 1955 was one of stalemate. Germany supported the Western economic sanctions against the Soviets for its own national reasons—although, admittedly, the influence of the Western allies made any alternative policy difficult. The results of the policy seemed meager, and hence it is easy to consider it a failure; the USSR did not budge on its positions on German unification, or on any lesser political issue of interest to Bonn. Nonetheless, one should not judge the failure of this policy too harshly. Given the intransigence of the USSR, especially in the late Stalin years, a positive policy may not have been possible. As was noted in Chapter 1, negative sanctions may sometimes be necessary to punish an opponent’s negative actions, as well as to avoid strengthening an enemy that may attack at any time. Both of those conditions applied in the late 19. In the period after Stalin’s death, Malenkov and Beria were thought to be planning a radical realignment in Soviet policy toward Germany, which was probably inspired in part by their respect for West Germany’s emerging strength as compared to the weakness of the GDR. Beria apparently pressed the GDR to embark on a ‘‘New Course’’ in its internal policies, moderating its Stalinist economic and political system in hopes of gaining genuine popular support. The next step in this policy would apparently have been negotiations with the Federal Republic to establish some sort of German unity, with the hope that a moderate and genuinely popular East German SED could have some influence in the united state. However, the rioting in the GDR in June 1953 discredited both the ‘‘New Course’’ and Beria himself, hastening the latter’s ouster and ending any thought of serious talks over German unity. See the discussion based on newly accessible Soviet archival documents in ‘‘B Julii 53-ogo Goda,’’ Izvestiya, January 4, 1991, 7. Also discussed in author’s interviews with Professor Messengiesser, Freie Universita¨t Berlin, March 1994, and Nikolai Portugalov, Moscow, April 1994. 20. Kreile, Osthandel und Ostpolitik, 48–49. 21. Van Oudenaren, Detente in Europe, 257.

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1940s and early 1950s. Also, the trade cut-off in these years served another function mentioned in the first chapter—to change the USSR’s baseline of economic expectations. As we shall see, years of trade deprivation probably helped to make the new Khrushchev regime more willing to make some political concessions to restore any economic ties with West Germany. In all, though, this period can be summed up as follows: Case 7 1949–55 Linkage type

German goal(s)

Results

Negative general (economic embargo; refusal to enter into any economic talks)

Reunification and other secondary goals

Unsuccessful

In 1955 the second postwar case of German economic linkage took place—the negotiations that led to Adenauer’s historic visit to the USSR and the establishment of diplomatic relations between Bonn and Moscow. On May 5, 1955, the Federal Republic joined NATO, and thus, under the terms of the Treaty of Paris, the Western powers renounced their right to supervise the German government and the country became sovereign.22 Almost immediately, on June 7, the USSR sent Bonn a formal note suggesting that the two sides establish diplomatic relations. This was, of course, largely a political action. Yet behind the desire to establish diplomatic links lay the growing Soviet respect for the West German role as an independent actor on the world stage, a role predicated at least in part on Germany’s economic power. In the June note, the USSR made it clear that economic concerns were of great importance; the note pointedly stated that before the war bilateral trade had made up a large percentage of total Soviet trade, and that an improvement in this area—as part of a general improvement in relations—could help to ‘‘solve’’ the problem of German reunification.23 In view of the obvious Soviet interest in trade, German experts debated the role of possible economic linkages vigorously in the run-up to Adenauer’s planned September 1955 visit to Moscow: Professor Mu¨ller-Armack, then the director of the Policy Department [Grundsatzabteilung] in the Finance Ministry, advised [Fi22. However, the powers retained their rights in Berlin and in questions relating to Germany as a whole, that is to say, to German reunification. These residual rights remained in effect until 1990, thus slightly restricting the Federal Republic’s sovereignty. 23. Ash, Im Namen Europas, 49–50.

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nance Minister] Erhard to use the economic power of the Bundesrepublik to extract concessions in the German question during the normalization process. Mu¨ller-Armack suggested that credits be offered if some of the Federal Republic’s initial demands were met, such as for an internationally controlled road connection with West Berlin and an expansion of the rights of Germans in the Eastern zone [GDR]. . . . For the Chancellor at this time even those suggestions went too far. In view of the suspicions of Germany’s Western partners, he considered it best to limit the negotiations and to bring the economic component into play at a later time.24 In the end, then, it was decided that economic linkage should not be employed openly, but should be held in reserve. Finance Minister Erhard did not even take part in the Moscow talks, to avoid giving the impression that Germany was too eager for an economic agreement. The question of whether and to what extent Adenauer employed some sort of economic linkage at the September 1955 Moscow talks is controversial. Stent, for example, maintains that he did not, since Germany was still too weak and its economic ties to Russia were too limited to be exploited. However, her own discussion of the conference suggests otherwise. First, it is by no means clear that Adenauer did not use open linkage; in his memoirs, Khrushchev maintained that Adenauer had offered DM 500 million to, in effect, purchase the GDR, incorporating it into the Federal Republic.25 Second, even if Adenauer’s account of his talks with the Soviet leadership is more accurate, it is at least clear that Adenauer explicitly refused repeated Soviet requests to negotiate a trade treaty immediately and insisted that a trade agreement could be signed only in later talks. This must be regarded as an example of economic linkage; Adenauer was making future trade talks, which he well knew were of great interest to the Soviet side, conditional upon a satisfactory conclusion of the Moscow summit. If the Soviet side was forthcoming on the political issues which were the heart of the Moscow talks, there could be a trade treaty in the future. Thus, even by seemingly not playing the economic card Adenauer was in fact using economic leverage. Additionally, even if the economic linkage at the central political talks was not clear, the Germans were simultaneously conducting trade talks in 24. Geschichte der Bundesrepublik Deutschland (Stuttgart: Deutsche Verlagsanstalt, 1983), 2:273–74. See also Kreile, Osthandel und Ostpolitik, 52. 25. Cited in Stent, ‘‘The USSR and Germany,’’ 45.

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Moscow. Hilgar von Scherpenberg, head of the Foreign Trade Department of the German Foreign Ministry, was meeting with Alexander Saburov, the Politburo member in charge of Gosplan, the Soviet state economic planning organization. While these talks were described as ‘‘private,’’ both sides certainly knew that this was merely a polite fiction. The deal being discussed by Saburov and von Scherpenberg—conditional, of course, on a satisfactory conclusion to the Adenauer-Khrushchev political talks—would have involved a doubling of bilateral trade turnover to some DM 500 million yearly, supported by West German credits. This may be the source of the ‘‘DM 500 million’’ referred to by Khrushchev in his memoirs—making it clear that the Soviets saw a very direct economic linkage in these talks. The proposed trade structure would reflect that of the interwar period: German exports would include ships, machinery, diesel engines, technical apparatus, and pharmaceuticals; Soviet exports would include timber, cotton, manganese and chrome ore, petroleum, and chemicals.26 In all, it seems clear that at a minimum Germany used indirect positive economic linkage in Moscow, promising to consider a lucrative trade agreement—whose terms were sketched out by von Scherpenberg—if the summit produced sufficient political results. While the economic payoffs promised to the Soviets may seem relatively low, they were quite attractive in the context of a near-embargo on trade in the years before the summit. Indeed, the final deal negotiated by Adenauer was politically favorable to Germany in several respects. Adenauer was able to induce the USSR to release some 10,000 German prisoners of war, which the Soviets had been holding as ‘‘war criminals.’’ Also, in establishing diplomatic relations with the USSR Adenauer was able to press the Soviets to acknowledge two important West German political goals. The Soviets accepted a diplomatic note stating that the Federal Republic continued to regard itself as the sole legitimate representative of Germany as a whole and that Bonn did not recognize the postwar borders of Germany. While the acceptance of the note did not denote Soviet agreement with its contents, it did signify some Soviet flexibility on these crucial political issues. Even this concession was remarkable, especially in view of the fact that the German note disputed the Soviet right to occupy northern East Prussia and thus was a direct challenge to the USSR’s territorial sovereignty. In later years, the USSR would strive mightily to make sure that Germany would never again succeed in inserting these Vorbeha¨lte (reservations) into any German-Soviet or German-East 26. For a description of the Saburov-von Scherpenberg talks, see ibid., 45–46.

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European diplomatic negotiation. The extent to which this relatively favorable political result can be attributed to German economic linkage is of course difficult to ascertain with certainty. Clearly, Khrushchev was worried about the strength of Germany’s economic linkage potential. He stated frankly in his memoirs that in 1955 ‘‘West Germany had already gained considerable economic might and was in a position to extend credits to the Soviet Union—money we badly needed in order to buy modern industrial equipment that was available neither in our own country nor from any socialist state.’’27 All in all, the 1955 summit can be seen as a successful case of the use of positive linkage. Despite Khrushchev’s suspicions about the ‘‘strings’’ that might be attached, the move to positive linkage had the effect predicted in Chapter 1—it helped to build trust and inspire reciprocal political concessions. Even the fact that the USSR agreed to recognize Bonn diplomatically was important. Some have portrayed this as a problem for the German side, since it marked a break in the Hallstein Doctrine, which stated that Bonn would not recognize any state which maintained ties with East Germany. Yet this break did not keep the Federal Republic from successfully enforcing the doctrine on all other states until the late 1960s.28 And from Moscow’s perspective, agreeing to recognize the Bonn regime was truly a concession. After all, no Western state recognized the GDR until 1973, after West Germany had abandoned its diplomatic blockade. For years, then, Bonn could argue effectively that it was the ‘‘real’’ German government, recognized by all the Great Powers. This significantly undermined the GDR’s legitimacy. This second case of postwar economic linkage can be summarized as follows: Case 8 1955 Linkage type

German goal(s)

Results

Positive specific (promise of trade and credits at 1955 Adenauer-Khrushchev summit)

Release of German POWs; Soviet acceptance of Germany’s ‘‘reservations’’ on diplomatic ties (Germany states it does not recognize GDR or postwar borders of Germany)

Successful: largest Soviet concessions on ‘‘German Question’’ for years

27. Ibid., 45. 28. For more on West German efforts to use economic linkage to enforce the Hallstein Doctrine worldwide, see Newnham, ‘‘Embassies for Sale.’’

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In the three years following the Moscow summit, the Federal Republic and the USSR continued to spar over the proposed trade treaty. When an agreement was finally reached in April 1958, it was as part of a political-economic package that again clearly involved the use of positive linkage strategies. This represents the third case of German economic linkage in the post1945 period. From 1955 to 1958 German-Soviet trade had risen steadily, despite the absence of a formal trade agreement, from a total turnover of DM 262.9 million in 1955 to DM 689.6 million in 1958.29 As the work of authors such as Hirschman, discussed in Chapter 1, would suggest, this increase seemed to give West Germany a firmer basis to exercise economic linkage than it had had at the Moscow summit—the USSR’s dependence on the trade was growing. Also, the Soviet leadership seemed to be even more interested in trade with the West than it had been in 1955; a pro-trade policy was confirmed at the Twentieth Congress of the CPSU in 1956 and in many Soviet scholarly journals and newspaper reports.30 After repeated hints, the Soviet leadership sent Bonn a formal diplomatic note on February 7, 1957. It suggested that economic talks could help to resolve some outstanding political issues between the states, notably including the lingering issue of the repatriation of German citizens from the USSR.31 For some eighteen months after the Moscow summit the Adenauer government pursued a hard line on the question of trade talks with the USSR. Both Adenauer and his foreign minister, Clemens von Brentano, suggested that talks would only be possible if real progress were made toward German reunification. Here, the Germans were reaching too far. While trade was important to the USSR, a political concession of the magnitude suggested by Bonn—which would put the existence of the GDR in jeopardy—could not be purchased that easily. Also, by 1956 the chancellor faced rising domestic criticism from several sources. The opposition parties in the Bundestag (Federal Assembly)—the Social Democrats and the Free Democrats (SPD and FDP)—and some sectors of the business community, notably the Ostausschuß der deutschen Wirtschaft, began to support a trade policy that could be described as general positive linkage. These groups argued that the extension of trade with Russia would in itself lead to gradual progress 29. See the appendix. 30. Stent, ‘‘The USSR and Germany,’’ 55. 31. Kreile, Osthandel und Ostpolitik, 55. For the text of the note, see Boris Meissner, ed., Die Beziehungen zwischen der Sowjetunion und der Bundesrepublik Deutschland, 1955–1973: Dokumentation (Cologne: Verlag Wissenschaft und Politik, 1975), 2:223, 226.

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on difficult political issues, since it would facilitate general cooperation with the USSR; thus extracting specific concessions from the Soviets before beginning trade was unnecessary. In the end, the Bonn government decided to drop its controversial demand that progress be made on reunification before economic talks could begin. In his February 27, 1957, reply to Bulganin’s note suggesting that trade talks be held, Adenauer agreed to the talks, but linked them to both a general improvement in the political atmosphere (which could help the reunification effort) and a specific solution to the problem of the repatriation of some 100,000 German citizens from the USSR.32 Here Adenauer was for the first time openly employing positive economic linkage, and was in fact using elements of specific and general linkage simultaneously. The conclusion of a trade agreement was subject to a specific linkage with an important political issue (the repatriation question) and was also linked indirectly to a more vague political goal: improving bilateral ties in general, which could eventually lead to progress on German reunification. While this case is still mainly one of positive specific linkage, these hints of a more general approach—that trade in and of itself can help reduce tension—are important as a first, tentative precursor of the larger policy of general positive linkage pursued by the Brandt government in the late 1960s. Although Bonn had dropped its insistence on concrete progress toward reunification, the new subject of its economic linkage, the repatriation issue, was also a fairly difficult political problem. After West Germany’s success in winning the release of prisoners of war and some civilian internees at the 1955 Moscow summit, the remaining ‘‘Germans’’ in the USSR were largely those whose legal status was ambiguous.33 Some of them—about 10,000—had been German citizens before the Second World War. However, in many cases their home regions had been annexed by the USSR or Poland at the end of the war, and Moscow thus claimed they were no longer German citizens. Others (about 20,000) had been residents of the Baltic States who were made German citizens under the Hitler-Stalin agreements of 1939; they, too, were now claimed by Moscow as Soviet citizens. Finally, the largest group—some 70,000—were Soviet citizens of German descent who had been made German citizens by the advancing Nazi armies after 1941. Understandably, the USSR was especially reluctant to acknowledge the ‘‘Germanness’’ of this last group. 32. Kreile, Osthandel und Ostpolitik, 60–61. See also Konrad Adenauer, Erinnerungen (Stuttgart: Deutsche Verlags-Anstalt, 1967), 3:357. 33. For a discussion of the repatriation issue, see Stent, ‘‘The USSR and Germany,’’ 62.

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It is thus not surprising that the course of the negotiations over the German-Soviet trade agreement was not a smooth one. Simultaneous talks were held on the trade agreement, the repatriation issue, and on consular relations. It was quite clear to both sides that the issues involved were linked into one package. German leaders stressed this fact quite openly during the talks; Finance Minister Erhard, for example, noted that ‘‘the more ready Russia is to respect and fulfill our political requests, the better will become the basis for economic cooperation . . . one cannot be separated from the other.’’34 Not surprisingly, the Soviet side tried repeatedly to isolate the issue of the trade treaty, attempting to conclude it without making political concessions. This is a good example of one of the dangers of positive linkage noted in Chapter 1; the targeted state will often try to ‘‘pocket’’ economic benefits without following through on political commitments. However, through firm diplomacy the West Germans were able to maintain the linkage between economic and political issues. The first two rounds of talks—in July and August 1957—ended in stalemate. There was then a pause for several months while Adenauer contested national elections in Germany. After his reelection the talks continued for several more difficult months. Finally, on April 8, 1958, the Agreement on Questions of Trade and Navigation was signed, and an agreement was reached on the repatriation issue. The final package agreement essentially met the goals of both sides: Russia obtained a favorable trade agreement, and Germany obtained concessions on the repatriation issue. The Soviets agreed to allow Germans in the first two categories mentioned above— those who had been German citizens before the war and the former Baltic Germans—to emigrate. They also agreed to ‘‘consider favorably’’ applications from the more controversial group, those ‘‘Germans’’ who had been given citizenship by Hitler’s armies. In another important political concession, Moscow agreed that the economic agreement would apply to West Berlin, not just to West Germany proper.35 Although this agreement was only in oral form, not in writing, it set an important precedent for later negotiations, undercutting Moscow’s efforts to claim that West Berlin was a ‘‘free city’’ and not part of West Germany. As we shall see, in later economic talks Bonn was also able to at least indirectly include West Berlin, while in political talks Moscow refused to accept this. Again, the impor34. Robert W. Dean, West German Trade with the East: The Political Dimension (New York: Praeger, 1974), 120. 35. The agreement was that the treaty would apply to the entire ‘‘DM currency area,’’ which included West Berlin.

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tance of economics to the Soviets—and their vulnerability to some forms of economic linkage—seems clear. In return for these political concessions, the Bonn government agreed to a trade treaty, although it did not meet all Moscow’s demands in this regard. The USSR had been pressing for a five-year agreement that would increase trade by five times over 1958 levels; Bonn agreed only to a threeyear agreement that would double existing bilateral trade—still a substantial improvement. Furthermore, Bonn was able to insist that the USSR devote some 8–10 percent of its purchases to consumer goods, not capital goods—which would be of less strategic significance—and was also able to win the USSR’s agreement to pay for most of the goods directly in hard Western currency, rather than using credits or substantial barter trade as Russia wished.36 Nonetheless, the agreement was a breakthrough: it was West Germany’s first intergovernmental trade agreement with a communist state37 and provided for a substantial increase in trade. Indeed, over the course of the agreement trade almost tripled, with total turnover rising from DM 689.6 million in 1958 to more than DM 1.6 billion in 1961.38 In all, the 1958 treaty package must be seen as a successful example of specific positive linkage. The USSR was offered economic inducements and agreed to political concessions. Admittedly, the central issue of the ‘‘German question’’—reunification—had not been affected; West Germany’s economic leverage was not powerful enough to impinge on the USSR’s central strategic goals. Yet some success had been achieved, and the expansion in economic links envisaged under the trade agreement would increase Germany’s future economic leverage. As predicted in Chapter 1, even the modest inducement of a treaty restoring some degree of normal trade can be effective when the target state’s baseline of expectations is sufficiently low. 36. For details on both the political and economic aspects of the treaty package, see Stent, ‘‘The USSR and Germany,’’ 64–65. The text of the economic agreement, formally titled the Long Term Agreement on Trade and Payments [Waren- und Zahlungsverkehr], can be found in Meissner, Die Beziehung, 381. The text of the meeting’s final communique´, containing the Soviet repatriation concessions, is in Meissner, 368. 37. Previously, Bonn had maintained trade relations with Hungary, Poland, Bulgaria, and Czechoslovakia on the basis of agreements negotiated by the allied JEIA before the creation of the Federal Republic. Trade agreements had also been signed with Romania (February 1954) and the People’s Republic of China (September 1957) by the Ostausschuß der deutschen Wirtschaft, operating in a quasi-official capacity. The treaty with the USSR was thus the first agreement negotiated directly by the West German government. See Dean, West German Trade with the East, 120. 38. See the appendix.

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Case 9 1957–58 Linkage type Positive specific (1958 Trade Agreement; trade more than doubles in three years)

German goal(s)

Results

Return of German civilians left in USSR after Second World War; German right to speak for Berlin.

Successful: ca. 100,000 civilians are repatriated; treaty valid for ‘‘DM area’’ (i.e., Soviet Union accepts West German rule in West Berlin)

During the three-year period covered by the 1958 German-Soviet trade agreement, the central political issue in the two states’ bilateral ties was the status of West Berlin. Soon after the signing of the trade agreement, on November 27, 1958, Khrushchev suddenly presented the United States, Britain, and France with an ultimatum demanding that West Berlin be made into a demilitarized ‘‘free city’’ within six months. Khrushchev threatened that if the demand was not met, he would conclude a separate peace treaty with the GDR. It was understood that this would abrogate Four Power rights in the city, thus threatening West Berlin’s transportation links with West Germany and even its physical survival. Ironically, Khrushchev’s ultimatum was in large part a reaction to the ‘‘economic power’’ of the Federal Republic, as embodied in West Berlin’s high standard of living, which played a key role in drawing East German emigrants across the still-open border between the two ‘‘halves’’ of the city.39 Khrushchev was using the USSR’s power in high politics to counter the steady undermining of the GDR by West Germany’s economic power, a clear sign that he respected the importance of economic influence.40 Although the six-month Berlin ultimatum was allowed to lapse, Khrushchev’s demands were renewed in the following months, and became the main issue in East-West relations until 1961. Given the sensitivity of the Berlin situation, it is not surprising that Adenauer’s government would decide to attempt to link the renewal of the 1958 39. In 1960 some 194,000 East Germans had emigrated via West Berlin; in 1961, fully 153,000 had crossed the border by mid-July, and that number soon rose to about 2,000 per day. Given the GDR’s population of only about 17 million, this rate of emigration could not be sustained. See Stent, ‘‘The USSR and Germany,’’ 75. Later, in his memoirs, Khrushchev would admit the economic basis of his Berlin policy: ‘‘The GDR’s economic problems were considerably relieved by the establishment of border control [i.e., the building of the Berlin Wall] between East and West Berlin.’’ Nikita Khrushchev, Khrushchev Remembers (New York: Little, Brown, 1970), 504, 505. 40. As I explain shortly, the Soviet decision to crush the ‘‘Prague Spring’’ in 1968 can also be partly attributed to fears that the magnetic pull of West German prosperity might pull the Czechs out of the Soviet orbit.

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trade agreement—which was due to expire at the end of December 1960—to Soviet concessions on the status of Berlin. Thus began the fourth case of postwar economic linkage, again of the positive specific type. In raising the Berlin issue, the West Germans were attempting a difficult linkage. Their right to negotiate on behalf of West Berlin was limited. While the three Western powers had recognized Bonn’s right to conclude treaties on behalf of the city, Moscow had not. In any case, the Western powers remained responsible for West Berlin’s security under the Potsdam accords, thus further undermining Bonn’s role there. In addition, the fact that the Berlin situation had become a central focus of Soviet-Western relations as a whole—and Soviet-U.S. relations in particular—meant that the prestige of Russia and of Khrushchev personally were very much at stake in the issue. Thus West Germany faced a difficult path in inducing any concessions from Russia on Berlin by using its only major weapon, economic policy. The course of the talks over the renewal of the 1958 agreement clearly showed the sensitive nature of the attempted economic/political linkage. West Germany prepared the ground carefully. First, it came to a substantive agreement with Russia on the provisions of the trade agreement itself, offering attractive economic concessions. Germany agreed to increase bilateral trade, purchase more Soviet oil, and even consider concessions on the sensitive issue of granting credits to the USSR.41 Then, at the last possible moment—at the treaty signing ceremony itself, on December 12, 1960—the West Germans surprised the Soviet negotiating team with a diplomatic letter stating that the treaty would explicitly include West Berlin, by being valid for the entire DM currency area.42 Those unfamiliar with the Berlin issue may consider this a relatively small demand; in fact, it had huge political significance. Remember that in 1958 the Soviets had made this concession only informally (orally), and that at a time when the Berlin issue was not part of a major superpower confrontation. If the Russians accepted the letter at the signing ceremony, they would have effectively admitted that Bonn could negotiate on behalf of West Berlin, and thus that West Berlin was part of the Federal Republic. This would have nullified Russia’s entire post-1958 diplomatic strategy of converting West Berlin into a vulnerable, independent ‘‘free city.’’ 41. See Dean, West German Trade with the East, 122–23. The text of the treaty can be found in Meissner, Die Beziehung, 1:685, and Bulletin of the German Federal Press and Information Agency (henceforth Bulletin), January 3, 1961. 42. See Stent, ‘‘The USSR and Germany,’’ 86, and Frankfurter Allgemeine Zeitung, December 14, 1960.

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At the treaty signing itself, on December 12, the West German ploy appeared to have failed; the Soviets walked out of the talks, and Izvestiya sputtered indignantly that the German political linkage attempt was ‘‘utterly alien to normal trade relations practice.’’43 In the end, though, the Federal Republic’s linkage attempt was essentially successful. In a December 28 meeting with Adenauer, the Soviet ambassador took the initiative in breaking the deadlock, suggesting a face-saving compromise: instead of accepting a diplomatic note explicitly stating that the economic treaty included West Berlin, Moscow would accept a note stating only that the treaty had the same ‘‘area of validity’’ as the 1958 treaty. Still, this was a major Soviet concession, since both sides knew that the 1958 treaty had included West Berlin.44 On December 31, 1960—the expiration date of the old treaty—the new trade agreement was signed and the USSR accepted the Berlin note.45 However, Bonn’s success was hardly total: although Khrushchev had been thwarted in his plan to break West Berlin’s links to West Germany, he was still able to seal off the city by building the Berlin Wall in August 1961. Case 10 1960 Linkage type

German goal(s)

Results

Positive specific (renewal of trade agreement in December 1960)

Soviet de facto acceptance of the West German right to speak for Berlin

Successful: dramatic German walkout from treaty signing helps force USSR to allow repeat of ‘‘DM area’’ clause during Berlin crisis

By 1962, Chancellor Adenauer and others in the Christian Democratic (CDU) leadership were apparently becoming frustrated with the results of the ‘‘economic Ostpolitik’’ of the previous seven years. In 1955, 1958, and 43. Izvestiya, December 15, 1960. 44. Surprisingly, Stent considers this case to be an example of ‘‘the limits of economic linkage,’’ since West Germany was not able to force the USSR to accept full and explicit inclusion of West Berlin in the treaty. She concludes that ‘‘it is doubtful if [this case] represented a success for the German linkage strategy because the Soviet concession was minimal.’’ However, given the limits imposed on West German bargaining power by its limited legal role in West Berlin as well as the fact that the Berlin question was the central issue in superpower diplomacy at the time, the de facto inclusion of Berlin must be rated as a notable success. See Stent, ‘‘The USSR and Germany,’’ 69, 92. Stent also notes that the USSR continued to raise the ‘‘free city’’ argument in future bilateral talks with Germany, implying that this shows that Bonn’s success in the 1960 talks was minimal. However, their de facto agreement to include Berlin in those talks served to reduce the later demands to the status of mere rhetoric. 45. For further details, see Frankfurter Allgemeine Zeitung, December 29, 1960, and Der Spiegel, January 9, 1961.

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1960, positive specific linkage had been successfully employed to induce some Soviet political concessions on such issues as German emigration from the USSR and the status of West Berlin. However, as the building of the Berlin Wall had clearly shown, West Germany seemed to have made no real progress in the central question of promoting German reunification. Perhaps, Adenauer reasoned, it was time to move from positive to negative leverage, in an attempt to shock the USSR into further concessions. As the West German ambassador to Moscow asked at the time, ‘‘What has the high level of West German trade with the Soviet Union accomplished to date with respect to the solution of our outstanding problems?’’46 Adenauer’s frustration was heightened by his realization that a positive trade policy could not be successfully continued without moving beyond the relatively limited instruments employed in the 1955–62 period. Essentially, Adenauer had merely allowed some trade with Russia, trade which was still hemmed in by a maze of restrictions and quotas. Adenauer was determined not to allow German banks to issue extensive credits to the USSR and had forbidden the Hermes organization to issue any government guarantees for such credits. This had the effect of practically shutting the USSR out of the German credit market.47 Meanwhile, other Western states were beginning in the early 1960s to reduce their restrictions on trade with the USSR and to issue increasingly generous credits to Moscow. In this environment, a mere continuation of the status quo on Germany’s part would no longer be seen by Moscow as an important positive step. Here we can see, perhaps, a problem with positive sanctions; when applied repeatedly, they become expected. Negative sanctions can shift a target’s expectations so that even a resumption of normal trade is seen as an important concession. Yet once trade is restored it eventually becomes expected, and moves going beyond mere trade—such as trade credits—may be needed to have the same positive effect. Adenauer was not prepared to make such additional concessions. The events that followed are detailed in Bruce Jentleson’s work Pipeline Politics.48 The government of the United States was planning a large negative economic action of its own. On November 21, 1962, it persuaded NATO to pass a resolution advocating an embargo on the shipment of 46. Quoted in Stent, ‘‘The USSR and Germany,’’ 114. 47. The only major long-term credit issued to the USSR by German banks up to this point was a 1959 credit, backed by the state government of Schleswig-Holstein, for the purchase of German-built ships. See Pohl, Gescha¨ft und Politik, 126. 48. Jentleson, Pipeline Politics.

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large-diameter steel pipes to the USSR. The U.S.-led action was a case of negative general linkage, in that the pipe embargo was not linked to any specific Soviet political concession. While this action meshed with Adenauer’s thinking to some extent, it proved to be poorly conceived. In the end Adenauer and the CDU complied with the pipe embargo only to please the United States, and the episode served to discredit Adenauer’s trade policy. The role of pipe exports in total German trade with the USSR had become quite large in the wake of the 1958 economic agreement. At the time of the U.S.-backed embargo, West Germany accounted for two-thirds of the USSR’s imports of large-diameter pipes. German companies had exported some 600,000 tons of these pipes since the signing of the 1958 trade agreement.49 The Soviet pipeline network had expanded steadily; by 1962 work was under way on the so-called Friendship Pipeline, which would deliver Soviet oil directly to East Germany. It seemed to the United States that this pipeline was mainly intended to serve two aggressive Soviet purposes: first, to facilitate oil exports to Western Europe, which would increase that region’s dependence on the USSR, and second, to provide fuel for the Soviet military in the event of an attack on West Germany from the territory of the GDR.50 Thus, the case for a pipeline embargo seemed clear to the Americans. The final catalyst for the imposition of the embargo was apparently the signing of yet another large pipe export deal by the USSR and three German firms on October 5, 1962.51 In a number of ways, the steel pipe embargo seemed to be doomed to failure from the very beginning. First, the United States had acted to impose the embargo without winning the unanimous approval of its allies. Several Western countries (including Britain, Italy, and Japan) openly defied the embargo plan, undermining its effectiveness. Again, a crucial weakness of negative linkage could be seen, which this study noted in Chapter 1; it requires much better multilateral coordination than does positive linkage. Other producers were quick to see the potential to profit by breaking the 49. Dean, West German Trade with the East, 128, and Stent, ‘‘The USSR and Germany,’’ 104. 50. For an extensive discussion of the American motives in this case, see both Jentleson, Pipeline Politics, and Stent, ‘‘The USSR and Germany,’’ 98–100, 103. Stent cites, for example, the statement of Senator Keating to a U.S. congressional hearing in July 1962: ‘‘Khrushchev has threatened to bury us on more than one occasion. It is now becoming increasingly evident that he would like to drown us in a sea of oil if we let him get away with it’’ (99). 51. The deal provided for Soviet imports of 163,000 tons of West German pipe in exchange for Soviet crude steel. The pipe was to be produced by Mannesmann (80,000 tons), PhoenixRheinrohr AG (52,000 tons), and Hoesch AG (31,000 tons). See Dean, West German Trade with the East, 129.

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sanctions, as would later happen during the attempted grain embargoes by Germany in 1963 and by the United States in 1979–80. The nature of the NATO decision itself was controversial; it was unclear whether the action was merely a recommendation or a binding resolution.52 The choice of the product to embargo was controversial as well. Steel pipe was not on any COCOM list and was widely regarded as a nonstrategic good. Furthermore, since pipe exports came largely from West Germany, the Germans felt discriminated against by the measure. Also, the exports came from the depressed steel industry, which understandably reacted especially fiercely to the embargo. Finally, the ex post facto aspect of the embargo created further difficulties. Washington demanded that pipe export contracts that had already been signed should be rescinded, thus affecting the October 5 German sales. This last element was particularly troubling to German politicians and businessmen, since it would force them to break a signed agreement with the USSR, and even expose themselves to the charge that they were violating the 1960 trade treaty.53 In the end, the NATO pipe embargo was so overwhelmingly unpopular in West Germany that the government had to resort to extreme measures to put it into effect. First, the government tried to use administrative trickery. On December 19, 1962, it notified the steel exporters that export licenses would be required for the proposed pipe sale, but the actual decision to deny the licenses was kept secret. The Bundestag had three months to review the licensing decision under German law, but the government waited until the last day of that period to formally announce that it was denying the export licenses, hoping that the legislature would not have time to convene a debate. Yet the outraged parliament did convene, and the administration’s coalition partner, the pro-business FDP, openly opposed the government. This was an important precursor of that party’s decision to ally with Socialist leader Willy Brandt later in the 1960s, a decision motivated in part by Ostpolitik. In the end, the only way the CDU could avert a humiliat52. The exact text of the resolution was classified as secret by the West German government, which argued that it was indeed a binding resolution. However, the actions of other NATO countries in defying the embargo suggested that the resolution had not been binding. This confusion further undermined support for the embargo in Germany. 53. The question of whether the 1960 trade treaty was being broken was a matter of much dispute. The USSR, in a protest note after the embargo was imposed, charged that it did violate the treaty. In its reply, the German government argued that it did not, since in its view the pipe sales were being carried out outside the formal terms of the treaty. For the text of the notes, see Europa-Archiv, no. 18 (September 1963): D243–48.

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ing defeat on the issue was to walk out of the chamber, thus preventing the Bundestag from mustering a quorum and allowing the administrative measure to stand.54 The divisive pipeline embargo had no positive economic or political results for Bonn; it merely deprived Germany of a substantial export contract. Indeed, the USSR was so outraged over the Federal Republic’s lack of Vertragstreue (commitment to agreements) that it proceeded to reduce its purchases of German goods across the board. As Chancellor Bismarck discovered at the time of the Lombardverbot, a sudden switch to negative linkage can outrage the target state, causing a drop in trust and negative spillover effects to other parts of the bilateral relationship. The embargo also brought no political benefits to Bonn’s Ostpolitik. Indeed, political concessions by Moscow were extremely unlikely since the embargo was an act of general negative linkage; thus no specific Russian concession would have led to the lifting of the embargo in any case. Finally, the unprovoked embargo angered important domestic interest groups, such as the German business community. In all, the 1962–63 embargo was a clear failure for Germany and for Adenauer, as can be seen in this summary: Case 11 1962–63 Linkage type Negative general (embargo of pipe for oil/gas pipelines)

German goal(s) No clear objective vis-a`vis USSR; largely to placate United States

Results Unsuccessful: hurts German-Soviet ties for rest of decade

Soon after the pipe embargo debacle, near the end of Adenauer’s fourteen-year rule as chancellor, he devised one last negative economic linkage scheme. Ironically, it only served to further discredit the concept of negative linkage. In the summer of 1963 the Soviet Union had suffered a disastrously poor grain harvest, and the Khrushchev regime began to import large quantities of grain from the West. Adenauer decided to launch a campaign to coordinate a Western grain embargo, and made no secret of the ambitious political goal he hoped to achieve by this policy: ‘‘We will sell you food but in exchange the [Berlin] Wall must be taken down.’’55 Clearly, this is a case of negative specific linkage. 54. For a discussion of these events, see Kreile, Osthandel und Ostpolitik, 58–59, Stent, ‘‘The USSR and Germany,’’ 107–8, and Dean, West German Trade with the East, 134–37. 55. Adenauer’s remarks at a press conference in Berlin, October 10, 1963, as reprinted in Frankfurter Allgemeine Zeitung, October 11, 1963.

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Adenauer was apparently motivated by the hope that had sustained his policy for the previous decade: that an economic crisis would eventually arise in the USSR that would be so severe that the Soviet leadership would have no choice but to give in to all Germany’s political demands. As one author put it, ‘‘Adenauer always believed . . . that the Soviet Union would have to cope with economic crises and deficiencies of the worst kind, especially in agriculture but also in housing and consumer goods production. The Soviet Union would therefore, he reasoned, become dependent to a certain extent on the West, which in turn could make its economic help conditional upon the fulfillment of political demands.’’56 In his final months in office, Adenauer apparently came to the conclusion that the grain crisis represented such a major economic crisis. Unfortunately for the chancellor, his conclusion that the USSR was on the verge of economic collapse was some twenty-five years ahead of its time. The Soviets were not in truly desperate need of the Western grain, and Germany’s ability to coordinate a complete Western embargo was in any case quite limited. Although the USSR did plan to purchase some 300,000 tons of grain from the Federal Republic, it had already concluded far larger contracts with the United States, Canada, and Australia—all much more important grain producers—and could thus easily meet its grain needs without the German supplies.57 As Jimmy Carter would eventually discover, it is not easy to coordinate an embargo of such a basic product as grain. In addition to the large number of possible exporters, the nature of the product itself also serves to thwart any embargo plan. As a food product, grain seems to many to be the ultimate nonstrategic good. Khrushchev clearly was importing the grain to feed his people, not—as had arguably been the case with the oil pipeline project—for any military purpose. Furthermore, denying the sale of food to a country raises the specter of mass starvation and makes the initiating state seem truly inhumane. For all these reasons, Chancellor Adenauer’s grain embargo plan was an ignominious failure. Even the most loyal of his CDU backers failed to support it. At the chancellor’s final cabinet meeting on October 9, 1963, it was decided to submit the embargo plan to the NATO Council rather than proceed with a unilateral German decision. When Adenauer’s finance minister, Ludwig Erhard, became chan56. Hans-Peter Schwarz, ‘‘Adenauer’s Ostpolitik,’’ in Wolfram Hanreider, ed., West German Foreign Policy, 1949–1979 (Boulder, Colo.: Westview, 1980), 130. 57. Stent, ‘‘The USSR and Germany,’’ 121–22, notes that the contract with the United States called for the sale of 500,000 tons of grain, and the Canadian and Australian purchases amounted to fully 8.5 million tons.

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cellor, his administration quietly approved export licenses for the sale of West German wheat to Russia on October 28, 1963, and the embargo idea was dropped.58 Case 12 1963 Linkage type Negative specific (grain embargo)

German goal(s)

Results

Dismantling of Berlin Wall

Unsuccessful: other suppliers step in. Helps persuade Germans to turn to positive sanctions

Adenauer’s negative policy toward trade with the USSR, as embodied in the steel pipe embargo and the attempted grain embargo, ultimately proved to be self-defeating. The pipe embargo was an example of general negative linkage—that is to say, it was not linked to an attempt to win any particular Soviet concession. The attempted grain embargo, in contrast, was specific negative linkage, in that it was an attempt to force the USSR to dismantle the Berlin Wall. The failure of both actions led many German leaders to believe that negative linkage of any sort would always be ineffective. In all probability, this conclusion was exaggerated. As we have seen, both embargo attempts were poorly conceived and thus seemingly doomed to failure. In neither case was there any serious hope of coordinating a unified Western response, although it is generally agreed (as noted in Chapter 1) that effective coordination is necessary for negative sanctions to succeed, since such sanctions generate economic incentives that can lead to their own collapse. In both cases the goals of the policies were also ill conceived. The pipeline embargo was imposed largely to please the United States, not to achieve any particular goal in German bilateral ties with the USSR. The grain embargo project was designed as a desperate attempt to achieve a disproportionately large political goal—the dismantling of the Berlin Wall. In sum, it is probable that the failure of these linkage efforts was due more to their own inherent faults than to the faults of economic linkage in general. Yet the earlier limited successes of Adenauer’s positive linkage policies, as seen in the 1955, 1958, and 1960 German-Soviet agreements, were largely forgotten by this time. Calls were increasingly heard for a ‘‘depoliticized’’ trade policy, one that would allow free trade with the East. However, in 58. See the discussion in Dean, West German Trade with the East, 142–44. The leadership of the opposition SPD dismissed the grain embargo idea contemptuously as ‘‘the senseless plan of an old man.’’ See SPD Pressedienst, October 7, 1963.

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later years it would become clear that no policy of economic links with the USSR could ever truly be separated from political considerations.

Time of Transition: Erhard and Kiesinger, 1963–1969 This section will explore the years between the Adenauer period and the initiation of a ‘‘New Ostpolitik’’ under Willy Brandt, which included a strong dose of positive general linkage. During this transitional period West Germany also sought to employ linkage diplomacy of a more cautious, positive specific type. As one might expect, Ludwig Erhard, who had long served as Adenauer’s finance minister, was well aware of the value of economic power. It seemed for a time in 1964 that an ambitious linkage deal might be in the offing, but this remained in the realm of rumor and was aborted by the fall of Khrushchev. Later, Germany returned to a cautious positive specific approach with the new Brezhnev regime, but this policy too met with little success. Like the Caprivi initiative of 1894, it was ‘‘too little, too late’’—a very limited policy of inducements in a time of great political tension. Also, as during the Caprivi period when France had ‘‘trumped’’ Germany by offering more generous inducements to tsarist Russia, several West European states were willing to offer generous credits to support trade with Moscow in the mid-1960s. In the first year of the new Erhard administration in Bonn, Nikita Khrushchev quietly began to explore the possibility of improving ties with the Federal Republic. Adenauer, who had been in office for fourteen years, had been the only chancellor the Federal Republic had ever known. The end of his tenure in office seemed to open up new possibilities for German Ostpolitik—and Soviet Deutschlandpolitik. In fact, it seems likely that in the 1963–64 period Khrushchev ‘‘may have been exploring a radical change of policy [on the German question], the implications of which could have been a contributory factor in his political downfall.’’59 Khrushchev apparently saw that the GDR was continuing to stagnate, despite the construction of the Berlin Wall, while West Germany was becoming more powerful. Part of this perception was economic; as Wolfe notes, an accommodation with Bonn could ‘‘open up the prospect of ob59. The best detailed account of Khrushchev’s abortive attempt to improve relations with Germany is probably Michael J. Sodaro, Moscow, Germany, and the West from Khrushchev to Gorbachev (Ithaca: Cornell University Press, 1990), 43–71. The quotation is from Thomas W. Wolfe, Soviet Power and Europe, 1945–1970 (Baltimore: Johns Hopkins University Press, 1970), 117.

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taining large credits and other economic-technical benefits from West Germany,’’ which was ‘‘of no small moment in view of Khrushchev’s ambitious economic plans at home.’’60 At the end of 1963, the USSR had allowed the Soviet-German bilateral trade treaty to lapse, apparently as a reaction to Adenauer’s clumsy efforts at negative economic linkage in 1962–63. Khrushchev now appeared to be looking for a way to revive the treaty, perhaps as part of a broader ‘‘deal’’ with Bonn. In the spring of 1964, the Soviets began to sound out Bonn about the possibility of a Khrushchev/Erhard summit meeting. A Soviet embassy official gave an interview stating that a visit to Moscow by Erhard ‘‘could produce a significant contribution to the solution of the German question through reunification.’’61 Concurrently, talks were begun to renew the German-Soviet trade agreement. In July, Khrushchev’s son-in-law Aleksei Adzhubei, the editor of Izvestiya, traveled to Germany and met privately with Erhard. In August, in another important political gesture, Moscow decided to officially rehabilitate the Volga Germans, who had been deported en masse from their ancestral homeland to Soviet Central Asia during the Second World War.62 Finally, in early September, Khrushchev called a sudden meeting of the foreign ministers of the Warsaw Pact states in Prague—reportedly excluding the East German foreign minister—and emerged to reveal that he was planning a visit to West Germany in December. Clearly a major initiative was in the offing. Any German-Soviet summit would be a major political event, since bilateral ties were deeply frozen, and no such meeting had occurred since 1955. Khrushchev’s sudden decision to go to Bonn, rather than expecting Erhard to visit Moscow, merely emphasized the importance of the initiative. The Chinese leadership, suspicious of Khrushchev, openly stated that the Federal Republic was planning to ‘‘buy the GDR from the Soviet Union’’ by offering ‘‘large trading credits’’ in return for Soviet ‘‘political concessions.’’63 The notion of seeking to ‘‘buy the GDR’’ is not as far-fetched as it might seem; at the time the socalled Jaksch Plan was being discussed in Bonn, which proposed a massive, thirty-year program of aid to the USSR in return for Soviet concessions on the reunification question.64 60. Wolfe, Soviet Power and Europe, 120. See also Sodaro, Moscow, esp. 48. 61. Wolfe, Soviet Power and Europe, 123. 62. Stent, ‘‘The USSR and Germany,’’ 119. As noted in Chapter 2, the Volga Germans originally settled in Russia in the 1760s at the invitation of Catherine the Great. 63. Wolfe, Soviet Power and Europe, 125. 64. Wenzel Jaksch was a Bundestag deputy for the SPD and was president of the Bund der Vertriebene, the umbrella organization of those expelled from German lands lost after 1945. For

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Hard-line elements within the Soviet leadership signaled their disapproval of any such policy by demonstratively expressing support for the GDR. On October 5, 1964, Mikhail Suslov stated that ‘‘Soviet-GDR ties are not for sale, even if all the gold in the world were offered for them.’’65 Nine days later, Suslov was reportedly the main spokesman of the antiKhrushchev forces when the decision was made to oust the Soviet leader. It is generally believed that the perception that Khrushchev was about to make some sort of major economic/political linkage ‘‘deal’’ with Bonn contributed to his downfall, although it is difficult to assess the weight of this factor alone.66 Yet since such a deal was never finalized—indeed, was never discussed openly by top leaders on either side—this episode, while suggestive, cannot constitute a case of economic linkage as defined in this study. The new Kremlin leadership, headed by General Secretary Leonid Brezhnev, had no intention of working to improve ties with West Germany. This position was reinforced by the fact that Bonn’s economic leverage seemed to be relatively weak by the mid-1960s. From 1962 to 1966, Moscow deliberately reduced the Federal Republic’s share of Soviet trade with the Western world; even in absolute terms West German exports to the USSR fell steadily during these years, from DM 826.4 million in 1962 to DM 541.3 million in 1966.67 Clearly, the fact that the bilateral trade treaty had been allowed to lapse in 1963 and had not been renewed was affecting trade links. Here the negative spillover effect of Adenauer’s trade sanctions in 1962–63 is clear; Moscow simply no longer trusted the West Germans. The Soviet turn to other partners was made easier by the fact that other Western countries, particularly in Western Europe, were by now trading much more freely with Moscow. During the early to mid-1960s a major change had taken place in the details of his plan, see Kreile, Osthandel und Ostpolitik, 72. This plan was never adopted by the Erhard government, and would clearly have been very difficult to turn into reality in any case. The scale of the aid—a ‘‘Marshall Plan for the East’’—would have been hard for the United States and Germany’s other allies to swallow; it would have awakened fears of a ‘‘new Rapallo.’’ Nonetheless, the existence of ideas like the Jaksch Plan gave some credence to the fears of Kremlin hard-liners that Khrushchev was contemplating a major economic/political ‘‘deal’’ with Bonn. 65. Wolfe, Soviet Power and Europe, 126. 66. Ibid., and Sodaro, Moscow, 68. This idea is confirmed by knowledgeable Russian sources. For example, in an interview with the author in Moscow in April 1994, Nikolai Portugalov (formerly deputy head of the CPSU International Department) stated his belief that seeking an accommodation with West Germany had helped cause the downfall of both Beria and Khrushchev. 67. See the appendix.

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attitudes of most Western countries toward trade with the USSR. In the late 1950s, about the time that Germany had concluded its initial trade agreement with the Soviet Union, other countries such as Britain and France also concluded trade agreements. At that time, the agreements were all similar; most important, they all provided at most extremely limited credits to the USSR. Under an informal agreement between Western export financing agencies represented in the Bern union, it had been agreed that no credits running longer than five years would be issued to the USSR.68 As long as this agreement held, German bargaining power was enhanced; even the limited trade deals it offered the USSR in 1958 and 1960 were attractive enough to the Soviets to be useful as economic leverage. Thus Bonn devoted much effort in the early 1960s to persuading other Western states to hold firm to the Bern agreements.69 Soon, though, other Western states began to offer Russia longer-term trade deals with generous credit packages. While Bonn had allowed its trade agreement with the USSR to lapse at the end of 1963, Britain renewed its 1959 agreement for the periods 1962–65 and 1966–69, France renewed its agreement for 1960–62 and 1963–65 and concluded a five-year pact for 1965–69, and Italy renewed its 1957 pact several times as well.70 Additionally, these pacts all contained steadily increasing credit offers to the Soviets. In 1964, Britain finally broke openly with the Bern consensus by issuing a $278 million, fifteen-year credit to the USSR. The same year France issued a ten-year, $322 million credit. In 1965 Italy offered the Soviets a $110 million, ten-year credit, and the following year extended an even larger, $367 million, fourteen-year credit.71 The generosity of other partners helped to shift the baseline of Soviet expectations so that mere normal trade ties no longer seemed a strong positive 68. The Bern group of export financing agencies had been created in 1934. Its 1958 agreement to limit credits to the USSR is a fine example of the real power of states to control the actions of private firms by indirect means. In many of the states represented in the Bern union, it continued to be legal to make private loans to the USSR, yet the Bern agreement effectively prevented these loans as well. Both public and private actors took it for granted that ‘‘it is improbable that private firms and organizations would give credit to a communist government without the express approval and support of their government.’’ See Dean, West German Trade with the East, 145, and Kreile, Osthandel und Ostpolitik, 77–78. 69. In November 1963, West Germany proposed that NATO enforce a common credit policy based on the Bern accords, and in 1964–65 Bonn attempted to use the EEC as an instrument for the same policy. In both cases, the attempts foundered on the opposition of states that favored a looser credit policy, such as Britain and France. See Dean, West German Trade with the East, 148. 70. Van Oudenaren, Detente in Europe, 259–60. 71. Ibid., 261.

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inducement. Because of the generous terms being offered by other West European states—and because Germany maintained a cautious attitude— Soviet trade shifted noticeably away from the Federal Republic after 1960, as seen in Table 3.1. In all, over the course of the entire period from 1961 to 1968 German trade with Russia grew by only 37.6 percent—with almost all this growth occurring in the last two years. However, British trade with the Soviets increased by 112.8 percent over the same period, French by 111.9 percent, Italian by 118.3 percent, and Japanese trade by fully 318.6 percent. West Germany, formerly the USSR’s leading Western partner, had dropped to fifth place by 1966, and remained in that position in 1968. During the final years of Chancellor Erhard’s administration, from 1964 to 1966, pressure for a ‘‘new Ostpolitik’’ gradually began to build in Germany. However, in the short run, German-Soviet relations—both in the political and economic sense—reached a new low. As we have seen, German trade with Russia was falling, and other Western nations were steadily gaining market share. Politically, too, bilateral German-Soviet ties seemed to only regress. The new Soviet collective leadership, led by Brezhnev, was staunchly opposed to the sort of daring initiatives in foreign affairs Khrushchev had pursued. Brezhnev and his colleagues were primarily interested in consolidating the USSR’s hold on its existing allies in Eastern Europe and secondarily in reaching over West Germany to build ties with apparently friendlier countries such as France. Bonn’s actions during the latter Erhard years did nothing to promote better ties with Moscow. The Ostpolitik of Erhard’s administration was dominated by the ‘‘Policy of Movement’’ (Politik der Bewegung), proTable 3.1 Soviet Trade with Western countries, 1961–1968 (in millions of rubles)

West Germany Great Britain France Italy Finland Japan United States Canada Australia

1960

1961

1962

1963

1964

1965

1966

1967

1968

286.2 270.5 183.3 173.7 264.1 123.9 76.1 13.7 31.6

268.3 319.5 179.9 203.6 251.0 161.6 67.5 45.3 26.6

304.9 296.6 214.6 207.0 355.9 232.9 40.0 4.7 27.1

252.1 310.4 157.0 245.5 385.5 260.4 47.4 160.4 53.6

290.0 307.6 157.6 209.5 349.6 322.1 164.3 296.5 123.3

248.5 398.8 202.4 224.7 408.3 326.1 89.2 240.0 92.1

292.3 449.0 261.4 225.5 426.7 416.6 99.0 324.8 35.2

319.1 450.5 299.6 348.3 461.9 466.8 91.7 147.0 18.6

393.9 575.7 388.4 396.5 458.9 518.6 89.5 131.2 36.9

Source: Stent, From Embargo to Ostpolitik, 139. Data from Vneshnyaya Torgovlya SSSR (Moscow: Izdatel’stvo Statistika, various years).

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moted by Foreign Minister Gerhard Schro¨der.72 Under this policy, Bonn advanced from Adenauer’s cautious stance to actively engage in dialogue with the entire East bloc. Yet in Moscow’s eyes, the policy was hardly a step forward. When Adenauer had dealt with the East, he had been careful to work mainly with the Soviets and not attempt to involve Germany directly with Moscow’s satellite states. The so-called Hallstein Doctrine reinforced this stance; under it, Bonn refused to consider diplomatic ties with any of the East European states as long as they recognized the GDR. Thus Moscow, with which Adenauer had established diplomatic ties in 1955, remained for some years Bonn’s only diplomatic window to the East. Schro¨der, in contrast, focused heavily on the satellite states, in a way that made Moscow fear that Germany was attempting to pry them away from Soviet control. A primary weapon employed by Schro¨der was the lure of economic agreements, and he was able to open trade missions in a number of East European capitals where Bonn had previously not been represented. Yet it seemed apparent that Bonn’s success in the satellite states would not help its ties with the USSR; in fact, Moscow became steadily more defensive. Since Bonn still insisted that it could not recognize the Oder-Neisse border with Poland or the existence of the GDR—even on a limited, de facto basis—Germany’s penetration of Eastern Europe seemed especially threatening. Schro¨der’s rhetoric did not help matters; he was quite open in stating that his policy of supporting economic aid to Eastern Europe was intended ‘‘to strengthen [the region’s] independence from Moscow or Peking.’’73 The similarity to the later U.S. policy of ‘‘differentiation’’ in the region is clear. This was not mere positive general linkage; aid was linked to the specific political objective of breaking Soviet control in Eastern Europe. In light of these circumstances—Germany’s declining economic relevance for the USSR and the aggravating factor of Bonn’s seemingly threatening Politik der Bewegung—it is not surprising that Bonn was unable to successfully employ economic linkage in its relations with the USSR at this time. Erhard’s administration did make some small positive economic gestures. First, in August 1964 it allowed private lenders to issue credits of up to five years to the USSR without advance approval from the Federal government, which had been required since 1955.74 However, the order was not 72. Not to be confused with the Social Democratic chancellor of the same name, elected in 1998. For details on this period, see Franz Eibl, Politik der Bewegung: Gerhard Schro¨der als Außenminister, 1961–1966 (Munich: R. Oldenbourg Verlag, 2001). 73. As quoted in the New York Times, May 30, 1964. 74. See Dean, West German Trade with the East, 146.

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seen by the USSR as a serious concession, since the German government still would not issue Hermes credits to back private loans, thus reducing private lending significantly. Also, other Western states were by this time issuing large, government-backed loans for even longer than five years, as was noted above. Finally, in March 1965, Bonn decided to allow some Hermes credits to be used on exports to the USSR, for terms of up to five years and in some cases eight years.75 Again, however, this announcement had little immediate effect, since these terms still lagged behind those being offered in trade deals between other West European states and the USSR. Also, the ‘‘generous’’ new German credit policy was discriminatory; each improvement was offered first to states being courted by Bonn in Eastern Europe, and only later to Moscow.76 Hence the aid seemed to be tied too closely to Germany’s political objectives of splitting the East bloc (positive specific linkage), which angered Moscow. In September 1965, Germany sent Karl Carstens, state secretary of the Foreign Ministry, to Moscow; he was the highest-ranking German diplomat to visit the Soviet capital since the Adenauer-Khrushchev summit ten years before. A major subject of Carstens’s visit was the possible renewal of the lapsed bilateral trade agreement. Carstens was able to offer Moscow a two-to-five-year trade accord, which would provide some long-term credits, a considerable improvement from earlier agreements.77 Yet the agreement seemed to Moscow to be linked to too many political preconditions, in particular the inclusion of a specific Berlin clause.78 In the end, Bonn was finally able to persuade Moscow to resume negotiations on a renewal of the trade treaty in October 1966. However, the talks were soon suspended because of the German governmental crisis that brought down the Erhard administration in the following month. 75. Kreile, Osthandel und Ostpolitik, 85. Kreile also provides an interesting detailed analysis of the prolonged debate among West German business and political leaders, beginning in the late 1950s, which led to this step. Kreile, 78–85. 76. The same pattern was followed in German policy on import quotas and restrictions on East bloc products. On May 6, 1966, Bonn announced that it was exempting some 60 percent of imports from selected East European countries from Kontingentierung (quotas). However, this applied only to states with which West Germany currently had valid trade treaties, thus conspicuously excluding the USSR. See the discussion in Kreile, Osthandel und Ostpolitik, 89–92. 77. Stent, ‘‘The USSR and Germany,’’ 143. See also Frankfurter Allgemeine Zeitung, September 22, 1965. 78. Bonn had insisted that the treaty explicitly include Berlin, a provision it had not been able to win even in those talks when German trade leverage seemed to be stronger. As noted above, in the 1958 and 1960 talks Bonn was able to achieve only de facto inclusion of West Berlin, and that only after difficult negotiations. By 1965, given Germany’s weaker economic leverage, even the de facto provision was difficult to achieve.

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Erhard was succeeded by a Grand Coalition government under the leadership of Chancellor Kurt Georg Kiesinger (CDU) and Vice-Chancellor and Foreign Minister Willy Brandt (SPD). The new prominence of Brandt and the SPD, which now was represented in the German government for the first time since the founding of the Federal Republic almost twenty years earlier, seemed to suggest a gradual transition to a ‘‘new Ostpolitik.’’ As will be noted in more detail below, Brandt in particular had long been associated with innovative ideas on German relations with the East. However, the CDU was still the primary partner in the coalition, and it was unwilling to allow major policy changes. Also, many in the SPD itself still hoped that Germany’s maximal political demands could be achieved if the government persisted in a relatively uncompromising stance toward Moscow. Until mid-1968—perhaps against his own inclinations—Foreign Minister Brandt seemed essentially to be pursuing an updated version of Schro¨der’s Policy of Movement. Hence this study treats the entire 1964–68 period as one case of positive specific linkage. Over the first two years of the Kiesinger government, this policy did seem to score some political successes, but only at the cost of further alienating the USSR. In January 1967, Bonn was able to establish diplomatic ties with Romania, and in December 1967 with Yugoslavia. Bonn’s willingness to establish full ties with these states, despite their continued recognition of the GDR, was presented as a positive concession to the East bloc. However, Moscow saw these actions— particularly the exchange of ambassadors with Romania—as dangerous steps forward in Germany’s policy of sowing dissension in the Soviet bloc. A commentary in the Soviet periodical Mezhdunarodnaya Zhizn’ expressed clearly what Moscow thought about the Grand Coalition’s Ostpolitik: ‘‘The new Ostpolitik is to play the role of a battering ram, which will smash a hole in the socialist community and open legal paths for an economic and ideological, and, later, political invasion of West German imperialism in the lands of Eastern Europe.’’79 In early 1968, developments in Czechoslovakia attracted the attention of both Bonn and Moscow.80 In January, Alexander Dubek became head of the Czechoslovak Communist Party. He soon launched an increasingly ambitious program of economic and political reforms, which featured a cau79. Cited in Kreile, Osthandel und Ostpolitik, 103. 80. For a well-written account of the Czechoslovak crisis and Moscow’s reaction to it, see Karen Dawisha, The Kremlin and the Prague Spring (Berkeley and Los Angeles: University of California Press, 1984).

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tious reorientation of his country’s trade and credit ties from the East to the West. West Germany, which had been able to sign a trade treaty with Czechoslovakia in April 1967 and open a trade mission in Prague, seemed to be a natural partner for the Czech reformers. In June 1968, various West German banks opened talks with Prague on a possible loan amounting to $500 million. The following month, as Soviet threats against Dubek’s regime were mounting, the head of the German Bundesbank, Karl Blessing, traveled to Prague to discuss the proposed loan package personally.81 This visit seemed deeply suspicious to hard-liners in Moscow; it was difficult for Bonn to dismiss as a purely commercial question. First, the size of the proposed loan was far larger than any other postwar German loan to a communist state. Second, German politicians had for years stressed the idea that no such loans should be considered unless the receiving state was willing to make major political concessions to Bonn. Third, the visit was being made by the head of the West German central bank, not a private businessman, which strengthened perceptions that some sort of linkage deal was in the works, even if these perceptions were exaggerated. Finally, during the night of August 20–21, 1968, troops from the USSR and other Warsaw Pact states occupied Czechoslovakia in a lightning operation and arrested the leaders of the Prague Spring. In the aftermath of the invasion, Moscow used the evidence of German ‘‘economic penetration’’ in the CSSR as a key justification for its decision to crush the Prague Spring.82 It should be stressed that it seems unlikely that Bonn was consciously trying to subvert communist rule in Czechoslovakia; in fact, Brandt and Kiesinger repeatedly cautioned German bankers and others to avoid giving the impression that they were moving into the CSSR too aggressively. Yet this is in a sense irrelevant; first, the developments in the CSSR were in part driven by a desire to connect with the West politically, culturally, and economically, even if West Germany did not actively encourage this. Was this not a logical consequence of the Policy of Movement? Also, the Soviet perception of Germany’s role was clear and negative; the fact that this perception may have been exaggerated did not prevent it from affecting German-Soviet relations. Once again, as it had 81. Dawisha, Kremlin and the Prague Spring, 237, and Kreile, Osthandel und Ostpolitik, 111. The reaction of hard-liners in Moscow and elsewhere in the Soviet bloc to this visit can be seen in the headline of an article on Blessing’s visit in the East German party newspaper Neues Deutschland: ‘‘Blessing Reconnoiters the Field for West German Monopolists.’’ Kreile, 111. 82. For an analysis of Soviet press accounts and statements that stressed this argument, see Gu¨nther Wagenlehner, ‘‘Die sowjetische Rechtfertigung der Intervention in der CSSR,’’ Osteuropa 18 (1968): esp. 759.

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done in 1961 by building the Berlin Wall, the Soviet Union had reacted to a perceived success of West Germany’s economic Magnettheorie by the firm application of military force.83 The Soviet invasion of Czechoslovakia marked the definitive end of the Policy of Movement strategy and helped to pave the way for Brandt’s election as chancellor in 1969 at the head of a government that was eager to usher in a new era in German relations with the USSR. This new era would feature a very different, and less direct, style of economic linkage. The failed German attempts to use specific positive linkage under Erhard and Kiesinger can be summarized as follows: Case 13 1964–68 Linkage type

German goal(s)

Results

Positive specific (minor incentives in trade and credit—for example, export credit guarantees allowed in 1965)

De jure inclusion of Berlin in German-Soviet agreements; progress on reunification; autonomy for Eastern Europe

Unsuccessful: other Western countries offer more generous deals with fewer political preconditions. USSR lets trade deal with West Germany lapse

In summing up the apparent failure of Bonn’s economic leverage attempts in this period, Angela Stent is probably correct in noting the ‘‘asymmetry between the economic and political stakes involved in bilateral GermanSoviet linkage.’’84 Put in plain terms, the difficulty was that, despite the use of positive linkage, Germany’s leverage was too weak to induce specific, immediate Soviet concessions on the major political goals Germany sought to achieve—namely, real progress toward East European autonomy and German reunification. As noted at the start of this study, even positive linkage can succeed only if several conditions are met. One of these is that the inducements offered must be large enough for the political concessions being sought. Throughout most of this period, German economic Ostpolitik had been marked by what were at the time unrealistic goals, as can be 83. The term Magnettheorie was used by SPD leader Kurt Schumacher after the Second World War to express his ideas for achieving German unification. In his view, West Germany’s wealth and stability would prove so attractive to the East German people that they would force their government to reform and allow Germany to reunite. Over time, West Germany’s magnetic attraction influenced the entire region. A similar point was made at the time in an analysis by Richard Lowenthal, who noted that the Soviet’s violent reaction to the German economic ‘‘temptation’’ faced by the CSSR in 1968 was analogous to Stalin’s decision to seal off Eastern Europe in 1948–49 to save it from the ‘‘temptation’’ of the U.S.-led Marshall Plan. Richard Lowenthal, ‘‘The Sparrow in the Cage,’’ Problems of Communism 16 (November–December 1968): esp. 3. 84. Stent, ‘‘The USSR and Germany,’’ 152.

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seen in this 1966 statement by CDU leader Rainer Barzel: ‘‘We recognize the great importance for the USSR of shipments from the SBZ [Soviet Occupation Zone, i.e., the GDR]. We also understand the value of our trade with the USSR. If it would lie in [the USSR’s] interests, we will give our word: both [trade streams] will be maintained for twenty years, with a yearly increase of five percent, if this will help to achieve German unity.’’85 Clearly, a new policy was now needed to move German-Soviet relations forward: ‘‘The impasse [in economic ties with the East] was resolved only when the rules of the game were changed, that is, when the political and economic stakes, the parameters of politicization, and the uses of linkage were altered by the Ostpolitik of the Brandt administration.’’86 The new policy pioneered under Brandt, which would play a large role in German Ostpolitik in the following decades, was what this study terms positive general economic linkage.

The New Ostpolitik: 1969–1974 While German-Soviet relations had reached an apparent impasse by 1968, several factors were at work in both countries that would soon lead to the beginning of an important new era in bilateral ties. In this period Ostpolitik would become a household word throughout the Western world, as the new chancellor, Willy Brandt, and his foreign minister, Walter Scheel of the FDP, succeeded in crafting an interlocking package of political and economic agreements that would shape German-Soviet relations for the next twenty years. As we shall see, a policy of positive general linkage played a large role in the success of the ‘‘new Ostpolitik.’’ In the Federal Republic, businessmen and politicians had grown increasingly restive over Germany’s stagnant economic ties and chilly political relations with Moscow. Business leaders saw other European states gaining market share and making contacts that would provide years of future trade. For example, the 1966 Italian credit mentioned above was part of a huge Soviet deal with FIAT, the Italian automobile manufacturer, for the con85. As cited in Kreile, Osthandel und Ostpolitik, 96. It is interesting to note that the point raised by Barzel—maintaining trade between the USSR and the former GDR after that country joins a united Germany—was indeed an important part of the negotiations that led to German unification in 1990. However, in the context of the time—given Germany’s relatively limited economic leverage on the USSR and the fact that the Soviet Union was being run by the conservative Brezhnev government—Barzel’s suggestion was clearly impractical. 86. Stent, ‘‘The USSR and Germany,’’ 153.

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struction of a factory complex in Russia. German industrialists were well aware that this deal would tie the infant Soviet auto industry to Italy for years to come, ensuring a rich flow of orders for new machinery and spare parts. Support built steadily for a new trade agreement with the USSR.87 Economic competition meant that it was increasingly difficult for Germany to maintain a tight-fisted trade posture when, in contrast to the 1950s, only the United States supported such a policy. Increasingly, the logic of a more positive, generous economic linkage strategy became apparent to politicians as well as business leaders. If Germany would support its exports by such measures as a generous credit policy, it would presumably be able to regain its export market in Russia, and thus regain political influence. As was noted in Chapter 1, many theorists have stressed that in order to successfully employ economic linkage, a state should first have sufficient economic links with the target country in question. Thus, for example, Hirschman’s study of Nazi trade policies in Eastern Europe in the 1930s showed clearly how Germany first built up trade links, using generous financial incentives, before engaging in any open economic/political linkage. Similarly, in the late 1960s many German leaders felt that the country first had to improve its trade and financial ties with the USSR—without explicit political preconditions—before Germany could hope to employ any sort of linkage strategy. Therefore the expansion of economic links would be a worthy political goal in its own right, even if it did not bring immediate political concessions from Moscow. Even some conservatives had begun to see the logic of pursuing a policy of positive general linkage. Seemingly, the positive specific linkage pursued in the 1960s had failed. Germany was trying to gain large political concessions—on such central issues as the division of Germany—with economic levers that were too weak to move the steadfastly ideological Soviet regime. 87. It must be stressed, however, that although some business leaders favored increased trade with Russia, at no time was the German economy as a whole dependent on the Russian market. This distinction is often neglected by analysts. The German economy was far more closely linked to the West, and the Soviet market was only a small, if useful, adjunct. Even in 1971, after large increases under Brandt, exports to the USSR made up only 1.1 percent of total German exports; exports to the entire Eastern bloc made up only some 3.8 percent. Meanwhile, trade with the West was much more economically important for the Eastern states, and for all of the East bloc countries West Germany was again the leading Western trading partner (see Dean, West German Trade with the East, 218–19). Thus it is clear that while it can be stated that both Germany and the USSR had some economic interest in increasing their bilateral trade, the Soviet interest was much greater. (This point is also made by Kreile, Osthandel und Ostpolitik, 117, and others.) Here again, for political purposes what matters most is not the fact that some interdependence exists but the fact that the interdependence is asymmetrical.

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As one conservative put it: ‘‘We are ready to make great economic sacrifices to win German unity, and in some other context the question of financial compensation might possibly enter into the solution of the German problem. But it is foolhardy to believe that the gentlemen in the Kremlin are ready to put a price tag on communism and the world revolution.’’88 The same author added that the Soviets ‘‘might agree to a deal on Germany if they were faced with a choice of large-scale Western help or total collapse.’’ Ironically, this is precisely what happened twenty years later. In 1969, however, it seemed clear that specific linkage should be shelved in favor of a more patient general linkage strategy, which would seek to use economic links to improve bilateral ties and open up the harsh Soviet system, eventually paving the way for political progress to be made. Willy Brandt—former mayor of Berlin, foreign minister under the Grand Coalition, and leader of the SPD—was well positioned to turn this underlying logic to his political advantage. Brandt had long been a respected voice on Eastern questions, having risen to national and international prominence as the mayor of Berlin during the difficult period of the building of the Berlin Wall. Brandt’s new Ostpolitik was based on his realization at that time that ultimately, Soviet control of its satellite states in Eastern Europe— including the GDR—could not be challenged directly. Instead, a more cautious, gradual strategy would have to be adopted. This strategy was best characterized by the phrase coined by Brandt’s long-time aide, Egon Bahr, in a speech at the Evangelische Akademie Tutzing (Tutzing Protestant Seminary) in 1963: Wandel durch Anna¨herung (change through rapprochement).89 Essentially, the concept was that Bonn should provisionally accept what the Soviet Union called the postwar realities in Central Europe, but only in order to eventually overcome them. The hope was that de facto acceptance of the existence of the GDR and the Oder-Neisse border with Poland would begin to improve Bonn’s relations with the East. Concurrently, economic incentives and increased trade would further improve ties. Eventually, Moscow would feel secure enough to allow reunification to gradually proceed. As one can readily see, the strategy of Wandel durch Anna¨herung fits well with the policy described in this study’s theoretical framework as positive general economic linkage. As the pivotal national election of October 1969 approached, Brandt 88. See Ernst Majonica, East-West Relations: A German View (New York: Praeger, 1969), 89–94. 89. For a good discussion of the meaning of Bahr’s speech and of the evolution of the ideas behind Brandt’s Ostpolitik in general, see Ash, Im Namen Europas, 94–104.

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could increasingly count on the support of the small Free Democratic Party (FDP). The pro-business, liberal FDP had long supported the conservative CDU in a series of coalition governments. Yet as business leaders increasingly soured on the CDU’s inflexible economic Ostpolitik, particularly in the aftermath of the disastrous pipe embargo and grain embargo at the end of the Adenauer era, the FDP gradually swung its support behind Brandt’s vision of a dramatically different Eastern policy. The issue became a key factor in bringing together the SPD and FDP in a new coalition that finally ended twenty years of Christian Democratic rule in Bonn. Meanwhile, within the Soviet leadership the idea of a new rapprochement with Bonn was also gaining supporters. The USSR’s growing economic problems continued to provide a key motivation for such a policy change.90 Although the Soviet Union had been able to diversify its links with the West and win some credit concessions during the 1960s, a great expansion of these ties seemed to be needed as the decade reached its end. For years, more perceptive Soviet leaders had recognized that their country was lagging ever further behind the West in such areas as the emerging high-technology fields. It was not successfully making the transition from ‘‘extensive’’ to ‘‘intensive’’ growth. By the 1960s overall economic growth was slowing as well. Khrushchev had attempted to address the country’s mounting economic problems by a dramatic series of seemingly aimless changes in economic policy. The Brezhnev team tried to take a more systematic and cautious approach. A leader in the effort to institute economic reforms after 1964 was the new Soviet premier, Aleksei Kosygin. In September 1965, he was able to win approval of the so-called Liberman reforms. These reforms called for increases in the use of bonuses to induce more worker productivity. They also allowed an increased role for individual enterprises in formulating the state economic plan, a measure which aimed to increase flexibility and innovation.91 However, the conservative climate of the mid-1960s limited the reforms that could be permitted, and those which were proved to be ineffective. Production and innovation continued to stagnate. If the Soviet economy could not produce what was needed domestically, there was no alternative but to turn to outside suppliers, as Russia had done 90. A good overall discussion of Soviet economic problems in the 1960s and their relevance for the USSR’s relations with Germany can be found in Kreile, Osthandel und Ostpolitik, chap. 6. 91. For a discussion of these reforms, see Pohl, Gescha¨ft und Politik, 144, and Kreile, Osthandel und Ostpolitik, 190.

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so often in the past. It was time once again for another round of economic ‘‘westernization,’’ as was seen under Peter the Great, after the Crimean War, in the 1920s—and again under Gorbachev and Yeltsin. Over the next several years, Kosygin and some of his colleagues became increasingly eager to improve the USSR’s economic ties with the Western world.92 After the invasion of Czechoslovakia had stabilized Moscow’s control of the Eastern bloc, Brezhnev seemed increasingly to support Kosygin’s views on the importance of renewed economic ties to the Western world. On December 15, 1969, for example, he gave a scathing speech at a closed meeting of the Central Committee of the CPSU in which he lambasted the country’s inefficient economic performance and advocated the greater use of trade and technology links with the West.93 New economic links with the West would inevitably require a rapprochement with West Germany, since, as Timothy Garton Ash correctly notes, ‘‘While in arms control Moscow’s most important partner was naturally the U.S.A., with trade and technology it was probably the Bundesrepublik.’’94 Indeed, in the last years of the Grand Coalition, economic ties between the USSR and the Federal Republic had already begun to improve. Soviet purchases of West German products had risen from a low of DM 541.3 million in 1966 to 792.1 million in 1967, 1.1 billion in 1968, and 1.6 billion in 1969.95 German exports had thus almost tripled during the period of the Grand Coalition. While West German economic concessions had facilitated this rise, the legal setting of the trade was fairly unfriendly: there was still no bilateral trade treaty, and West German credits were only beginning to be available on a large scale at the very end of the period. The German success in greatly increasing trade with Russia despite these difficulties seems to be a sign that the Soviet Union’s need for links with Germany was quite strong, with the Soviets now especially eager to purchase German goods after the previous years of trade restraint.96 Another sign of the 92. For example, future German chancellor Helmut Schmidt noted as early as 1966 that in his meetings with Vladimir Zemyanov, then a deputy prime minister, ‘‘He repeatedly brought the conversation back to his country’s economic development and the idea of economic collaboration with the West.’’ Schmidt credits Kosygin and other more economically minded Soviet leaders as providing a crucial impetus for Russia’s move to a de´tente policy. Helmut Schmidt, Men and Powers (New York: Random House, 1989), 7, 26. 93. Sodaro, Moscow, 163, also 147–48. 94. Ash, Im Namen Europas, 89. 95. See the appendix. 96. As Dean put it, ‘‘The fact that the Federal Republic’s exports to the Soviet Union competed successfully with other West European exports which could be offered on more favorable terms [due to other countries’ more generous credit policies] demonstrated their continued importance in Soviet industrial planning.’’ Dean, West German Trade with the East, 154.

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USSR’s need was that the Soviets, normally extremely cautious about running trade deficits with a Western state, were willing to increase imports from Germany so rapidly that a large deficit was created. In 1969, the USSR ran a trade deficit of almost DM 300 million with West Germany, its largest deficit with that country since the creation of the Federal Republic.97 While economic factors certainly played a role in the Soviet Union’s decision to begin a period of de´tente in relations with West Germany, a simple monocausal explanation is of course inadequate. The change in Soviet thinking was also influenced by events outside the German-Soviet relationship. The relationship between the USSR and the world’s other superpower, the United States, was also improving. The United States was willing to support de´tente for its own reasons, notably a desire to end the draining war in Vietnam. Meanwhile the Soviets faced a new threat from China; in fact, border clashes between Soviet and Chinese troops occurred along the Ussuri river in March 1969. The Chinese threat helped to push Moscow toward more peaceful relations with the states that bordered the Soviet bloc to the west, including the Federal Republic.98 Because of the constraints of the international system, German-Soviet relations could not develop in complete autonomy. The leaders of the Federal Republic would be reminded of that fact when superpower relations soured in the late 1970s, harming German-Soviet relations in the process. By 1969, then, a range of factors seemed to be coming together to create the environment for a new Ostpolitik. These included the evident failure of the Policy of Movement, as shown by the Soviet invasion of Czechoslovakia; the desire of the business community and the FDP to increase trade and other ties with the East; the growing political acceptance of Brandt’s strategy of Wandel durch Anna¨herung; and the Soviet Union’s own impetus to improve ties with Germany. Developments in German-Soviet relations soon reflected these underlying tendencies. First, the USSR began to make conciliatory gestures in Bonn’s direction during the final months of the Grand Coalition government. In late 1968, Brandt had been able to meet with Soviet Foreign Minister Andrei Gromyko at the fall session of the UN in New York, and the meeting was re97. See the appendix. As we shall see, however, this deficit was soon dwarfed by even larger deficits during the years of Brandt’s chancellorship. 98. Chancellor Adenauer had been one of the first Western leaders to recognize the political importance of the Sino-Soviet split. In the early 1960s he predicted that the split would help to force Moscow to improve its ties with Germany, and even hoped that it could prove to be the key to restoring German unity. See, for example, the list of sources on the relevance of China to the German question in Hanreider, West German Foreign Policy, 432–33.

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peated one year later in the same location.99 These meetings were the first between the two states’ foreign ministers since 1962. On March 17, 1969, the Political Consultative Committee of the Warsaw Pact, meeting in Budapest, issued a declaration calling for talks with West Germany as part of a general policy of de´tente with the West. This statement emphasized in particular the importance of improved economic links with the West.100 Some exploratory German-Soviet talks were begun, but they were soon suspended with the approach of the West German elections in the fall of 1969. Then, on October 3, 1969, Brandt and his FDP allies won the general election in West Germany and were able to form an unprecedented SocialLiberal coalition. The election of the new government greatly accelerated the process of German-Soviet rapprochement. In his inaugural speech to the Bundestag on October 28, Brandt made several statements that seemed to alter long-held West German positions on relations with the East bloc. Most notably, he referred to the existence of ‘‘two German states in one German nation,’’ the first admission by a West German leader that the GDR could be considered in some respects a sovereign state.101 From the outset, then, Brandt was beginning to put his policy of Wandel durch Anna¨herung into effect. Serious political negotiations between the Federal Republic and Moscow began almost immediately. Formally, the talks were based on Bonn’s offer to negotiate a nonaggression treaty with the USSR, which had been on the table since March 1966. However, in reality the talks were an attempt to establish a comprehensive political modus vivendi between the two sides. It soon became clear that a huge package of interlocking treaties would be needed to fully address the issues involved: political agreements with the USSR, the GDR, Poland, and the CSSR; economic agreements with all those states; and also an agreement over the status of Berlin, which would have to involve all of the Four Powers, holders of sovereign control over the city. First, though, a comprehensive treaty would have to be negotiated with Moscow, which held the key to this series of agreements. At first, Ambassador Helmut Allardt, the West German envoy to the USSR, was the main German negotiator in these talks. In January 1970, however, Brandt dispatched his trusted personal assistant, Egon Bahr, to manage the negotiations. 99. For Brandt’s description of these two inconclusive meetings, see Willy Brandt, People and Politics: The Years 1960–1975 (Boston: Little, Brown, 1978), 190–94 and 194–97. 100. See Boris Meissner, ‘‘Westdeutsche Ostpolitik: Die deutsch-sowjetischen Beziehungen,’’ in Hans-Peter Schwarz, ed., Handbuch zur deutschen Außenpolitik (Munich: Piper, 1975), 289. 101. Sodaro, Moscow, 152.

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The new Brandt regime frequently claimed that it would ‘‘depoliticize’’ economic links to the East, but in fact this meant only that it would not link economic ties to specific, immediate Soviet concessions; instead it pursued a policy of general positive linkage. Bonn was still well aware that economics was an important component of its political Ostpolitik; as Brandt wrote, ‘‘The interest of the East European states in cooperation with us rests to a large extent on a desire to make economic progress and to participate in western technology. Economics, therefore, remains for the foreseeable future an especially important element of our policy in Eastern Europe.’’102 Similarly, in a confidential study written shortly before the SPD came to power, Egon Bahr confirmed that the Ausnu¨tzung (exploitation) of the East’s need for Western economic contacts would be a crucial aspect of the new government’s Ostpolitik.103 In a later article Bahr is cited as believing that the top two Soviet motivations in seeking closer ties with Bonn were ‘‘the attempt to overcome their economic difficulties with the economic, technological and financial help of the Federal Republic’’ and ‘‘the wish to achieve better contact with the EC with the help of the Germans.’’104 Linkage, then, would continue under Brandt; it would merely be a new form of linkage. The first major expression of the new type of economic linkage was not long in coming. While progress was being made in political talks between German and Soviet negotiators in early 1970, a massive economic deal was consummated which helped to show that the German government was consciously employing a strategy of positive general linkage to indirectly support the political talks. Since the pipe embargo of 1962, Moscow had been effectively cut off from West German supplies of this commodity.105 Yet the Soviet Union’s need to develop its oil and gas reserves was becoming ever more urgent, both because of Russia’s need to earn hard currency by selling these prod102. Willy Brandt, A Peace Policy for Europe (New York: Holt, Rinehart and Winston, 1969), 110–11. ¨ berlegungen zur Außenpolitik einer 103. Ash, Im Namen Europas, 104, citing Bahr’s study ‘‘U kunftigen Bundesregierung’’ (‘‘Considerations on the Foreign Policy of a Future Federal Government’’), written on September 28, 1969. 104. Der Spiegel, August 17, 1970, 21. This second reason is especially interesting, since it is an early sign of the USSR’s underlying interest in closer ties to the EC. The ability to help a target state to build better ties to multilateral institutions is another key instrument of linkage which was discussed in Chapter 1. This interest in ties with the EC (later EU) was to play a far more important role in German talks with the Soviet Union in 1989–91 and with Russia after 1991. 105. Good discussions of the important ‘‘pipeline deals’’ of 1968–70 can be found in Kreile, Osthandel und Ostpolitik, 124–31, and Pohl, Gescha¨ft und Politik, 149–54.

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ucts to the West and because of the country’s domestic needs. In November 1966, Bonn had finally dropped the pipe embargo; soon thereafter, the USSR restored its links to German suppliers. In June 1968 a first major deal for the purchase of German pipe was made, involving the shipment of 520,000 tons of pipe through an Austrian firm.106 Importantly, this deal was partly financed with the help of German-government-backed Hermes export credit guarantees. On April 28, 1969, Economics Minister Karl Schiller and Soviet Foreign Trade Minister Nikolai Patolitshev signed a deal at the Hannover trade fair for the construction of pipe factories by Thyssen AG in Germany and the USSR to supply the Soviet market. Here again, the mingling of trade and politics is obvious; political leaders were giving their approval to an economic deal. Indeed, Patolitshev’s visit to the Federal Republic was the first by any Soviet cabinet minister since 1958, and thus had great political importance in its own right.107 In general, though, the USSR was not satisfied to merely purchase German pipe or even German pipe factories. It was eager to make such imports self-financing by exchanging oil and gas deliveries for the pipe shipments. However, such a project would be far more complex than previous contracts and would require generous German credits to cover the long period between the delivery of the pipe and the completion of a pipeline. The political support of the German government was clearly needed for such an economic breakthrough. Throughout the latter half of 1969, Soviet and German negotiators worked to create a massive pipeline deal that would involve German banks, steel exporters, and gas companies. However, it was not until Brandt came to power that the German government put its weight behind the pipeline proposal with sufficient force to finalize the project. Brandt reportedly intervened personally to help ensure that the financing was arranged and that the German gas distributing companies dropped their opposition to the deal.108 The final deal, signed 106. Apparently, although Moscow needed the pipe, it also wanted to demonstrate that it was still angry over the 1962–66 embargo and the fact that German firms had broken their delivery agreements at that time. Thus it chose to deal with the firms only indirectly at first. 107. See Stent, ‘‘The USSR and Germany,’’ 166–68. 108. Kreile, Osthandel und Ostpolitik, 130. The German gas companies were not enthusiastic about the deal, since they held a monopoly at the time and were selling gas imported through Holland for a very high price, which would be undercut by the cheaper Russian gas. German bankers, meanwhile, were not pleased that the USSR demanded below-market interest rates on its credits. In the end, the banks gave an interest subsidy, but were reimbursed by the German steel exporters, who simply increased the price they charged the USSR for the pipe exports. However, Germany would later regret its willingness to offer below-market rates on credits, since the USSR came to expect such subsidized rates on all of its credits from the Federal Republic.

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by Economics Minister Schiller and his Soviet counterpart Patolitshev on February 1, 1970, had the following provisions.109 The USSR would receive 1.2 million tons of pipe from the German firm of Mannesmann, which would be paid off by Soviet shipments of 52 billion cubic meters of gas, beginning on October 1, 1973, and continuing for twenty years. The deal was financed by a DM 1.2 billion credit, provided by a consortium led by the Deutsche Bank at the interest rate of 6.25 percent, which would run for ten to twelve years. This loan was the largest ever granted to the USSR by Germany, either before or after the Second World War. Half of this credit was backed by a Hermes export credit guarantee, which was by far larger than any given previously to the USSR. In all, the pipeline deal was notable for two important reasons. First, the involvement of Hermes and Brandt’s personal role clearly showed that Bonn was eager to extend economic links with Moscow. This was a first in postwar German-Soviet relations; always before the German government had tried to restrain and channel the attempts of German businessmen to trade with the East. Second, the unprecedented size and duration of the deal were important signs that Bonn was looking to establish close, long-term economic links with Moscow (positive general linkage), rather than using each economic deal to exert immediate pressure of the Soviets for short-term political gain (positive specific linkage). Egon Bahr later confirmed that this deal did appear to have some direct effect on his ongoing political talks in Moscow. He reported that the negotiating session with Gromyko on February 13—only days after the signing of the pipeline deal—was unusually productive and helped to resolve several thorny political issues.110 In keeping with the notion of general positive linkage, Bonn apparently did not attempt to link the pipeline deal to any specific Soviet political concession. Nonetheless, it seemed to have some effect. The importance of economic factors as part of a ‘‘package deal’’ which included such crucial political agreements as the Treaty of Moscow is con109. See the description in the Frankfurter Allgemeine Zeitung, February 2, 1970. It is interesting to note that the companies involved in the pipeline deal embodied Germany’s long tradition of trade with Russia. Mannesmann had sold gas and oil pipe to Russia since 1890, and had been made ‘‘official supplier of oil pipelines to the Russian Czar’’ in 1912; the Deutsche Bank, as was noted above, led all of the major German credit consortia for trade with the USSR in the interwar period, and had taken over the Disconto-Gesellschaft and the Mendelssohn banking house, which had dominated the finances of Imperial Russia for most of the nineteenth century. See Pohl, Gescha¨ft und Politik, 151. 110. Kreile, Osthandel und Ostpolitik, 131, notes this apparent connection between the political and economic talks and cites several authors who support this view.

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firmed by the experience of Chancellor Brandt during his visit to the Soviet capital to sign the treaty in August 1970. Brandt held several rounds of talks with Soviet Premier Kosygin, at the time the leading figure in the Soviet government.111 Kosygin seemed especially anxious about improving economic links with Germany, and indeed began to discuss this with Brandt as soon as the chancellor entered Kosygin’s limousine for the ride from the Moscow airport into the city. In each of Brandt’s several meetings with Kosygin and in his meeting with Brezhnev, economics played a major role.112 The role of economics as an unwritten part of the Moscow Treaty deal is confirmed by many other contemporary sources. For example, news reports of the Moscow summit noted that ‘‘Bonn officials left the impression that they believed the primary Soviet motivation in signing the treaty was to create the atmosphere for long-term economic and technological cooperation.’’113 At the close of the negotiations, Brandt promised to send his ministers of economics and science (Karl Schiller and Hans Leussink) to Moscow immediately to follow up on the establishment of close cooperation in those areas. The Moscow Treaty itself focuses primarily on political issues, although it does refer to the importance of ‘‘economic relations, as well as scientific, technical and cultural contacts’’ in supporting political ties.114 Most observers saw the treaty as a major political victory for the USSR, since it confirmed Bonn’s de facto acceptance of the ‘‘postwar realities’’ in Central Europe. It specifically confirmed, for example, that West Germany regarded the Oder-Neisse border as the frontier of Poland and would not violate the inner-German border. However, the treaty also safeguarded some elements of Bonn’s basic political position. Most notably, the Germans were able to persuade the Soviet side to accept a ‘‘Letter on German Unity,’’ which stated that ‘‘this treaty does not conflict with the political objective of the Federal Republic of Germany to work for a state of peace in Europe in which the German nation will 111. Brezhnev was at least equal to Kosygin in terms of overall power in the USSR, but his role was as general secretary of the CPSU, and he held no government office at the time. Thus he did not sign the Moscow Treaty and was only indirectly involved in negotiating it. Later, of course, Brezhnev was to assume the role of both state and party leadership. 112. See Brandt, People and Politics, 323, 326, 330, 336. 113. Bernard Gwertzman, ‘‘Kosygin Presses Brandt on Close Economic Ties,’’ New York Times, August 14, 1970, 2. 114. As quoted in Stent, ‘‘The USSR and Germany,’’ 169. The full text of the treaty can be found in Vertra¨ge: Dokumentation zur Ostpolitik der Bundesregierung (Bonn: Presse- und Informationsamt der Bundesregierung, 1986), 14.

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recover its unity in free self-determination.’’115 In all, the Federal Republic’s recognition of the ‘‘postwar realities’’ was far more tentative and partial than Moscow cared to admit at the time. Germany refused to give formal recognition (Anerkennung) to the existing German borders. It also succeeded in describing the borders as ‘‘inviolable’’ rather than ‘‘unchangeable.’’ This would permit borders to be altered as long as this was not done by force, meaning that peaceful German reunification was still possible. The Soviets were well aware that this wording was not especially strong; Foreign Minister Gromyko reportedly grumbled to Valentin Falin, one of the Soviet negotiators, ‘‘you can repeat ‘inviolable’ ten times, but it doesn’t add up to ‘recognition’ [of the borders].’’116 Also, it must be remembered that, because of the USSR’s control of Eastern Europe, the provisions of the Moscow Treaty served as a model for German agreements with other regional states. Thus Germany was able to win the same concessions in those bilateral treaties. Twenty years later, Brandt’s achievement in persuading the Eastern nations that reunification should remain an open option would loom very large. Additionally, by linking together a complex series of treaties, Bonn was able to win concessions on some issues by making concessions in other areas. The Moscow Treaty and the treaty with Poland (the Treaty of Warsaw) were both widely regarded as unfavorable to the Federal Republic, despite the Eastern concessions mentioned above, since they involved Germany’s de facto renunciation of its former Eastern territories. However, by agreeing to these treaties Brandt was able to complete other treaties that were more clearly favorable to the West. In particular, Brandt won the East’s consent to negotiate a treaty with the GDR which helped to increase human contacts between the two Germanies (the Basic Treaty of 1972). This was crucial in meeting Brandt’s goal of preserving a sense of common German nationality. Also, the Basic Treaty did not force the Federal Republic to extend outright diplomatic recognition to East Berlin. The East German leadership was very suspicious of both aspects of Bonn’s proposed treaty and refused to sign it until Moscow intervened and quietly pushed Walter Ulbricht, the East German leader, out of power. Also, Moscow de115. The full text of the ‘‘Letter on German Unity’’ can be found in ibid., 15. Valentin Falin (who served as the Soviet ambassador in Bonn from 1971 to 1978) later confirmed that he had played a large role in drafting the letter, trying to craft wording that would be acceptable to both sides. See the interesting ‘‘insider’’ account of the negotiation of the Moscow Treaty in Valentin Falin, Politische Erinnerungen (Munich: Droemer Knauer, 1993), esp. 71–124. 116. Falin, Politische Erinnerungen, 94.

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livered another key success to Brandt by consenting to the Four Power Agreement on Berlin, signed in September 1971, which guaranteed unimpeded access to West Berlin, thus preventing the Soviets from again using it as a pressure point in relations with the West. As a former mayor of Berlin, Brandt was particularly pleased by this success in safeguarding the future of the city. These West German successes must be considered in assessing the benefits to Germany of the entire Ostpolitik package, particularly since Brandt explicitly linked the Berlin agreement to the Moscow and Warsaw Treaties during the ratification process. Along with such largely political agreements as the Moscow and Warsaw treaties and the treaty with the GDR, Bonn also concluded a series of economic agreements with the Eastern states. Here again, as in the political agreements, it was generally believed that the Soviets got the better of these deals. However, in line with the policy of positive general linkage, West Germany was not bothered by the apparent one-sidedness of the agreements. In fact, it quite deliberately ensured that the Soviet side would benefit economically, reasoning (in keeping with this study’s theory of positive linkage) that this would increase Soviet dependence and result in political benefits at an unspecified future date. As has been noted above, Brandt dispatched his economics and science ministers to Moscow in September 1970, immediately after the signing of the Moscow Treaty, to begin talks on a treaty of economic and technical cooperation.117 The presence of the science minister is an interesting sign that both sides intended to move beyond the usual German-Soviet trade treaties and negotiate an agreement that would involve deeper economic cooperation. Moscow was clearly interested in pioneering new contacts in such areas as technical assistance agreements, exchange of know-how between German and Soviet enterprises, and German investment in Soviet economic projects. Cooperation in all these areas had been virtually nonexistent since before the Second World War. In the end, after long and difficult negotiations, which included a personal meeting between Brandt and Brezhnev in the Crimea in September 1971,118 the Long-Term Agreement on Trade and Economic Cooperation was finally initialed on April 7, 1972. It was to be valid until the end of 1974. This was the first such German-Soviet accord since the expiration of the 117. See the Neue Zu¨richer Zeitung, September 29, 1970, for an account of this visit. 118. The main subject of this meeting was the expected difficult fight in the German Bundestag for the ratification of the Moscow and Warsaw treaties, but the economic agreement was also an important subject. See Brandt, People and Politics, 349–50.

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1960 trade treaty at the end of 1963. The agreement provided a number of German economic concessions to the USSR. The very existence of a valid trade treaty entitled Moscow to much more generous German customs rules on Soviet exports. During the late 1960s, Bonn had removed quota restrictions on many categories of East European goods, but had applied the more liberal policy only to imports from countries that had trade treaties with the Federal Republic, thus deliberately excluding Moscow. Now the Soviets could enjoy these benefits, which were soon increased by a further round of German quota liberalization. Eighty-four percent of Soviet exports to Germany were now freed from quantitative restrictions.119 Additionally, the treaty called for the creation for the first time of a Soviet-German Mixed Commission to supervise economic relations between the two states, fulfilling another long-standing Soviet demand.120 Finally, the agreement further liberalized Germany’s credit policy, ensuring that Hermes export credits would now be granted routinely for shipments to the USSR.121 The treaty was finally signed on July 5, 1972, after the German Bundestag had ratified the Moscow and Warsaw treaties.122 In return for Germany’s willingness to conclude a relatively generous economic pact, Moscow made a concession that it had resisted for years: it agreed to explicitly include West Berlin in the agreement. This Soviet concession was a result not just of the general improvement in German-Soviet relations or of the signing of the Four Power Berlin accord, but also of Bonn’s steadfast insistence that it would not sign a trade agreement without 119. According to Dean, West German Trade with the East, 222. The percentage of Soviet exports freed from quota restrictions is difficult to measure; Kreile, for example, uses slightly different figures, noting that by May 1973, 93 percent of the possible SITC positions had been freed from quotas, which represented 82 percent of Soviet exports to Germany in value terms. Kreile, Osthandel und Ostpolitik, 150. 120. The composition of the mixed commission is an interesting indication of the relatively close links between government and business in West Germany, which make ‘‘politicization’’ of private business decisions seem relatively easy there. The Soviet-German Mixed Commission was staffed by German government officials and businessmen, with business leaders even directing some of the commission’s specialized subcommittees. The corresponding U.S.-Soviet Mixed Commission, in contrast, was staffed on the U.S. side only by government officials. Kreile, Osthandel und Ostpolitik, 156. 121. See the discussion of the treaty in Stent, ‘‘The USSR and Germany,’’ 186–90. 122. As has been noted, the treaties which comprised the Ostpolitik package were linked together in a number of complex ways. Brandt insisted that the Moscow and Warsaw treaties would not be ratified until after the Four-Power Berlin agreement was signed. Thus ratification of the Moscow treaty—signed in August 1970—could not even begin until after September 1971, when the Berlin agreement was reached. However, the Soviets then countered with their own linkage: the Berlin agreement would not be ratified by the USSR, and the German-Soviet economic agreement would not be officially signed, until after the Moscow and Warsaw treaties were ratified by the Bundestag.

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this clause. Thus this can be seen as an element of specific positive linkage in an agreement that was otherwise intended as an exercise in general linkage.123 The role of economics in pushing the USSR to make this concession was absolutely clear. In most succeeding noneconomic agreements with the Federal Republic—such as the cultural accord negotiated in 1973—Moscow again refused to include an explicit Berlin clause. However, as we shall see, it continued to be willing to include such a clause in trade and economic agreements. The political importance of this concession was great, as it touched on a central issue of the Cold War, undercutting Moscow’s campaign (which continued until the fall of the Berlin Wall) to have West Berlin designated a ‘‘free city’’ outside the Federal Republic’s control. Since this example of positive specific linkage is so clear, it has been included here as a separate linkage case, which can be summarized as follows: Case 14 1972 Linkage type

German goal(s)

Results

Positive specific (1972 economic treaty)

De jure inclusion of Berlin in area of applicability of treaty

Successful: USSR agrees to explicitly mention West Berlin in a treaty with West Germany for the first time. (This clause also appears in the 1973 technical cooperation treaty.)

This case reminds us that Brandt was not above using specific linkage when the opportunity presented itself, despite his overall emphasis on general linkage. Indeed, as the initial theory chapter of this study would suggest, the improved atmosphere and increased trust generated by the positive general approach likely helped to make such specific linkage more successful. In the wake of Brandt’s successful negotiation of the complex web of political and economic treaties that made up his Ostpolitik strategy, Germany came to occupy a leading role in the Eastern bloc’s economic links with the West. This can be seen in the great rise in Soviet-German trade in the two years following 1972, when the Moscow Treaty was ratified and the bilateral economic agreement was signed. During this period, German exports to the USSR shot up from DM 2.3 billion to 4.8 billion, and Soviet 123. Surprisingly, Stent believes the 1972 treaty marks ‘‘the end of linkage.’’ Stent, ‘‘The USSR and Germany,’’ 186.

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exports to Germany rose from DM 1.4 billion to 3.3 billion.124 Soviet trade deficits to the Federal Republic also exploded during this period, rising from DM 330 million in 1971 (in itself a postwar record) to DM 1.5 billion for 1974. Another good indicator of West Germany’s economic role vis-a`-vis the USSR at this time is its dominant share of total Western exports to the Soviet Union and the rest of the East bloc in the area of machinery and manufactured goods (SITC 5–8) in 1974 (see Table 3.2). In trade with the Soviet Union the Federal Republic was twice as important as its nearest Western competitor, and in trade with the bloc as a whole four times as important. Bonn’s particular dominance in trade with the smaller East European states—especially the GDR—tends to show that Moscow’s fears in the late 1960s that the Federal Republic could use economics to undermine the USSR’s control of its satellite states were not wholly unfounded. Furthermore, in keeping with the pattern of asymmetrical interdependence we have seen throughout this study, these ties were far more important for Moscow than they were for West Germany. German exports to the rest of the world were so great that even the machine-building sector, the branch most deTable 3.2 Western Exports of Machinery and Manufactured Goods to the Eastern Bloc, 1974 (figures are percentages or millions of U.S. dollars as indicated) FRG USSR

% $ Poland % $ Romania % $ CSSR % $ Hungary % $ GDR % $ Bulgaria % $ TOTAL % $

Japan

Italy

France

32.5 19.0 10.8 9.8 1805.6 1052.4 599.0 546.1 36.4 5.5 8.6 9.5 1305.4 198.2 307.8 338.6 40.0 9.8 10.6 10.6 640.0 157.6 168.4 169.0 43.9 3.0 7.8 6.6 570.7 38.5 100.7 86.0 37.2 1.5 13.2 7.0 530.2 21.7 187.0 100.2 62.1 2.3 3.7 4.2 1130.6 41.4 66.7 76.0 40.5 10.3 13.1 7.1 284.0 72.0 92.1 49.8 39.2 9.9 9.5 8.5 6266.5 1582.2 1521.7 1365.7

United United Kingdom Bel./Lux. States 4.1 230.1 7.9 282.2 4.1 65.6 7.2 93.1 6.0 85.0 4.5 81.4 5.3 37.2 5.5 874.6

6.3 347.5 5.2 187.7 3.2 51.3 3.3 42.4 2.2 31.2 2.8 50.4 4.2 29.2 4.6 739.7

5.3 294.4 3.7 131.2 6.8 109.2 1.4 17.6 1.3 18.2 0.0 2.8 0.9 6.1 3.6 579.5

Sources: Kreile, Osthandel und Ostpolitik, 147; U.S. Department of Commerce, The U.S. Role in East-West Trade (Washington, D.C.: U.S. Government Printing Office, 1975), table 3.

124. See the appendix for this and the following figures.

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pendent on trade with the USSR, sent only about 3.7 percent of its exports to the Soviet Union. The USSR was only the ninth-most important purchaser of German machinery.125 Conversely, the USSR depended on Western—primarily German—imports as a key resource for its economic modernization.126 In general, it seems clear that economic ties were an important factor in stabilizing German-Soviet political relations in the early 1970s. Indeed, after the ratification of the controversial Moscow Treaty in 1972, economic questions were the main issues addressed by the two countries’ leaders in their bilateral negotiations. In May 1973, Soviet leader Leonid Brezhnev visited Bonn. This was the first visit by any Soviet leader to West Germany, and thus was regarded as a truly historic occasion. However, with the difficult formative years of the Ostpolitik now behind them, Brezhnev and Brandt found that there were few major political questions on their bilateral agenda. Instead, the Soviets were by now focusing on the upcoming talks of the Conference on Security and Cooperation in Europe (CSCE), which would culminate in the 1975 CSCE Final Act, also known as the Helsinki Accords,127 negotiations over conventional forces in Europe, and nuclear arms control. All these issues involved Germany, but only as one of many players. Accordingly, the Brandt/Brezhnev talks focused mainly on economic matters. Brezhnev emphasized that he favored a long-term plan of close economic cooperation between the two sides which would move far beyond trade ties. In fact, he reportedly stated that he favored ‘‘thirty-, forty-, or fifty-year agreements’’128 in economic and technical cooperation. Such a long-term approach was favored by both sides; Moscow wanted to be 125. Kreile, Osthandel und Ostpolitik, 177. This represented only 2.3 percent of the total production of the branch. 126. An excellent discussion of the importance of Western exports to the Soviet economy from 1917 to 1970 can be found in Sutton, Western Technology and Soviet Economic Development. 127. The Helsinki Accords were themselves also partly shaped by economic linkage. The West was mainly interested in the accords for political reasons, while a significant part of the East’s motivation was economic. In follow-up meetings, the USSR frequently stressed the importance of ‘‘Basket Two’’ of the talks (economic contacts), while the West emphasized ‘‘Basket Three’’ (human rights). Germany was able to win two valuable concessions at Helsinki: first, the agreement mentioned that although borders were not to be violated, they could be changed peacefully. Thus German reunification was still possible. Second, Basket Three contained provisions on human contacts and family reunification that helped Bonn to expand its links in this area with the GDR. This helped to safeguard the existence of a common German nation. See Stent, ‘‘The USSR and Germany,’’ 196. 128. Brandt, People and Politics, 361.

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certain that its cooperation with Bonn, so vital to its economic growth, would not be interrupted by short-term political disputes. The 1962 pipeline embargo was often mentioned by Soviet negotiators as an example of this kind of dispute. However, Bonn also felt that it was in its own interests to assure the Soviets that it was renouncing any possible embargo policy (negative linkage) or any links to short-term political issues (specific linkage). It was felt that long-term economic cooperation (positive general linkage) was best suited to improve German-Soviet relations over time, and this improvement was worth the sacrifice of other economic linkage options. Therefore, at the 1973 summit both sides agreed to a ten-year treaty on economic, industrial, and technical cooperation, formally known as the Agreement on the Development of Economic, Investment, and Technological Cooperation. The accord provided for a deepening of economic ties into areas such as technological assistance agreements, which had been eagerly sought after by the Soviet side. However, it also contained an important reciprocal political concession by Moscow: the Soviets agreed, with surprisingly little debate, to a clause including Berlin in the treaty. Article 8 stated that ‘‘according to the Four Power Agreement of September 3, 1971, this agreement will be expanded to Berlin (West) in conformity with the established procedure.’’129 In all, if one reviews the five years of the Brandt administration, it seems that the policy of positive general linkage scored some major successes. This case serves as a clear reminder of the virtues of positive linkages noted in Chapter 1. The Soviets began to gain some trust in the Bonn government, a vital factor given Germany’s very poor image in Russia. The fact that general linkage was used only increased this effect, since the implicit political strings attached to the German economic concessions were very well hidden. Hence, even on those occasions when Bonn would raise a specific political linkage—as in the 1972 trade treaty case—Moscow tended to see this as a request from a friendly partner, rather than a demand from an enemy. This was a marked contrast to previous West German governments, whose use of negative instruments had raised Soviet suspicions. Also, the positive linkage helped to build deeper economic ties that could increase the existing asymmetrical interdependence and strengthen Germany’s future influence. 129. See the text of this accord in Europa-Archiv, no. 12 (1973): D329.

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Case 15 1969–74 Linkage type

German goal(s)

Results

Positive general; February 1970: first gas pipeline deal, backed by the German government; numerous other tariff and credit concessions; 1972 economic treaty, 1973 Technical Cooperation Treaty

General progress on relations, ‘‘improved atmosphere’’; Soviet acceptance that FRG still seeks reunification. Improved ties to GDR. Improved access to Berlin.

Successful: The August 1970 Moscow Treaty calls German border ‘‘inviolable,’’ not unchangeable. USSR accepts ‘‘letter on German unity.’’ USSR forces the GDR to improve its ties with the FRG. Berlin Four Powers Treaty. Indirect result: better image for the FRG in the East.

Collapse and Renewal? The Failure of Ostpolitik, 1974–1987 Germany continued its policy of positive general linkage until about 1982. It sought to deepen and diversify German-Soviet economic ties, but usually without seeking any specific political concessions from the Soviet side. Nonetheless, German leaders always hoped that these ties would pay off politically in the long run. At first this policy seemed quite successful; by the end of the decade, however, it gradually lost effectiveness in an environment of increasing U.S.-Soviet tension. Eventually, after a last gasp of positive linkage in the large 1982 gas pipeline deal, Germany seemed to admit failure, temporarily suspending its attempts to influence Moscow with the economic weapon. As we shall see, this decision was based not only on the international environment, but also on leadership changes in both Bonn and Moscow. It was not until about 1987 that new hope was breathed into German-Soviet ties, when the scale of the foreign policy reforms initiated by the new Gorbachev government became clear. In 1974, after the resignation of Willy Brandt, Brandt’s finance minister Helmut Schmidt took office as chancellor. One of his first actions, in October, was to travel to Moscow for a summit, which had been arranged before Brandt’s unexpected resignation. While there, Schmidt employed economic linkage at several points, although only of the indirect, subtle type favored by Brandt. In discussing certain Soviet objections to West Germany’s links with West Berlin, Schmidt delicately told Brezhnev that ‘‘alongside the economic question there were still other bilateral topics, and it

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seemed to me difficult to make successful economic advances if other areas were blocked.’’ In a similar subtle tactic employed often during the Brandt years, Schmidt informed Brezhnev that he, of course, would favor extending economic links in certain ways favored by the Soviets, but that public opinion and hard-liners in Bonn would resist such a move—unless, of course, Moscow were to make certain small political concessions.130 The embedding of occasional specific economic linkages of this type in Bonn’s overall policy of general positive linkage helps to expose the fallacy that economic ties had truly been ‘‘depoliticized’’ by the Social-Liberal coalition. While in Moscow, Schmidt did sign another economic cooperation accord, which sought to facilitate business contacts and provided for the establishment of joint German-Soviet firms to market Soviet goods in the Federal Republic—an important provision given Moscow’s growing balance of payments difficulties.131 Despite his occasional attempts to use specific positive linkage, Schmidt was primarily an ardent supporter of the general linkage approach, that is to say, of expanding economic ties without demanding immediate political concessions in return. In his memoirs, he relates a scheme of this type which sounds almost incredible: ‘‘In the mid-1970s, considering the enormous and ever-growing foreign exchange reserves in the Bundesbank [due to Germany’s trade surpluses with its Western partners], I toyed with the idea of assigning a small portion of the foreign currency . . . to the Soviet central bank against the prevailing interest rate. I mention the episode because it demonstrates how hard I worked to create economic inducements for the Soviet leadership.’’132 Considering that Bonn was after all the linchpin of the NATO alliance, which was predicated on the existence of an imminent 130. Schmidt’s own account of his 1974 meeting with Brezhnev (Schmidt, Men and Powers, 33–34) makes the continuing political role of economics clear: I confidently hoped that both sides would be able to agree to long-term economic cooperation. But this outcome required approval from our citizens, and they were seriously disconcerted by such tiny psychological pinpricks as unnecessary complications involving visits of retirees living in one part of the city [of Berlin] whose children and grandchildren lived in the other part. In addition, the investigation of Gu¨nther Guillaume’s espionage attempt [which caused the resignation of Brandt] was still making headlines. Unless the Four Power Agreement [on Berlin] and the friendship treaty with the GDR were made productive, the Moscow Treaty could not bear fruit. German public opinion saw all three agreements as a unified complex, under the inclusive name of ‘‘Ostpolitik.’’ Here the linkage is particularly interesting, since Schmidt is making economic ties with Moscow dependent not just on the USSR’s political actions, but on those of its satellite, the GDR. 131. Kreile, Osthandel und Ostpolitik, 156. 132. Schmidt, Men and Powers, 52.

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Soviet military threat to West Germany and the rest of Western Europe, economic generosity of this magnitude is somewhat surprising. In the fall of 1977, Schmidt took another step which demonstrated his ardent desire to increase economic links with Russia. He proposed to Valentin Falin, the Soviet ambassador to Bonn, that the two countries conclude an unprecedented twenty-five-year economic cooperation agreement, which ‘‘could become the basis for a growing political trust.’’133 Here again was clear proof of Schmidt’s belief that economic ties with the USSR were in Bonn’s best interest politically, regardless of the lack of immediate political payoffs from the East. In May 4–7, 1978, Brezhnev again visited the Federal Republic. This visit marked the apex of the mature Brandt-Schmidt strategy of general positive linkage. It was highlighted by the signing of the twenty-five-year treaty of economic cooperation proposed by Schmidt the previous fall, grandly titled ‘‘The Agreement on Developing and Deepening Long-Term Cooperation Between the Federal Republic of Germany and the USSR in the Economic and Industrial Fields.’’134 The agreement focused on cooperation in the area of energy, because of the Federal Republic’s needs in this area, and also mentioned cooperation in marketing—perhaps as a reflection of Moscow’s ongoing difficulties in selling its products in Germany. Additionally, the agreement provided that both sides could make long-term credits available, although Schmidt later admitted that ‘‘it was, of course, clear that for all practical purposes only the Soviet Union would use German bank credits.’’135 The agreement also included a clause stating that it would be valid for West Berlin, in keeping with the USSR’s practice of allowing such a clause to be included in important economic agreements, while continuing to resist the inclusion of Berlin in other agreements. Schmidt, like Brandt, stressed that such a long-term agreement was also beneficial to West Germany; after the visit he said that ‘‘also on political grounds I am glad that we have been able to sign this agreement—the economic agreement ex133. Ibid. 134. For the text of the agreement, see Soviet News, May 9, 1978. 135. Schmidt, Men and Powers. This statement is interesting, since it exposes another myth spread by those who claim that during the 1970s Bonn ‘‘depoliticized’’ its economic ties with the East. Often, Schmidt and Brandt employed the polite fiction of soothing Soviet feelings of economic inferiority by phrasing concessions to the USSR as though they applied equally to both sides. Thus, credits were to be offered by ‘‘both sides,’’ although it was clear to all that the USSR was in no position to actually offer credits. Some analysts have apparently interpreted such provisions to mean that the economic links were of equal importance to both sides, although as Schmidt’s statement makes clear, political leaders were well aware that the Soviets needed the economic links much more.

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tends far beyond the range of economic affairs. It provides an orientation for the development of political relations in general, for long-term peaceful development which presupposes that the people in both countries acquire a permanent interest in one another’s economic welfare.’’136 Schmidt believed, then, that long-term economic ties would support Germany’s longterm political objectives in relations with Moscow. He even went so far as to refer to the twenty-five-year economic cooperation agreement as a second Reinsurance Treaty, a reference rich in symbolism to those familiar with German diplomatic history.137 The period of Schmidt’s first five years in office, 1974–79, saw continued high levels of German-Soviet economic ties—both trade and deeper forms of cooperation. However, the momentum of growth in those ties fell somewhat after the spectacular results of the final two years of Brandt’s chancellorship. In the area of trade, German exports rose sharply in 1975, continuing the growth of 1972–74, and reached almost DM 7 billion (compared with only 1.6 billion in 1971).138 However, thereafter German exports leveled off, remaining between DM 6 billion and DM 7 billion yearly until 1980. Meanwhile, the USSR made heroic efforts to increase its exports to the Federal Republic. Under DM 2 billion in 1973, these exports rose steadily to 4.5 billion in 1977 and topped 7 billion in 1979. The reason for both the stagnation of German exports in the latter half of the 1970s and the desperate Soviet efforts to increase shipments to the Federal Republic was the large debt owed by the USSR to the West Germans. As shown in the appendix, the USSR’s trade balance with Bonn had swung sharply into the red during the early 1970s, as the Soviets took advantage of German credits to vastly increase imports of German products. However, by the latter half of the 1970s Russia began to realize that if this trend continued it would soon be unable to service its debt to the West and could fall into dangerous political dependence. The example of Poland, which had accumulated a debt of such magnitude that the entire country was beginning to collapse, surely also played a role in the thinking of the Soviet leadership. Accordingly, Moscow simultaneously cut back on imports from the West—especially from its leading Western supplier, West 136. As cited in Stent, ‘‘The USSR and Germany,’’ 205. 137. Cited in ibid., 206. The Reinsurance Treaty, as noted in Chapter 2, was the 1887 agreement between Germany and Russia which pledged each to maintain neutrality in the event that the other was attacked by a third European power. Schmidt apparently believed that the twentyfive-year economic cooperation pact would have a similar effect in making it virtually impossible—this time for economic reasons—for Russia to attack Germany. 138. All figures in this paragraph are from the appendix.

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Germany—and mounted a major effort to increase exports to hard currency states. This can be seen as yet another swing in the pendulum which has long characterized Russian relations with the West: first, awareness of the country’s backwardness leads to an effort to build economic ties; then, when these ties become too close, a nationalistic, xenophobic reaction sets in and ties are cut back. Such a reaction also took place after the time of Peter the Great, in the mid-1880s, and again under Stalin in the 1930s and after the Second World War. However, although Moscow was able to achieve a positive balance of payments in its trade with the Federal Republic by 1979, its efforts were hampered by the continuing weakness of its export structure. Again and again, Soviet leaders expressed their desire to diversify the country’s export palette, particularly by exporting more manufactured goods. Yet Russian exports retained essentially the same structure as in the early years of the Soviet state and in the tsarist era. Raw materials and semifinished products (such as lumber) continued to dominate Soviet exports. Together, the two categories accounted for over 90 percent of Soviet exports to the Federal Republic in 1980.139 If anything, the USSR’s exports became less diversified in the course of the 1970s, as the gas pipeline projects begun in the early part of the decade began to come on line. Even in 1975, oil and gas made up fully 54 percent of Soviet exports to West Germany.140 By 1981, gas comprised 55.3 percent of Soviet exports to the Federal Republic, and oil 17.9 percent—together, almost three-quarters of total exports.141 At the time, this did not seem to be a major problem; world prices for these products were rising sharply. However, by the mid-1980s, when oil and gas prices began to fall, this ‘‘monochrome’’ export structure would cause serious problems for the USSR. Meanwhile, Soviet imports from the Federal Republic were, as always, in the area of sophisticated manufactured products. In 1980, for example, 94.2 percent of Bonn’s exports to the USSR were manufactured products.142 In 1981, major German exports included steel pipe (of a diameter the USSR could not manufacture), which made up 36.5 percent of German shipments; machinery (32 percent); sophisticated chemical products (11.4 percent); and electrotechnical goods (5.7 percent).143 The Federal Republic 139. 140. 141. 142. 143.

Bundesministerium fu¨r Wirtschaft, Der deutsche Osthandel 1980 (Bonn, 1980). Kreile, Osthandel und Ostpolitik, 188. Bundesministerium fu¨r Wirtschaft, Der deutsche Osthandel 1981 (Bonn, 1981), 10–11. Bundesministerium fu¨r Wirtschaft, Der deutsche Osthandel 1980. Bundesministerium fu¨r Wirtschaft, Der deutsche Osthandel 1981.

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continued to be the most important supplier of advanced technology to the Soviet Union, as was noted in Table 3.2. In 1977, Germany supplied 34 percent of the USSR’s imports of high technology from the West and 29 percent of its imports of all manufactured goods.144 West Germany supported this trade by continuing the generous credit policy of the Brandt years. Government-backed Hermes credit guarantees were now provided as a matter of course; the amount of outstanding Hermes guarantees for German Osthandel (eastern trade) rose from DM 3.7 billion in 1970 to 10.7 billion in 1974 and 13.8 billion in 1976. Clearly, these credits were politically motivated, not ‘‘routine’’ as they were often portrayed in Germany. The East bloc, including the USSR, was receiving 19.9 percent of total Hermes credits in 1976, although it accounted for only 6.3 percent of West Germany’s exports.145 Generally, though, these generous credit policies continued to be in the form of positive general linkage, and were not used to pressure the USSR on specific political issues.146 In addition to conventional trade, German-Soviet economic links were supported by a range of other, deeper forms of economic cooperation, as had been the case in the last major period of general positive linkage in bilateral ties, during the 1920s under the Weimar Republic. These deeper forms of cooperation included a myriad of technical assistance agreements, large and small, which involved direct German help in building and/or operating industrial facilities in the USSR.147 One such agreement was a multibillion deutsche mark project for the construction of a modern steelmill in Kursk.148 Another was the extension and modernization of Moscow’s international airport by a German consortium. Still another was a large project to build a factory in Astrakhan to produce off-shore oil drilling rigs for use in the Baku oil fields.149 Because of a variety of economic and political difficulties, not all these projects came to fruition; yet they helped to give a sense of momentum to 144. Stent, ‘‘The USSR and Germany,’’ 209. 145. Both this and the preceding Hermes figures are from Kreile, Osthandel und Ostpolitik, 159. 146. Occasionally, some German leaders would propose specific linkages; for example, the Foreign Ministry reportedly proposed in 1973 that subsidized interest rates be offered on some loans to the USSR if that country would agree to allow the West German ambassador in Moscow to represent West Berliners in consular functions. The Economics and Finance Ministries vetoed this proposed linkage. See the Frankfurter Allgemeine Zeitung, October 5, 1973. 147. For a good overall discussion of industrial cooperation at this time, see Kreile, Osthandel und Ostpolitik, 211–16. 148. See Stent, ‘‘The USSR and Germany,’’ 223–26. 149. Pohl, Gescha¨ft und Politik, 159.

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bilateral political ties during the period in which they were being considered. One such project was the ambitious plan for the Federal Republic to build a modern nuclear power station in Kaliningrad (formerly Ko¨nigsberg), which would supply electrical power to parts of the USSR and to West Berlin and the Federal Republic. After several years of discussion in the mid-1970s, the project foundered on the combined opposition of the United States—which was wary of any export of nuclear technology to the USSR—and the GDR, which did not want the power line to West Berlin to pass through its territory.150 In addition to political difficulties, SovietGerman industrial and technical cooperation was limited by the fact that the USSR did not allow any Western direct investment (ownership or partial ownership of Soviet enterprises) during this period. Continued cooperation in the building of gas pipelines formed another important element in the network of long-term economic cooperation envisioned by German and Soviet leaders during the 1970s.151 After the first major pipeline deal was concluded during the negotiation of the Moscow Treaty, another followed in tandem with the German-Soviet economic agreement of 1972. Signed on July 6, 1972, the second pipeline deal was almost identical to the first: DM 1.2 billion of credit was provided to Moscow to buy German pipe and equipment, and the credit was to be repaid by Soviet gas shipments. On October 29, 1974, the treaty for the third pipeline deal was signed in Moscow. This contract called for 950,000 tons of pipe deliveries, financed by a DM 1.5 billion German bank credit, to be repaid by yearly shipments of 2.5 billion cubic meters of gas from 1978 to 2000. This time the credit was covered to 85 percent by Hermes, while previous credits had been guaranteed only to 50 percent. In 1975, another large credit—the fourth of the 1970s—was signed. However, it was to be used on a project to ship Iranian gas to Germany via the USSR, and the deal collapsed with the fall of the Shah’s regime. Finally, in 1978, a fifth pipeline credit—600 million DM—was agreed to, with 95 percent Hermes coverage. These credits were designed to support bilateral economic ties, but also to support bilateral political links. Like other German economic concessions of the 1970s they were designed as general positive linkage, with the hope that they would eventually facilitate political rapprochement and allow Germany to achieve important national political goals. Yet since 1974 few such political payoffs had materialized. 150. See the discussion of this project in Stent, ‘‘The USSR and Germany,’’ 226–28. 151. See Pohl, Gescha¨ft und Politik, 155–58, for a discussion of these pipeline projects.

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The years from 1979 to 1982 were difficult ones for West Germany’s Ostpolitik. During this period, the Federal Republic maintained its position that preserving and increasing economic contacts would eventually help to improve German-Soviet political relations—namely, that positive general economic linkage remained the best policy. However, the policy faced numerous difficulties during these years which made any real progress almost impossible. Although Schmidt was able to meet with Brezhnev twice more—in June 1979 and June 1980—the meetings were overshadowed by looming political difficulties. After one final attempt to use economic leverage (the last, largest German-Soviet pipeline deal of 1982), Schmidt’s policy of positive general linkage, by then widely seen as a failure, ground to a halt. Perhaps most important, developments on the broader world stage— particularly in the bilateral relations between the two superpowers—caused difficulties for German Ostpolitik. Before 1979, the United States had essentially been supportive of Bonn’s positive policy toward the USSR. Washington was pursuing its own policy of de´tente with the Soviet bloc, which meshed fairly well with the Brandt/Schmidt tactics. Admittedly, even in the early 1970s Washington had never fully embraced a policy of positive general linkage in the economic sphere. Some U.S. leaders supported economic links with Russia as an autonomous foreign policy goal, believing that this would foster interdependence and eventually political cooperation. However, the U.S. leadership was more sensitive to Soviet actions in the short term than were the Germans, and the United States was much more willing to employ specific or even negative economic linkage. This could be seen quite clearly, for example, in the passage of the Jackson-Vanik amendment to the U.S. trade treaty with the USSR, which linked the U.S. decision to grant MFN trading status to the Soviets to the USSR’s performance in easing emigration restrictions on Soviet Jews. Additionally, the United States was more sensitive to Russian moves in the Third World and other areas distant from the ‘‘central front’’ of East-West confrontation in Europe. These U.S.-German differences in the interpretation of the meaning of de´tente soon led to problems. In the latter years of the Carter presidency, Soviet arms spending and advances in the Third World were becoming ever more worrisome to the Americans. Finally, the invasion of Afghanistan in December 1979 scuttled U.S.-Soviet de´tente entirely. The United States reacted with a package of negative sanctions, including an embargo on grain shipments to the USSR and an attempt to tighten COCOM restrictions on technology exports to

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the East bloc. Germany steadfastly resisted these sanctions, as well as sanctions against Poland and the USSR in the aftermath of the crushing of the Solidarity union in December 1981. Bonn preferred to continue its own policy of positive general linkage. Schmidt often harshly criticized Carter and his successor, Ronald Reagan, for their efforts to ‘‘politicize’’ trade. Yet it should be kept in mind that Schmidt, too, was consciously pursuing an economic linkage strategy, albeit a longer-term, subtler one. As Schmidt stated openly in his memoirs, ‘‘The Federal Republic of Germany has been, for a long time, the Soviet Union’s principal trading partner in the West and thus the principal source of foreign currency for the Soviet Union. It is in West Germany’s political interest to maintain this privileged position; we can assume that it will continue to provide opportunities to use Moscow’s interest in expanding Soviet-German economic relations to promote German national interests.’’152 Despite Schmidt’s concern with maintaining German-Soviet economic ties, he himself must take some of the blame for the fact that military issues took center stage in U.S.-Soviet and German-Soviet relations in this period. Schmidt was, after all, the key initiator of the NATO decision to deploy additional medium-range nuclear missiles in Europe to counter the growing Soviet nuclear threat. The question of these ‘‘Euromissiles’’ increasingly crowded economics off of the German-Soviet bilateral agenda in the final years of Schmidt’s time in office. Developments within the USSR also limited the effectiveness of an essentially positive Ostpolitik. The aging Brezhnev was obviously in poor health from about 1979 on. When Brezhnev finally died in November 1982, leadership of the vast Soviet empire passed first to Yuri Andropov and next to Konstantin Chernenko, each of whom lasted barely a year in office before dying. During this entire period, then, the Soviet government was paralyzed, and was unable to even consider any innovative foreign policy initiatives. Not until the accession of Mikhail Gorbachev in March 1985 was the USSR to have a ruler who was physically capable of exercising the duties of his office. In short, during the entire 1979–85 period, Germany effectively did not have a partner in its efforts to improve the German-Soviet relationship, making the entire policy something of an exercise in futility. Despite steadily increasing obstacles, Helmut Schmidt pressed ahead with his policy of positive general linkage. He attempted to continue the pattern of the 1970s by supporting German-Soviet political ties with one 152. Schmidt, Men and Powers, 106.

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last large pipeline gas deal—the Urengoi/Yamal project. The project was discussed during the June 30–July 1, 1980, visit of Schmidt and his foreign minister, Hans-Dietrich Genscher, to the USSR.153 After lengthy, difficult negotiations, which were complicated by the Soviet Union’s effort to secure a subsidized loan for the project, a contract was finally signed on July 13, 1982.154 It called for the largest pipeline deal to date: a credit of some DM 4 billion, huge orders of German-built pipe and compressor stations, and Soviet gas deliveries of eight billion cubic meters yearly to the Federal Republic and 16 billion to other West European countries. Schmidt’s political commitment to the deal was clear; he arranged for the Kreditanstalt fu¨r Wiederaufbau, a German government agency which normally makes loans for developmental projects in Third World states, to provide DM 2.2 billion of the total credit to the USSR. Also, credits were even arranged to cover the Soviets’ ‘‘cash’’ down-payment of DM 300 million on the deal. As Bruce Jentleson has detailed, Schmidt defended the project against fierce criticism from the Reagan administration, which attempted to derail the project by forbidding U.S. firms to participate in it.155 The resulting U.S.German dispute was one of the most bitter of the entire postwar period, showing clearly how important positive general linkage was to the Germans—while the United States had turned to strongly negative linkage. However, despite the best efforts of the German government, the Urengoi/Yamal pipeline deal had no immediate effect on German-Soviet political relations. Its impact was limited by the ongoing turmoil in superpower relations, the Euromissile dispute, and the paralysis of the Brezhnev leadership in the USSR. Furthermore, it was clear that this would be the last deal of its kind; when fully implemented it would boost imports of Soviet gas to almost 30 percent of the total West German supply, and even Schmidt felt that this should be the upper limit of German purchases from the Soviet Union. As was noted at the start of this study, economic linkage may fail if the target state has countervailing economic power in another area; Schmidt was wary of giving the USSR such influence. Finally, developments in the Federal Republic itself helped to administer the coup de grace to Schmidt’s strategy of positive general linkage. The Social-Liberal (SPD-FDP) coalition, which had ruled in Bonn since 1969, was breaking down under the impact of an economic recession. Finally, in 153. See the joint communique´ of the meeting in Bulletin, July 3, 1980, 661. 154. The negotiations are discussed in Pohl, Gescha¨ft und Politik, 163–73, and the contract is detailed on 168. 155. Jentleson, Pipeline Politics.

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general linkage had failed by the end of the decade in its major goal: ensuring that German-Soviet political relations continued to improve steadily and were insulated from outside problems. By 1982, it seemed obvious that, at least temporarily, outside political shocks had proven to be stronger than the linkage policy. For several years after 1982 German policy toward the USSR remained adrift, with no major economic linkage initiatives being undertaken.157 The new ruling coalition of the CDU/CSU and FDP returned the reins of government to the party that had led the Federal Republic for the first twenty years of its existence, during a period when German Ostpolitik had been characterized by negative or at most cautious positive specific linkage. The CDU continued to believe that the Ostpolitik of Brandt and Schmidt had been too generous, that large benefits had been given to the USSR and its allies without sufficient reciprocal political concessions. Kohl himself, as the CDU’s candidate for chancellor in the 1976 general elections, had campaigned on a platform advocating the use of economic leverage to win specific, immediate Soviet concessions on important political issues.158 In all, the ideological orientation of the CDU/CSU and its generally friendly ties with the vehemently anticommunist Reagan administration in the United States pushed the government to take a harder line on economic relations with the USSR. However, the strong role of the pro-de´tente FDP in the government—particularly Foreign Minister Genscher—and the relatively large support for economic ties with the East among the public and among business leaders partly canceled out these impulses. Also, even conservatives tended to believe that the controversial decision to deploy the ‘‘Euromissiles’’ needed to be ‘‘balanced’’ by expressions of friendship in non-security areas such as trade. In all, the Kohl administration was somewhat adrift; it generally continued an open trade policy toward the East, including the USSR, but was clearly less inclined than the Brandt and Schmidt governments to make dramatic new economic concessions to the Soviets. The paralysis in the Soviet leadership which persisted from the final Brezhnev years onward only strengthened Bonn’s hesitation. By 1982, then, the situation seemed clear. As had been the case in 1968, German Ostpolitik had temporarily reached a dead end. Unless some sort of change took place—whether in the Soviet Union, in Germany, or in the 157. It should be noted, however, that the Kohl government did offer two loans to East Germany of DM 1 billion each in 1983–84 in return for concessions on border and travel issues. This shows clearly that Kohl had not entirely abandoned linkage. 158. As noted in Stent, ‘‘The USSR and Germany,’’ 201.

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overall international situation—there seemed to be little hope of a breakthrough in relations between Bonn and Moscow. However, such a change would soon occur: a new leader, Mikhail Gorbachev, was about to take the reins of the moribund Soviet government, and in the process, German-Soviet relations would enter a new era. From the beginning of Gorbachev’s rule, in March 1985, it was clear that the new leader would affect all areas of Soviet policy, both foreign and domestic, in a dramatic way. However, for the first several years of his time in office, Western leaders and scholars were intensely divided over how great Gorbachev’s impact would be. Accordingly, until about 1987–88 Germany remained cautious and did not launch a new economic linkage policy. For example, there was intense debate over Gorbachev’s initial policy emphasis on uskoreniye (acceleration) in the Soviet economy. Optimists were quick to see this new policy as a very positive step. It would press Russia to turn to Western technology and thus increase trade with the West; surely more political openness and a more flexible foreign policy would follow. However, pessimists claimed that Gorbachev was merely trying to improve the Soviet economy to improve the Soviet military. The result of a modernized Soviet Union would not be a friendlier Russian bear, but a more dangerous one.159 In the first two to three years of the new Gorbachev administration, relations with Germany remained relatively cool. Gorbachev appeared to concentrate at first on relations with the United States, meeting with President Reagan in Geneva in 1985, Reykjavik in 1986, and Moscow in 1987. At the latter two meetings, dramatic progress was made on nuclear arms control, the most crucial issue being addressed by the two sides. The 1987 summit saw the signing of the INF agreement, which eliminated the problem of medium-range missiles in Europe that had so bedeviled German-Soviet relations in the early 1980s. In general, any progress in the superpower relationship was important to German-Soviet ties. Kohl and his colleagues now felt that the United States would have less reason to oppose warmer German ties with Moscow, as it had since 1979. However, German-Soviet ties also had their own internal dynamic, and 159. In some quarters, this suspicious viewpoint persisted into 1988–89, even as Gorbachev moved rapidly beyond his initial policy of uskoreniye to the more unambiguously reformist policies of glasnost and perestroika. For example, the author attended a seminar at the RAND Corporation in March 1988, at which the lead speaker, Charles Wolf, presented exactly the argument outlined above: a reformed USSR will be a more dangerous USSR. Such voices were hardly isolated, although in retrospect much of the academic and political community seems to have forgotten them.

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as Kohl soon proved, the Germans were perfectly capable of damaging bilateral relations with Moscow on their own, without American help. In July 1986, Genscher was able to make the first visit to Moscow by a cabinet minister of the Kohl government, seemingly ending four years of deep hostility. The visit resulted in the signing of an accord on scientific and technical cooperation, which had long been sought by Moscow. However, any warming in ties was short-lived. In an interview given in October 1986, Kohl compared Gorbachev to the master Nazi propagandist Josef Goebbels.160 This remark and the Soviet reaction to it played a major role in limiting political relations between the Federal Republic and the USSR for some months in 1986–87, at a time when the Soviets were rapidly improving their ties with other Western states. During the 1985–87 period, Gorbachev and his fellow reformers began to evolve the concepts of ‘‘New Thinking’’ in foreign policy and the ‘‘Common European Home’’ in policy toward Europe. However, at first many believed that the ‘‘Common European Home’’ concept was merely another tactic in the long-running Soviet attempt to drive the United States from the European continent, by convincing Europeans that the division of the continent could be overcome by building cooperative structures that included the USSR—a European state—but excluded the Americans. Such statements as this one by Gorbachev in his book Perestroika were not entirely encouraging in this regard: ‘‘There is an old Greek myth about the abduction of Europe. . . . Sometimes, one has the impression that the independent policies of West European nations have been abducted, that they are being carried away across the ocean; that national interests are farmed out under the pretext of protecting security.’’161 Similarly, the statements of Soviet scholars and publicists about Germany were not particularly encouraging during the first two years of Gorbachev’s rule. The Federal Republic was still often pilloried as a dangerous den of militarism and ‘‘revisionism.’’ Not surprisingly, the period around the fortieth anniversary of the end of the Second World War was marked by a number of articles and speeches hostile to Germany, such as this piece from the Soviet journal International Affairs: Today’s filthy froth on the surface of West Germany’s political life, whipped up by insolent revanchist propaganda, is obviously just a 160. See Ash, Im Namen Europas, 107. The offending interview appeared in Newsweek, October 27, 1986. 161. Mikhail Gorbachev, Perestroika: New Thinking for Our Country and the World (London: Fontana/Collins, 1988), 208.

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reconnaissance in force foreboding more dangerous actions. A coalition of neo-Nazism and revanchism and the militaristic policies of the USA in Western Europe is considerably aggravating the threat to peace. . . . Provocative neo-Nazi and revanchist rallies attended by the FRG’s government leaders convey a serious warning, especially in view of the fact that revanchism becomes particularly dangerous at a time when the FRG is being turned into a bridgehead for a new world war through the deployment of American first-strike nuclear missiles on its territory.162 Understandably, then, German leaders were at first uncertain about how to read the mixed messages emanating from the new Gorbachev regime. As we shall soon see, however, after 1987 this changed dramatically.

Conclusion For the first six years of its existence, West Germany pursued a policy of general negative linkage against the USSR, at first as a result of Allied pressure and later out of conviction. However, when that strategy failed to improve German-Soviet ties, Bonn began to offer some specific positive inducements, winning in return Soviet political concessions in 1955, 1958, and 1960. In the final years of the Adenauer government the chancellor swung sharply toward negative linkage, apparently because of his frustration with the failure of positive inducements to win major Soviet concessions in the area of German unification. However, his efforts in the pipeline embargo of 1962–63 and the planned wheat embargo of late 1963 were generally regarded as failures. The Erhard and Kiesinger administrations moved back to a policy of cautious positive linkage, but were relatively unsuccessful, in large part because of the increasing willingness of other European states to trade with the USSR without political preconditions. Willy Brandt and his successor Helmut Schmidt, in contrast, pursued an enthusiastic policy of positive general linkage, usually making economic concessions to 162. The ‘‘revanchist rallies’’ mentioned in this passage were events held by the Union of Expellees (Bund der Vertriebene), former inhabitants of the eastern German areas ceded to the USSR and Poland after the Second World War. The USSR regarded such groups as inherently revanchist, that is to say, dedicated to regaining those lands for Germany and was outraged that Kohl and others sometimes spoke at BdV meetings. D. Davidovitch, ‘‘Revanchism and NeoNazism in the FRG,’’ International Affairs (Moscow), April 1985, 145–46; cited in Robbin Laird, The Soviets, Germany, and the New Europe (Boulder, Colo.: Westview Press, 1991), 115.

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Moscow without demanding a specific political quid pro quo. This policy seemed to be successful in the early 1970s, but began to weaken by the end of the decade—although again, as was the case under Erhard and Kiesinger, much of the blame for the decline in German-Soviet relations in 1979–82 must be given to factors outside the bilateral relationship. Finally, after Helmut Kohl became chancellor in 1982, German policy entered a period of drift, lasting until the early Gorbachev years, in which no clear economic linkage strategy was employed. What lessons can be learned from the many cases of linkage diplomacy discussed in this chapter? First, it is beyond doubt that economic factors continued to play a vital role in German-Soviet ties, as they had in earlier periods. Perhaps more important, as in Chapter 2 it seems clear that positive linkage again outperformed negative techniques. The negative sanctions employed by Germany in this period all failed to win political concessions, while most of the positive sanctions were successful. Generally it seemed that the advantages of positive instruments outlined in Chapter 1 prevailed in these cases. Negative sanctions created negative spillover effects that poisoned all aspects of bilateral relations. This could be seen very clearly in the harsh Soviet reaction to Adenauer’s 1962–63 sanctions; the Soviets did not trust West Germany again until the Brandt years. In contrast, positive sanctions generated positive spillover effects and increased trust, both in the late 1950s and in the early de´tente period. Furthermore, unlike positive sanctions, negative ones tend to be ineffective unless they are strictly enforced on all suppliers. While this proved possible in the early 1950s, when fear of Stalin united the West behind an anti-Soviet embargo, it was much more difficult by the early 1960s. The presence of alternate suppliers undermined both of the 1962–63 negative linkage attempts. Additionally, the distinction between specific and general linkage created for this study has shown its utility in this chapter, especially in explaining the meaning of the ‘‘new Ostpolitik’’ of Willy Brandt and his successors. Using the notion of positive general linkage, it can be clearly shown that Brandt’s policies did not ‘‘depoliticize’’ economic links with the USSR; they merely changed the nature of the economic-political linkage. This insight is particularly valuable, since existing studies of German foreign policy seem to be quite confounded by the general linkage of the Brandt era.163 163. This is particularly true of the well-known From Embargo to Ostpolitik by Angela Stent (1981). Stent’s study is useful in dealing with the period before 1969, when German economic linkage was usually direct and unambiguous—that is to say, when it was linked to specific Soviet political concessions. In the Brandt era, where linkage was more vague and long-term (general linkage), Stent cannot seem to decide whether this constitutes linkage at all. She thus alternates between proclaiming ‘‘the end of linkage’’ in post-1969 German-Soviet economic ties and noting

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After all, German leaders themselves frequently stated at the time that they were not using linkage, yet in the next breath they would add that they expected that economic ties would pay off in eventual progress on political issues. The paradox is clarified by employing the distinction between specific and general linkage. Generally, when politicians said they were not using linkage, they merely meant that they did not expect specific reciprocal concessions for each improvement in German-Soviet trade. Yet they were still committed to using that trade and other economic links to improve bilateral relations and eventually achieve German political goals. However, neither type of positive linkage is a panacea. It must be remembered, first, that negative instruments can never be entirely discarded. In the late Stalin years West Germany had little choice but to impose negative sanctions, given the USSR’s threatening posture at the time. Also, these sanctions had the desirable effect of shifting Moscow’s baseline of expectations to the point that even a resumption of normal trade became a highly useful positive sanction. Thus, although the pre-1955 negative sanctions seemed ineffective, they may have helped set the stage for the more successful linkage seen later in the decade. Second, positive instruments can fail as well. They may tend to raise the target’s baseline of expectations, so that a mere continuation of normal trade is no longer an important incentive. This could be seen by the late 1970s, when Moscow demanded ever more generous credits from West Germany, which the Germans eventually found politically impossible to grant while Moscow remained basically hostile. Furthermore, like any kind of sanctions, economic incentives are not infinitely powerful. This could be seen in the mid-1960s, when Bonn attempted to use weak economic incentives to achieve unreasonably large political objectives. Nor can they always overcome unfavorable external factors, including larger incentives offered by eager trade competitors (as in the mid-1960s) or a resumption of superpower rivalry, which helped scuttle German-Soviet links in the late 1970s. Soon, though, the external environment would change favorably, as the new Soviet leader, Gorbachev, embarked on an ambitious program of rethat economics did, after all, continue to be closely linked to politics. In the end, she cannot even decide if she believes that economic linkage is an important factor in international relations or not. A typical selection from the latter part of her work is this: ‘‘Politics can help improve economic relations, but the reverse does not appear to be true. However, increasing economic interdependence can give both sides a greater stake in de´tente.’’ From Embargo to Ostpolitik, 246. Yet if economics gives both sides a greater stake in de´tente, is it not clear that economics is improving political relations? Lack of clarity on these important issues somewhat dilutes the value of Stent’s analysis for the period after 1969.

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form. From 1987 onward German-Soviet relations improved steadily and rapidly, accelerating in 1989 and 1990 to a point undreamed of by all but the most optimistic German leaders. In the end, the long-cherished dream of German unity was achieved—with the crucial help of the USSR. As we shall see, Germany’s return to a strong policy of economic inducements— first positive general linkage, then specific linkage tied to the goal of reunification—played a vital role in securing Soviet (and later, Russian) cooperation in this process.

4

Setting the Stage for Reunification, 1987–1990

The German writer Ernst Majonica had stated in 1969 that the Soviets would only ‘‘agree to a deal on Germany if they were faced with a choice of large-scale Western help or total collapse.’’1 At the time it was made, the statement seemed to refer to a highly unlikely, hypothetical possibility. However, by 1989–90 it would become clear that the Soviet Union did now face exactly the dilemma Majonica had described: in order to stave off economic collapse it required immediate Western help. This fact greatly enhanced Germany’s economic leverage over the USSR and helped to lead to the sudden realization of the dream of German unity. In this part of the study we will examine in detail the developments that led to the unprecedented breakthrough in German-Soviet relations in 1989– 90. Once again, German economic linkage played a key role—in this case, a careful campaign of positive general linkage. By 1987–88 West Germany had begun to see that Gorbachev was a new type of Soviet leader and deserved Western support. Accordingly, the Kohl government ended the period of uncertainty that had characterized Germany’s economic Ostpolitik 1. Majonica, East-West Relations, 94.

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since 1983 and returned to the positive general linkage of the earlier Brandt and Schmidt governments. As we shall see, this new general linkage did play a role in shifting Gorbachev’s priorities, helping to convince him that the Federal Republic was a valuable and trustworthy partner—perhaps more valuable and trustworthy than the GDR. However, it must be stressed that the aid was not at first linked directly to Soviet acceptance of German unification. At the time reunification did not seem even remotely possible. Even after the fall of the Berlin Wall in November 1989, most observers believed that unification would take many years to achieve. Thus German aid continued to be directed toward generally supporting bilateral ties. A clear ‘‘package deal’’ between Germany and the USSR—when specific linkage was used to induce Moscow to support a detailed plan for unity—was not openly discussed until the spring of 1990, as will be detailed in Chapter 5. The course of the 1988–90 case of positive general economic linkage will be examined in this chapter as follows. First, the philosophical reorientation of the Soviet leadership after 1985 will be discussed. Rooted in an awareness of the USSR’s looming economic problems, this reorientation led to both a domestic reform program and to a policy of ‘‘New Thinking’’ in Soviet foreign policy. It was this latter factor that had an especially large impact on relations with Germany. Next, the actual events of the German-Soviet rapprochement, which began to become apparent by late 1987, will be traced in detail. By the time of the Kohl-Gorbachev summit of October 1988, at which the Germans unveiled a loan of DM 3 billion to the Soviets, it was obvious to all that a policy of positive general linkage was well under way. A strong relationship had been built up by the summer of 1989, when Gorbachev and Kohl held a second summit meeting in Bonn. This bond was then tested by the tumultuous events of late 1989 and early 1990. However, careful diplomacy—and additional economic aid—held together the bilateral relationship during this period. Both the aid and the German-Soviet friendship it had helped to strengthen were important factors in keeping the situation under control. Finally, at a crucial top-level GermanSoviet summit meeting in February 1990, Gorbachev agreed that, at least in principle, German unification could be allowed. As we shall see in Chapter 5, there were still many obstacles to be overcome before unity could actually be achieved—and several large doses of specific linkage would be needed to deal with these obstacles. Nonetheless, the phase of general aid was vital in setting the stage for unification. Once again economic linkage had played a central role, as it had in German-Russian relations for centuries.

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The case described in this chapter relates in several ways to the views of economic linkage discussed in the initial chapter of this study. Two reasons noted at that point help to explain why the Soviet Union of the Gorbachev years was particularly vulnerable to the lure of positive sanctions. It suffered from obvious economic weakness—which greatly increased its need for foreign help and thus its dependence on countries such as West Germany. Also, as noted in Chapter 1, a strong ideology provides a possible defense against economic linkage—and the Gorbachev government was steadily abandoning its communist principles. Furthermore, the 1988–90 case provides a clear demonstration of several of the advantages of positive linkage alluded to in Chapter 1. Aid had a positive psychological effect, helping to break down hostile stereotypes. It is obviously difficult to campaign against a ‘‘revanchist, fascist state’’ when it is giving generous aid. Also, economic cooperation clearly had a positive spillover effect to other areas of bilateral ties, helping to convince Moscow that German proposals in political and security areas were reasonable. Indeed, it can be argued that without German aid Moscow’s attitude during the crucial year of 1990 would have been much more hostile, and achieving German unity on the West’s terms would have been much more difficult—if not impossible.

A New Situation and New Thinking in the USSR The selection of Mikhail Gorbachev as the new general secretary of the Communist Party of the Soviet Union in March 1985 was widely regarded even at the time as a watershed in Soviet history. However, as was noted in the previous chapter, it was not immediately clear how truly revolutionary the Gorbachev program actually was. In this section, the origins of Gorbachev’s reform program and its relevance for Soviet foreign policy will be briefly reviewed. It is the contention of this study that economics was the crucial factor driving Gorbachev’s domestic reform program, and that this program in turn drove both Soviet foreign policy in general and Soviet policy toward Germany in particular. As we shall see, in order to save the USSR the reformers realized that they had to lower the ‘‘costs’’ of their foreign policy and increase its ‘‘benefits.’’ Thus, logically, Soviet policy toward Germany was ultimately based more and more on economic considerations. The conditions noted in Chapter 1 for the successful use of economic linkage were clearly present. It is therefore not surprising that German Ostpoli-

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tik—containing, as always, a large component of linkage—was so successful during the Gorbachev years. A first key precondition for the success of linkage is relative economic weakness in the target state. Upon Gorbachev’s accession to power, it was clear to most Western analysts that the USSR was in dire economic straits.2 The country’s economic growth had virtually ground to a halt in the early 1980s, after twenty years of steady deceleration.3 Perhaps most important, the Soviet Union had begun to lag visibly in its efforts to catch up with the West in economic terms. As Guy Ofer notes, until at least the late 1950s ‘‘the main question among Western scholars was: when would the Soviet Union catch up with the United States?’’ By the 1980s, however, it had become clear that ‘‘the absolute gap between the two economies [was] now widening.’’4 Furthermore, the economies of some Western states—notably Germany and Japan—were growing even more rapidly than that of the United States. By the early 1980s, for example, it was generally believed that Japan had displaced the USSR as the second largest economy in the world.5 Worse yet for the USSR, the future looked even bleaker; at the end of the Brezhnev years it seemed likely to many observers that the Soviet Union was ‘‘in danger of falling very far behind in the next decade or two’’ if major reforms were not forthcoming.6 The sources of weakness in the Soviet economy were essentially the same as those which had faced the USSR since Khrushchev’s time. The passage of years had merely worsened the problems, since successive Soviet leaders had failed to address them in any meaningful way. Most notably, as Kosygin had seen in the mid-1960s, the USSR was failing to make the transition from extensive to intensive growth. A key reason for this failure was the continuing inability of the Soviet system to produce and implement innovative technology. The structural roots of this inability were deep: 2. A number of Western studies published as Gorbachev assumed power supported this point and examined the various aspects of the Soviet economic crisis in more detail. See, for example, Timothy Colton, The Dilemma of Reform in the Soviet Union (New York: Council on Foreign Relations, 1986), and Marshall Goldman, Gorbachev’s Challenge: Economic Reform in the Age of High Technology (New York: W. W. Norton, 1987). 3. For a comprehensive discussion of Soviet growth in the pre-Gorbachev period, see Gur Ofer, ‘‘Soviet Economic Growth: 1928–1985,’’ RAND Report JRS-04, May 1988. Ofer concludes that by the early 1980s Soviet GNP growth had declined to about 2.0 percent per year, down from 5.7 percent yearly in the 1950s. On a per capita basis, growth was even more modest; only 1.1 percent per year in the early 1980s, as compared to 3.9 percent in the 1950s. Ofer, 14. 4. Ibid., v; emphasis in original. 5. Ibid., 20. 6. Robert Campbell, ‘‘The Economy,’’ in Robert Byrnes, ed., After Brezhnev: Sources of Soviet Conduct in the 1980s (Bloomington: Indiana University Press, 1982), 98.

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The causes of Soviet weakness in scientific creativity and innovation include overly centralized planning and control, which tend to stifle initiative; the limits bureaucracy places upon creativity; the separation of research and development from the production processes; the insulation of producers from the suppliers and consumers who might push them to innovate; and a price and incentive system which discourages innovation. The apparent separation of most of the industries producing for the armed forces from the less well equipped and staffed concerns working for other sectors of the economy inhibits diffusion of the innovations made. Above all, Soviet concentration on control rather than opportunity and the restrictions imposed upon information from abroad and upon the free flow of information within the Soviet Union greatly hamper activity.7 The Soviet Union’s economic problems seemed, even to some conservative members of the USSR’s ruling elite, to be large enough to justify a serious program of domestic reforms. As Gorbachev said soon after taking office, it was time to demand ‘‘a decisive turn in transferring the national economy onto the tracks of intensive development.’’8 Gorbachev’s initial program of uskoreniye (acceleration) had merely sought to make the existing economic system more efficient. He soon moved beyond this by proposing a more radical program of perestroika (restructuring), which would introduce major elements of market-based economics into the moribund Soviet system. In its external economic relations, too, the underlying weakness of the Soviet economy was becoming more and more evident by the early Gorbachev years. In its trade with the West as a whole, deficits and debt were again beginning to increase. The USSR had been able to hold its net hard currency debt steady at about 10 billion dollars from 1980 to 1984, but only because oil and gas prices were high and it had kept a tight rein on imports from the West. However, under Gorbachev this fiscal discipline began to erode. Oil prices fell sharply in 1985, cutting into Moscow’s hard currency earnings. At the same time, the USSR desperately needed to increase its imports from the West, since years of import restraint had only accentuated the country’s backwardness in technical areas. Imports increased still fur7. Ibid. 8. Cited in Abraham Becker, ‘‘Sitting on Bayonets: The Soviet Defense Burden and the Slowdown of Soviet Defense Spending,’’ RAND Report JRS-01, December 1985, 35.

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ther when, on January 1, 1987, Gorbachev loosened the strict Soviet foreign trade monopoly by permitting some ministries and even large enterprises to engage directly in foreign trade.9 As a result, the USSR’s net debt to the West more than doubled in only three years. It shot up from about U.S.$10 billion in 1984 to U.S.$24.5 billion in 1987.10 Admittedly, the USSR was still much better off than countries such as Poland, yet the negative trend seemed clear, as seen in Table 4.1. In 1988–89, the debt situation worsened rapidly; by mid-1989 the USSR reportedly owed a hard currency debt of roughly 34 billion rubles (about U.S.$50 billion) and was forced to generate some 12 billion rubles simply to service the debt.11 The USSR’s increasing economic difficulties were also reflected in the country’s economic relations with Germany. In the early 1980s, largely because of the high price of oil and gas (which made up, as was noted in Chapter 3, easily 80 percent of all Soviet exports to the Federal Republic) the USSR was able to increase its exports to Germany and achieve a positive trade balance. With the collapse in world prices for oil and gas in 1985, Soviet exports to Germany fell sharply, from a high of DM 14.4 billion in 1984 to 13.6 billion in 1985, 9.3 billion in 1986, 7.3 billion in 1987, and 6.9 billion in 1988, a drop of more than half over the 1984–88 period.12 This presented Table 4.1 Soviet Debt in the 1980s 1981

1982

1983

1984

1985

1986

1987

1988

Net debt (in U.S.$ billions) 12.520 9.896 10.783 10.493 14.545 18.292 24.500 23.500 New borrowing (in U.S.$ billions) 0.025 0.153 0.068 0.867 1.489 1.821 1.003 2.644 Debt service ratio (%) 9 8 8 1 14 23 23 21 Net debt/exports (%) 31 39 30 30 47 76 87 77 Source: Fred Oldenburg, ‘‘Sowjetische Deutschland-Politik nach den Treffen von Moskau und Bonn 1988/89,’’ Berichte des Bundesinstituts fu¨r ostwissenschaftliche und internationale Studien, no. 63 (1989): 35, 39–40. Generally, a debt service ratio (ratio of debt payments due to hard currency export income) above 30 percent is considered dangerous. Thus, the USSR in 1987–88 was not yet in the ‘‘danger zone’’ but was close to it. 9. For details of this reform, see Pohl, Gescha¨ft und Politik, 181–83. 10. Figures from Iliana Zloch-Christy, East-West Financial Relations: Current Problems and Future Prospects (Cambridge: Cambridge University Press, 1991), 35. 11. Fred Oldenburg, ‘‘Sowjetische Deutschland-Politik nach den Treffen von Moskau und Bonn 1988/89,’’ Berichte des Bundesinstituts fu¨r ostwissenschaftliche und internationale Studien, no. 63 (1989): 63, citing the speech of Soviet premier Ryzhkov to the Supreme Soviet on June 11, 1989. 12. These and other figures in this paragraph are from the appendix and my own calculations.

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the Gorbachev leadership with a difficult choice; its internal reform plan demanded an increase in imports from Germany, particularly of capital goods and ‘‘high-tech’’ equipment, yet without sufficient exports the imports could not be financed. Caught in this dilemma, the Soviet leadership could only muddle through. Imports fell slightly from 1984 to 1987, then rebounded in 1988–89, reaching DM 9.4 billion in 1988 and a record high of over 11.5 billion in 1989. As a result of the large drop in exports while imports increased, the yearly Soviet deficit in trade with the Federal Republic rose rapidly, reaching DM 2.5 billion in 1988 and almost DM 3 billion in 1989, figures not seen since the Soviet ‘‘buying spree’’ of the early to mid1970s. As in past years, the structure of the trade remained unfavorable from the Soviet point of view, and the trade was far more important to the USSR than to West Germany. The Federal Republic remained Moscow’s most important Western trading partner, while the USSR ranked thirteenth among Germany’s trading partners, accounting for a paltry 1.7 percent of German foreign trade in 1989. Perhaps most important, both for the West in general and for West Germany in particular, was the pressure that increasing economic weakness and the overriding need for domestic reform exerted on Soviet foreign policy. As the first chapter of this study would have predicted, an economically weakened USSR soon proved particularly vulnerable to economic linkage. Even before Gorbachev took power, perceptive Western analysts were speculating on the possible foreign policy implications of a weak, economically reforming Soviet Union. For example, Robert Campbell noted in 1982 that the post-Brezhnev leadership would face a difficult choice between ‘‘guns, butter, and growth’’ (that is to say, between military spending, consumption, and investment).13 Soviet military spending was believed at the time to consume between 12–13 percent and 15–17 percent of the USSR’s GNP (in retrospect, even the latter figures were probably low) as compared to only 6–7 percent in the United States.14 Reduction of this burden began to seem more and more important to Soviet reformers after Gorbachev took power. Eventually the doctrine of ‘‘reasonable sufficiency’’ was created, under which the USSR began to agree to unprecedented cuts in its military forces.15 13. Campbell, ‘‘The Economy,’’ 81. 14. Figures cited in Colton, Dilemma of Reform, 198. 15. For a typical explanation of the concept of ‘‘reasonable sufficiency,’’ see Vitaly Zhurkin et al., ‘‘Reasonable Sufficiency, or How to Break the Vicious Circle,’’ New Times, October 12, 1987, 13–15.

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To have any significant effect on the Soviet economy, however, military spending would have to be cut as part of a coordinated reform program. As Becker put it, ‘‘Only if defense outlay change were accompanied by other measures that raised the productivity of resources in use—economic reform, increased imports of Western technology, etc.—would the effects become substantial, even in the medium term.’’16 Such a coordinated reform program would be helped not only by military cuts, but also by cuts in Soviet subsidization of Eastern Europe and other Soviet client states. It had long been believed by Western economists that the USSR was incurring considerable costs in its economic ties with its allies, for example by supplying them with gas and oil at prices below world market levels and buying their inferior manufactured products. Some estimates put the cost to the USSR of various direct and indirect subsidies to Eastern Europe at upwards of 100 billion dollars for the decade of the 1970s.17 However, Soviet foreign policy was not just a source of losses for the domestic economy; it could also provide benefits that would support economic reforms, particularly in the form of improved economic ties with the Western world. Most important, as generations of Russian and Soviet leaders had known, the West could supply the capital and technology to help overcome the USSR’s persistent problems with innovation and modernization. Soon after taking office, Gorbachev had stated that ‘‘the tasks of scientific and technological progress demand from us a new approach to all our foreign economic activity,’’ particularly in exploiting ‘‘the possibilities of the international division of labor.’’18 In sum, it was generally concluded that the USSR would face steadily increasing pressures to implement a comprehensive foreign policy reform which would have two components. First, it would cut ‘‘expenses’’ such as military spending and subsidies to other members of the Soviet bloc. Second, it would maximize foreign policy ‘‘income’’ through beneficial economic contacts, in trade and other areas, with the prosperous West. The USSR was entering another period of economic ‘‘westernization,’’ as was 16. Becker, ‘‘Sitting on Bayonets,’’ 33. 17. See Colton, Dilemma of Reform, 211. For a more detailed discussion, see Marrese and Vanous, Soviet Subsidization of Trade. The estimate of total subsidies for 1970–80 is from Valerie Bunce, ‘‘The Empire Strikes Back: The Evolution of the Eastern Bloc from a Soviet Asset to a Soviet Liability,’’ International Organization 39, no. 1 (winter 1985): 1–46, esp. 15–20. Bunce estimates total Soviet subsidies to Eastern Europe at U.S.$133.8 billion for 1970–80, including in this total subsidized trade shipments and hard currency loans given to Eastern Europe by the USSR. 18. See Pravda, June 12, 1985, 1.

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seen in the reign of Peter the Great, the years after the Crimean War, and the de´tente period. In these circumstances, even a hint of Western economic aid could win increasingly large Soviet political concessions. This underlying sense that the Soviet Union’s economic problems demanded a reduction in the costs of foreign policy and a maximization of its benefits was an important factor behind what came to be known as the ‘‘New Thinking’’ in Soviet foreign policy. The link between the underlying economic realities and the ‘‘New Thinking’’ was clear; statements by supporters of a new foreign policy doctrine often began with a lament about the USSR’s economic position, particularly compared with its more prosperous Western neighbors. As one Soviet reformer, Vyacheslav Dashichev, remembered his nation’s situation in 1985: ‘‘The West, with its gigantic economic and technological potential, had risen to defend itself against the ‘Soviet threat.’ The Soviet economy threatened to collapse under the unbearable burden of the arms race. . . . It was absolutely necessary to abandon the messianic communist expansionism and the arrogance of a superpower and direct all inner resources to the reform of the inefficient, obsolete Soviet system.’’19 Indeed, it would soon become clear that many portions of the ‘‘New Thinking’’ were designed specifically to address the economic concerns alluded to by Dashichev, in line with the policy of reducing ‘‘costs’’ and increasing ‘‘benefits’’ outlined above. The main specific points of the ‘‘New Thinking’’ were as follows.20 First, the role of military force was to be dramatically de-emphasized. The USSR was now ready to agree to arms control measures it had previously shunned and was determined to defend its security interests by peaceful political means rather than force. Second, as part of an effort to end the USSR’s role 19. Vyacheslav Dashichev, ‘‘Wie das Umdenken in der sowjetischen Außenpolitik begann,’’ Osteuropa 43 (1993): 481. This view of the economic roots of the ‘‘New Thinking’’ was confirmed by author’s interview with Dashichev, Moscow, March 1994. For a more in-depth discussion of the economic roots of Gorbachev’s foreign policy thinking, see Gerhard Wettig, ‘‘Zu den innenund Wirtschaftspolitischen Voraussetzungen der sowjetischen Außenpolitik,’’ Berichte des Bundesinstituts fu¨r ostwissenschaftliche und internationale Studien, no. 42 (1990). 20. For a good discussion of ‘‘New Thinking,’’ see Neil Malcolm, ‘‘New Thinking and After: Debate in Moscow about Europe,’’ in Neil Malcolm, ed., Russia and Europe: An End to Confrontation? (London: St. Martin’s Press, 1994), 151–81. Among the important statements of the ‘‘New Thinking’’ in foreign policy were the following: Gorbachev’s speech to the TwentySeventh Party Congress of the CPSU (Moscow: Politizdat, 1986), 7–27, 80–98; part 2 of Gorbachev, Perestroika; Gorbachev’s speech on the seventieth anniversary of the October Revolution (Izvestiya, November 3, 1987); and Gorbachev’s speech at the Nineteenth Party Conference of the CPSU (‘‘Documents and Materials of the Nineteenth All-Union Conference of the CPSU,’’ Moscow, 1988, esp. 30–37). Many statements and speeches by Foreign Minister Shevardnadze and other leading foreign policy figures—such as Aleksandr Yakovlev, Evgeni Primakov, Aleksandr Bovin, Vadim Zagladin, and Georgi Shaknazarov—could also be cited.

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as an international pariah, ‘‘common human values’’ were to increasingly take precedence over traditional communist ideological positions. Among these values was self-determination (or ‘‘freedom of choice’’), an idea which seemed to run counter to the USSR’s traditional willingness to control the internal affairs of its satellite states—including the GDR. As Gorbachev put it at the Nineteenth Party Conference of the CPSU in June 1988, ‘‘The imposition of a social system, way of life, or policy from outside by any means, let alone military, is a dangerous trapping of the past period.’’21 Third, increasing interdependence would lead the world to focus more on common global problems than on political confrontation. Economic instability, poverty, and health and environmental problems were among the ‘‘global concerns’’ frequently cited by Soviet leaders. It is hardly coincidental that all these problems were faced by the USSR itself. A primary component of the ‘‘New Thinking’’ in foreign policy was the concept of the ‘‘Common European Home.’’ This phrase had been employed by Soviet thinkers since the beginning of the Gorbachev period. At first, as was noted at the end of Chapter 3, it was unclear how revolutionary the slogan truly was. Gradually, however, the phrase evolved into a clarion call for breaking down the Iron Curtain separating the two halves of Europe.22 The concept of free movement between the different ‘‘rooms’’ of the ‘‘Common European Home’’ gained popularity. It was joined by the idea of ‘‘common European values’’—which seemed to be similar to the values seen in the political systems of Western Europe. Most notably, the new value of self-determination, a prominent part of the New Thinking, had the potential to break down Soviet control of Eastern Europe. The interdependence of the two halves of Europe was increasingly stressed. It is not surprising, then, that the ‘‘Common European Home’’ slogan began to sound promising to the West, and to West Germany in particular. It is interesting to note that many elements of the ‘‘Common European Home’’ are quite reminiscent of the rhetoric employed by Willy Brandt and Helmut Schmidt. This tends to show that the positive general linkage of their administrations did have an effect on the USSR; as was noted in Chapter 1, positive linkage can make the recipient more sympathetic to the norms supported by the initiating state. Perhaps, then, the failure of the Brandt21. Gorbachev, ‘‘Documents and Materials of the Nineteenth All-Union Conference of the CPSU,’’ 34. 22. Perhaps the definitive statement of the later version of the ‘‘Common European Home’’ concept was Gorbachev’s July 6, 1989, speech to the Council of Europe in Strasbourg. See the summary of this speech in Laird, New Europe, 140–41.

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Schmidt ‘‘idealistic’’ policy of positive general economic linkage was merely temporary; its ideas did seem to be one source of the ‘‘New Thinking.’’ The Brandt-Schmidt Ostpolitik was also vital to Germany’s eventual success in achieving reunification in other ways. Another advantage of positive linkage noted in Chapter 1 was the fact that it can promote trust that spills over to other aspects of bilateral relations. The years of German aid served to dramatically undercut the credibility of the accusations of ‘‘revanchism’’ and militarism that Moscow conservatives constantly threw at the Federal Republic. As the SPD leaders had hoped earlier, by 1987–88 many in the Kremlin had begun to see Germany more as a source of help than a source of threats. The Brandt-Schmidt years also probably helped to improve Germany’s later ability to exercise economic linkage, since German-Soviet economic ties expanded greatly during those years. After all, as was noted in the introductory chapter of this study, in most cases economic ties must be present and strong before they can be successfully used as linkage. Finally, the concrete political concessions Brandt and Schmidt had struggled to win now took on added significance. Chancellor Kohl would soon be very glad that Brandt had succeeded in forcing Moscow to accept the ‘‘Letter on German Unity’’ in 1970 and that Schmidt had been able to insert a passage about the right of two states to change their borders by mutual consent into the 1975 Helsinki Accords.23 However, it was at first not entirely clear how the ideas of ‘‘New Thinking’’ in general and the ‘‘Common European Home’’ in particular would actually affect Soviet foreign policy thinking on Germany. As noted in Chapter 3, in the first two to three years of Gorbachev’s rule major segments of the Soviet press continued to vilify the Federal Republic as a ‘‘revanchist’’ enemy. However, gradually new voices began to be heard, which, as Stent and others have shown, assigned Germany an important role in achieving Gorbachev’s dream of building a ‘‘Common European Home.’’24 Considering the USSR’s increased vulnerability to economic linkage, it 23. With perfect hindsight, former Soviet conservatives now realize that the seemingly small concessions made to the Federal Republic in the 1970s, which allowed Bonn to keep the ‘‘theoretical’’ possibility of reunification alive, were in fact very important. Author’s interview with Nikolai Portugalov, Moscow, April 1994. 24. For an overall discussion of ‘‘New Thinking,’’ the ‘‘Common European Home,’’ and their relevance to Soviet-German relations, see Angela Stent, Germany and Russia Reborn: Unification, the Soviet Collapse, and the New Europe (Princeton: Princeton University Press, 1999), chap. 3; Eugene Rumer, ‘‘The German Question in Moscow’s ‘Common European Home’: A Background to the Revolutions of 1989,’’ RAND Report, N-3220-USDP, 1991; and Eberhard Schulz, ‘‘Das ‘neue politische Denken’ und die Deutschen,’’ Berichte des Bundesinstituts fu¨r ostwissenschaftliche und internationale Studien, no. 15 (1989).

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is not surprising that the German role in Gorbachev’s plans was especially clear in the area of economics. To meet the USSR’s economic needs, a major influx of German technology seemed necessary to the Soviet leadership. Also, as the Soviet Union moved toward democratization, it was increasingly important to satisfy some of the population’s desire for highquality Western consumer goods. West German exports to the USSR rose sharply in 1988–89, reaching a new record high in the latter year. Yet because the prices of oil and gas had fallen and because it was unable to export competitive manufactured products, the USSR still faced great difficulty in exporting to Germany. Accordingly, the USSR resorted to a new tactic to finance its purchases: for the first time since the revolution, it floated government bond issues on the German capital market. The first such issue was made in 1987, and it was followed by a DM 500 million bond issue in July 1988 and a further DM 750 million issue in March 1989.25 In addition to this unprecedented step, the USSR also moved to permit foreign investment for the first time since limited foreign-owned concessions were allowed in the 1920s. Beginning on January 1, 1987, Moscow allowed Joint Ventures to be established with up to 49 percent foreign ownership. When this new opportunity did not bring the anticipated large flow of foreign investment—by the end of 1987 only some thirty-two joint ventures were in operation in the USSR—the Soviets decided, in late 1988, to permit foreign businesses to own a majority stake in joint ventures. By the end of 1988 the number of such ventures had increased greatly, both in the USSR and elsewhere in Eastern Europe. Of the approximately six hundred existing joint ventures, over two hundred were with West German companies.26 Both of these steps deepened German involvement in the USSR, reopening two areas—the capital market and the investment market—which had been practically closed to Germany since the time of the tsars. Yet even these closer economic links, while encouraging to Bonn, did not necessarily answer the most important question: what would be the USSR’s new political policy toward Germany? Would the ‘‘New Thinking’’ and ‘‘Common European Home’’ rhetoric be translated into concrete actions? Obviously, Moscow would have preferred to gain economic benefits at no cost. For example, when Yuli Kvitsinsky was appointed ambassador to West Germany in March 1986, Gorbachev sent him off with a summary of 25. Zloch-Christy, East-West Financial Relations, 37. 26. The information on joint ventures is from ibid., 59.

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Soviet policy toward Bonn at the time: ‘‘a reserved attitude toward political dialogue and continuation of the economic relationship.’’27 Gradually the realization spread that the USSR would have to be more forthcoming politically. A key figure in applying the ‘‘New Thinking’’ to real-world Soviet Deutschlandpolitik was Vyacheslav Dashichev. Dashichev was a prominent researcher in the so-called Bogomolov Institute (the Institute for the Economics of the World Socialist System). From 1987 onward, Dashichev began to develop increasingly radical views on the ‘‘German question,’’ which were aired to German visitors and presented at conferences in both Germany and the USSR. In November 1987, he reportedly set off a fierce controversy at a meeting of the Scientific Advisory Committee of the Soviet Foreign Ministry, delivering a speech which stated that the USSR’s need for better relations with the West might force it to allow Germany to reunite.28 Dashichev continued to draft ever more radical plans for Soviet policy toward Germany—at a time when most Germans firmly believed that such fundamental issues as reunification would never be resolved. For example, in early 1989 he delivered a paper titled ‘‘The Common European Home Conception and the German Question’’ at a conference in the Federal Republic.29 In it he laid out a series of reasons for the USSR to consider whether allowing German reunification might actually serve Soviet interests. First, Soviet control in Eastern Europe was eroding, and the region was in any case a liability because of its economic weakness and the military costs incurred in occupying it. Second, West Germany could now be trusted, and could be a valuable partner for the USSR. The Federal Republic could help improve Soviet relations with the EC, helping to secure access to the Community’s market after the EC Common Market was initiated in 1992. Also, direct economic cooperation between the Federal Republic and Moscow could solve many economic tasks associated with perestroika. In all probability, the best way to achieve this favorable result would be to promote closer ties between West Germany and East Germany—which was already well integrated with the Soviet economy. Gradually, the GDR and the Federal Republic would evolve into a confederation and then reunite. 27. Yuli Kvitsinsky, Vor dem Sturm: Erinnerungen eines Diplomaten (Berlin: Siedler Verlag, 1993), 396–97; cited in Stent, Germany and Russia Reborn, 65. 28. Ash, Im Namen Europas, 164, and Ekkehard Kuhn, Gorbatschow und die Deutschen Einheit (Bonn: Bouvier Verlag, 1993), 19–21. 29. Vyacheslav Dashichev, ‘‘The Common European Home Conception and the German Question.’’ See also the discussion of this paper in Laird, New Europe, 136–40.

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Reunification, then, would pay off for the USSR in cost-benefit terms. It would rid the USSR of the costs of propping up East Germany and would result in substantial benefits for the Soviet Union. In short, Dashichev was making a radical and unprecedented assertion: German reunification is not to be feared; it will in fact help us to implement our reform goals, since reunification will permit Germany’s economic strength to be harnessed for our benefit. As Dashichev put it, ‘‘The resolution of the German question and the constructing process of a ‘Common European Home’ should be interwoven.’’30 A crucial question debated to this day is to what extent Dashichev was speaking for Gorbachev or at least representing the ideas of some ‘‘liberal’’ faction in the Kremlin. He was personally connected to Anatoly Chernyaev, an important foreign policy adviser to Gorbachev, and was himself frequently described as a ‘‘Gorbachev adviser.’’ However, more conservative members of the Soviet elite ridiculed the notion that Dashichev played any official role.31 Certainly the actions of Gorbachev and his colleagues in 1989–90—when they generally resisted German unification—show that they were not fully persuaded by Dashichev’s writings. In a sense, though, the question of Dashichev’s official backing is irrelevant; the important fact was that Dashichev was perceived in 1987–89 as representing some sort of official view in Moscow, or at least as being used by some group in the Kremlin as a sounding board. After all, what precedent was there in Soviet history for a prominent, establishment academic to suddenly propose a major shift in the USSR’s foreign policy without some sort of official backing? Even the policy of ‘‘glasnost’’ instituted under Gorbachev had never permitted this much ‘‘openness’’ on such a sensitive issue before. Therefore, the writings of Dashichev, both published and not, had a major impact on German thinking about what might be possible in relations with Moscow.32 For the first time in decades, some officials began to hope that a real breakthrough on the central issues of ‘‘the German question’’ might be possible. And the way to achieve this breakthrough was also hinted at in Dashichev’s work: West Germany should offer generous economic aid to the USSR, using that state’s economic weakness to move it toward real foreign policy change. 30. Laird, New Europe, 139. 31. Author’s interview with Nikolai Portugalov, Moscow, April 1994; see also the comments by Portugalov and Falin and Chernyaev’s contrasting statement in Kuhn, Gorbatschow, 25. 32. Laird, New Europe, 136. Several of Dashichev’s unpublished manuscripts were circulated in German academic and government circles.

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In sum, the Federal Republic was now much more important to the USSR. This increased the effectiveness of Germany’s traditional strategy of economic linkage—particularly positive economic linkage. First, the extent of the USSR’s economic problems increased its need for economic help of any kind. Second, the declining role of communist ideology in both domestic and foreign policy weakened Soviet resistance to the lure of Western aid. In Chapter 1 the role of extreme ideologies in helping a state to resist economic sanctions (the concept of ‘‘ideals lessening needs’’) was discussed. With the end of the ‘‘ideal’’ that had driven Soviet actions for so many years, and its replacement by a cloudy doctrine of ‘‘democratic socialism’’ under Gorbachev, material concerns were bound to become even more important to Soviet decision-makers. Third, the deliberate decision to reduce the role of the military in foreign policy removed the strongest Soviet trump card in its dealings with Germany, further increasing Moscow’s vulnerability to economic linkage. The 1987 INF (Intermediate Nuclear Forces) treaty, which brought about the removal of most Soviet nuclear missiles aimed at Western Europe, was a dramatic first step in this direction. Soviet conservatives would later lament that this treaty truly marked the USSR’s admission of defeat in the Cold War, although this was not apparent to all observers at the time.33 Finally, Moscow’s new attention to the concept of self-determination spoke volumes to West German leaders, who felt that if the two halves of Germany were truly allowed such selfdetermination, they would surely choose to unite. In all, then, Moscow’s increased vulnerability to economic linkage and its changing political attitudes made it possible for Germany to use economic ties to help set the stage for eventual German reunification.

Positive General Linkage Resumes: 1987 to July 1989 As I have indicated, despite the fact that the new Gorbachev regime seemed to be associated with economic reform and innovation in foreign policy, it was not immediately clear when and how this ‘‘New Thinking’’ would result in concrete advances in West German–Soviet relations. By late 1987, though, two years after Gorbachev took office, hopeful signs were begin33. Author’s interview with Nikolai Portugalov, Moscow, April 1994. Portugalov asserted that the agreement to remove the INF missiles was a key admission that the USSR could not afford to keep up with the arms race and had no choice but to de-escalate, even if it meant scrapping traditional Soviet policy in Europe.

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ning to appear. By 1988, Germany was openly supporting the revived ties with generous economic aid. Yet another case of economic linkage, of the positive general type, had begun. Within only one more year, the steady advance of Gorbachev’s domestic reforms, his new foreign policy agenda, and German-Soviet relations had led to a radically new era in bilateral ties. In this section, some of the milestones along this path will be examined, culminating in the important July 1989 Kohl-Gorbachev summit in Bonn. As 1987 wore on, the flap over Chancellor Kohl’s statement comparing Gorbachev to Josef Goebbels gradually dissipated. A key early step in overcoming the controversy was made by Foreign Minister Genscher, who delivered a powerful speech in Switzerland in February 1987, in which he exhorted the entire Western world to ‘‘take Gorbachev seriously, take him at his word!’’34 This was a striking example of Germany’s ability to act as an advocate for warmer relations with the USSR within the Western system, a position it was able to use to reap important political benefits during the reunification debate. Genscher noted that the ‘‘Federal Republic must judge the new developments in the USSR and the resulting chances for the future in a more realistic and unbiased manner [than other Western states].’’ Well aware that economic problems lay at the root of Gorbachev’s reform program, he specifically promised German help in ‘‘initiating largescale economic cooperation’’ with the USSR. This can be considered as one of the first hints that Bonn was resuming a policy of positive general linkage. Of course, the German attitude was not only altruistic: as Genscher noted, ‘‘Only through a European peace policy and by being good neighbors can we Germans realize our national goals.’’ In other words, a policy of generosity to the USSR could eventually help Germany to realize its own objectives, as the advocates of positive general linkage had long stated. In July 1987, when the German president, Richard von Weisza¨cker, visited Moscow, Gorbachev reportedly cautiously expressed his willingness to move beyond the controversy about the Goebbels quotation, telling von Weisza¨cker: ‘‘Agreement seemed to have been reached on ‘opening a new page’ in relations between our two countries. However, to date it has remained unfilled, and at one time there even was a threat that it would be shut [due to the Goebbels comparison]. Fortunately this did not happen.’’35 The von Weisza¨cker visit was notable in another way as well; for 34. All citations in this paragraph are taken from the text of the speech in Hans-Dietrich Genscher, Unterwegs zur Einheit (Berlin: Siedler Verlag, 1991), 137–50. 35. Cited in Laird, New Europe, 114. For another account of the von Weisza¨cker visit, see Anatoli Chernyaev, Die letzten Jahre einer Weltmacht: Der Kreml von innen (Stuttgart: Deutsche Verlagsanstalt, 1993), 144–46.

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the first time, Gorbachev seemed to give a subtle hint of some change in his position on the sensitive ‘‘German Question.’’ When von Weisza¨cker raised the issue of German unification, Gorbachev answered that ‘‘what will happen in a hundred years will be decided by history.’’ When von Weisza¨cker replied ‘‘or in fifty?’’ Gorbachev merely nodded.36 In his book Perestroika, Gorbachev echoed this sentiment, writing: ‘‘There are two German states with different social and political systems. . . . And what will be in a hundred years is for history to decide. For the time being, one should proceed from the existing realities and not engage in incendiary speculation.’’37 These statements were certainly far from an endorsement of German unity; but they did represent progress from the Soviet stance, stated firmly from Khrushchev’s time onward, that the German question was closed and that the existence of two German states was an unalterable historical fact. After the conclusion of the INF treaty between the USSR and United States in December 1987, Moscow seemed even more ready to turn its attention to Germany. At about the same time, the leaders of the German states of Baden-Wu¨rttemberg and Bavaria, Lothar Spa¨th and Franz-Josef Strauss, made successful visits to Moscow. These two states were known to be the most prosperous in the Federal Republic, and the Soviets had high hopes for economically beneficial relations with them.38 The Strauss visit was especially noteworthy, as Strauss was known to be an advocate of using economic linkage in German Ostpolitik. He had been the prime mover, for example, in two credits granted to the GDR by the Federal Republic in 1983 and 1984 of DM 1 billion each, credits which persuaded the GDR to agree to concessions in the intra-German border regime. From January 17 to 19, 1988, Soviet Foreign Minister Eduard Shevardnadze visited Bonn, the first such visit since Gorbachev took office.39 Shevardnadze’s visit accelerated the German-Soviet rapprochement. The Soviets’ ongoing concern for economics was signaled by the two sides’ decision to extend the long-term agreement on economic cooperation initially signed by Schmidt and Brezhnev in 1978.40 The visit’s most notable 36. As recounted in Ash, Im Namen Europas, 162. 37. Gorbachev, Perestroika, 200. 38. Strauss was in Moscow from December 28 to December 31, 1987, and Spa¨th from February 8 to February 11, 1988. See the account of these visits in Kvitsinsky, Vor dem Sturm, 425–26. 39. For more detailed reports on the visit of Shevardnadze, see ‘‘Wir haben gro¨ße Pla¨ne,’’ Frankfurter Rundschau, January 18, 1988. The text of speeches by Shevardnadze and Genscher and of agreements reached at the meeting can be found in Bulletin, January 21, 1988. 40. This was the Agreement on Developing and Deepening Long-Term Cooperation Between the Federal Republic of Germany and the USSR in the Economic and Industrial Fields. As was noted in Chapter 3, this agreement had been billed in 1978 as a ‘‘twenty-five-year agreement.’’ However, formally it was a ten-year agreement that was to be extended by three addi-

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political result was in laying plans for the first Kohl-Gorbachev summit later in the year. However, Shevardnadze also made an important political concession by dropping Moscow’s long-standing objection to the inclusion of West Berlin in agreements with West Germany, allowing such long-stalled agreements as a cultural exchange pact to be signed.41 The visit also brought praise from the German chancellor and foreign minister for Moscow’s increasingly liberal emigration policy, which was allowing record numbers of ethnic Germans to leave the USSR. Throughout early 1988, developments continued to favor closer German-Soviet relations. German businessmen and bankers were steadily increasing their ties with Moscow; F. Wilhelm Christians, for example, the director of the Deutsche Bank, met with Soviet Prime Minister Ryzhkov and Foreign Minister Shevardnadze in the Soviet capital in March to discuss a major private loan to the Soviet state.42 Such a loan would have clearly been impossible without the backing of the West German government; hence, this ‘‘private’’ initiative must be considered another step toward the resumption of a positive general linkage strategy. Next, in May 1988, the West German economics minister, Martin Bangemann, visited Moscow for discussions on improving bilateral economic ties. Another notable sign of Moscow’s turn to the West in economic terms— which also had large political implications—was the opening of diplomatic relations between the USSR and the European Community in June 1988. The Soviets were obviously becoming more and more concerned that they would be excluded from West European markets when the community implemented the EC-wide Common Market in 1992. This concern provided another major source of economic leverage for Bonn, which was after all the largest and most influential member of the EC. Indeed, at the summit meetings of 1988 and 1989, Soviet leaders made no secret of their concerns about the EC and their desire for German support in improving their ties with the organization.43 tional five-year increments. The 1988 German-Soviet agreement extended the 1978 pact for the first of these five-year terms. 41. In previous years, it will be recalled, Moscow was willing to agree to the ‘‘Berlin Clause’’ only if the agreement in question was particularly valuable to the USSR; thus it allowed the clause to be included in several trade agreements, but not in some other pacts. 42. Pohl, Gescha¨ft und Politik, 192. Christians had been instrumental in arranging financing for many major German-Soviet projects, including the massive pipeline deals of the 1970s–early 1980s. He had also been one of the first foreigners to meet with Gorbachev after the new Soviet leader took power in 1985. Many other details on Christians’s activities can be found in F. Wilhelm Christians, Paths to Russia (New York: Macmillan, 1990). 43. For a good summary of Soviet attitudes toward the EC from the 1950s onward, see van Oudenaren, Detente in Europe, 275–82. Soviet concerns about the economic effects of the EC

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Finally, from October 24 to 27, 1988, Chancellor Kohl made his longawaited trip to Moscow to meet with Mikhail Gorbachev, accompanied by almost half of his cabinet.44 Immediately before Kohl’s visit the German side had provided an economic ‘‘carrot’’ of major proportions: a DM 3 billion loan to the USSR, to be used to buy machinery for Soviet light industry in Germany.45 As had often been the case in German-Soviet ties, this loan was made not by the German government, but by a consortium of banks led by the Deutsche Bank. Nonetheless, it was clearly used by Bonn for political purposes. Bonn had now made a decisive turn in its economic policy toward the USSR. No longer was it simply pursuing mutually beneficial, normal economic ties; it was actively providing economic support to the reformist Soviet regime. As the Frankfurter Allgemeine Zeitung noted in an editorial at the time: ‘‘We are now seeing not just an exchange of goods as with many other lands, but economic support for the Soviet Union. . . . Trade with the east, especially with the Soviet Union, which has always had a large political component, is now unmistakably being used to support political cooperation.’’46 The DM 3 billion loan was the clearest proof yet that a new era of positive general linkage was under way. As in the BrandtSchmidt years, this aid was not closely tied to specific Soviet political concessions—but did seek to pave the way for such concessions at some unspecified future date. It is well worth noting that this generous German economic aid was provided at a time when other Western states were still far more skeptical of Moscow’s intentions. The Warsaw Pact was still intact, and to many, the Soviet threat still seemed strong. Indeed, even two years later the United States would refuse to give economic aid to Moscow, since it still was not satisfied with Moscow’s foreign policy actions;47 in 1988 no one in WashingCommon Market were the major theme of Kohl’s talks with Prime Minister Ryzhkov at the Moscow summit in October 1988. See ‘‘Kohl in Moskau: Ohne Achtung der Menschenrechte kann es keinen Fortschritt geben,’’ Frankfurter Allgemeine Zeitung, October 26, 1988, 1–2, esp. 2. At the same meeting, Germany promised to intercede with another Western multilateral body on Moscow’s behalf: it offered to work to further reduce the scope of the COCOM restrictions on Western exports to the communist bloc. 44. The ministers of foreign affairs (Genscher), defense (Scholz), science (Riesenhuber), environmental affairs (To¨pfer), and agriculture (Kiechle) all accompanied Kohl. These ministers signed a total of six agreements on ministerial-level cooperation with their Soviet counterparts. 45. See Ash, Im Namen Europas, 168, and Fred Oldenburg ‘‘Sowjetische Deutschland-Politik nach den Treffen von Moskau und Bonn 1988/89,’’ Berichte des Bundesinstituts fu¨r ostwissenschaftliche und internationale Studien, no. 63 (1989): 62. 46. ‘‘Entwicklungshilfe,’’ Frankfurter Allgemeine Zeitung, October 28, 1988, 13. 47. Washington continued to resist a German-style policy of positive general linkage, and linked economic aid to a number of specific Soviet political concessions. For example, one issue which long delayed U.S. aid to the USSR was the fact that Gorbachev continued to support the

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ton—or in most Western capitals—was seriously advocating major aid to the USSR. Bonn thus established itself firmly as the USSR’s most reliable economic supporter in the West, a position which was certain to improve political relations with the financially hard-pressed Gorbachev regime. This difference with its Western partners tends to confirm that West Germany was using linkage to support its own national objectives, not just common Western aims. As would soon become obvious, Moscow’s weakness was such that Germany’s positive general linkage policy would bear fruit sooner than anyone expected. The first hints of this were already being noted by perceptive observers. During his time in Moscow Kohl visited the well-known GUM shopping center and saw firsthand how bad the Soviet economic situation had become. The Soviet ambassador to Bonn, Yuli Kvitsinsky, recalls: ‘‘I think that what met his eyes there [at GUM] told him enough. The beginnings of economic collapse were obvious, as was the collapse of Moscow’s public services. The internal conditions of the country stood in sharp contrast to the intact facade of our foreign policy. It was easy to see that this could not end well.’’48 The October Kohl-Gorbachev summit also brought other economic agreements and some political progress.49 On the economic side, the two leaders agreed to consider initiating a program for the training of Soviet economists and business leaders in West Germany—a further sign of the progressive penetration of Western economic thinking in the USSR. It was also agreed that the two sides should negotiate an accord guaranteeing that German investments in the USSR would be protected from possible future expropriation, a proposal that must have sent past Soviet leaders spinning in their graves. As Stent notes, the fact the Kohl brought along fifty West German businessmen to discuss joint ventures was much appreciated by the Soviets, as was Genscher’s statement that COCOM export controls should be loosened.50 Again, the Germans were deploying a large range of different positive linkage instruments. On the political side, apart from six specialized agreements on ministerial-level cooperation, the German negotiators won few immediate benefits. However, it was clear that the major political steps Castro regime in Cuba. The United States demanded that Moscow stop its aid to Castro before U.S. economic aid could be given. 48. Kvitsinsky, Vor dem Sturm, 430. 49. More details on the summit talks and the agreements reached at the meeting can be found in Bulletin, November 1, 1988. See also the account in Chernyaev, Die letzten Jahre einer Weltmacht, 228–30. 50. Stent, Germany and Russia Reborn, 67.

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in improving bilateral ties would be taken later: the two sides agreed to a second Gorbachev-Kohl summit in Bonn in mid-1989, at which time a major Joint Declaration was to be signed. This would be the first important bilateral political agreement since the 1970 Moscow treaty. During the eight months that separated the Moscow and Bonn summits, the climate surrounding German-Soviet ties changed dramatically. This change was caused by events within the USSR and in international affairs, all of which had been sparked by Gorbachev’s increasingly ambitious reform program. Within the USSR, rapid democratization was taking place. In March 1989, partially free parliamentary elections were held for the first time in the Soviet Union’s seventy-year history. The resulting Congress of People’s Deputies held its stormy opening session in May. Gorbachev seemed to be moving toward basing his right to rule on democratic legitimacy, a first for the USSR.51 Democratization not only changed Gorbachev’s role; it also created a new political elite in the country, which soon sought to participate in Soviet foreign policy. For example, the Congress of People’s Deputies formed committees to oversee foreign policy and defense matters, and such leaders of the Congress as Boris Yeltsin began making controversial statements on these topics.52 Meanwhile, equally dramatic developments were taking place in Soviet foreign policy. Gorbachev delivered a major speech at the United Nations in New York on December 7, 1988, in which he presented a version of Soviet ‘‘New Thinking’’ that was more radical than any seen to date. He promised to accelerate the demilitarization of Soviet foreign policy by unilaterally reducing the USSR’s armed forces by 500,000 men, and also stated clearly Moscow’s willingness to allow its satellite states to choose their own political paths. Soon, reformist leaders in Eastern Europe began to take Gorbachev at his word. The Hungarian communist leadership began to prepare for free elections and, in May 1989, began to dismantle the fortifications and barbed wire along the Hungarian border with Austria. The Polish lead51. Gorbachev was also, of course, still the general secretary of the CPSU. For the next two years Gorbachev would rule as both a quasi-democratic leader and the leader of the communist movement, eventually edging more toward the former role by allowing himself to be elected by the Congress of People’s Deputies as state president of the USSR. Finally, the attempted coup of August 1991 would end this situation of ‘‘dual power,’’ discrediting communist party rule and establishing democratic legitimacy as the key principle of government. 52. For example, in September 1989, when the East German government was tottering because of the huge rise in emigration from the country, Yeltsin called publicly for the GDR to open its borders. The East German leadership reacted harshly to this statement. See ‘‘Paper Criticizes Yeltsin Remarks on the GDR,’’ DPA release, September 19, 1989.

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October 1982, the Schmidt government was ousted in a parliamentary vote of no confidence and the Christian Democratic leader, Helmut Kohl, became chancellor. The period of economic linkage under Schmidt can be summed up as follows: Case 16 1974–82 Linkage type

German goal(s)

Positive general continues under Chancellor Schmidt (1978 twentyfive-year cooperative agreement to build interdependence; similar goal for many gas pipeline deals; generous credits)

General progress of relations; ‘‘improved atmosphere’’; keeping Germany out of new U.S.Soviet hostility

Results Unsuccessful: Cold War revives after 1979, although largely due to non-German factors

This case helps to show that positive linkage, while a strong weapon, is not omnipotent. Germany lacked the power in this case to insulate its bilateral ties with Moscow from the new freeze in the Cold War. Given the chill in the superpower relationship, Germany could offer no new economic incentives—because of both pressure from the United States and its own fears of the Soviets. Yet Moscow by now saw any slowdown in bilateral economic ties as a negative sanction. This exposes a possible general weakness in the incentives approach; after continuous use incentives may lead to rising expectations, so that more and more incentives are needed to have a political effect. If further incentives are impossible for whatever reason, the political effect is lost. It is thus not surprising that while positive general linkage seemed successful under Brandt, securing a number of political concessions in the 1970–73 package of treaties with the USSR and its East European allies, the same types of instruments failed under Schmidt. True, some small concessions were made by the Eastern side. Personal contacts between East and West Germany continued to be far better than they were before 1969, and it was clear to all concerned that the USSR had the ability to ultimately control those contacts. Also, the flow of ethnic German emigrants from the USSR had continued throughout the 1970s.156 Nonetheless, positive 156. Schmidt was quite proud of the progress on emigration, believing that it showed the superiority of his policy of ‘‘quiet diplomacy’’ over the U.S. policy of confrontational specific economic linkage (as embodied in the Jackson-Vanik amendment). As Stent notes, however, emigration of ethnic Germans began to decline after 1980 as the German-Soviet relationship cooled. See Stent, ‘‘The USSR and Germany,’’ 12. On the West German success in obtaining some concessions on human contacts (such as travel policy) from the GDR, see Stent, 17.

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ership lifted the ban on the Solidarity movement and scheduled largely free elections for June. At the same time, the ferment among Soviet commentators and academics over the direction of the USSR’s policy toward Germany continued. In the weeks before the June 1989 Kohl-Gorbachev summit, the possibility of movement on the crucial ‘‘German Question’’ seemed to be increasing rapidly. As was noted above, Vyacheslav Dashichev played an important role in sounding out new policy ideas. However, even more conservative Soviet leaders were now hinting that the German question remained open. Nikolai Portugalov, of the CPSU International Department, seemed to call for the dismantling of the Berlin Wall in an article in Der Spiegel, writing that the ‘‘two German apartments’’ in the ‘‘Common European Home’’ envisioned by Gorbachev should be ‘‘separate, with equal and independent tenants, yet open to each other, just as nowadays Austria and Hungary . . . are open to each other.’’ By referring to ‘‘two German apartments’’ Portugalov also implied that there was only one German nation. Although he still upheld the right of the GDR to exist, his acknowledgment that it had not succeeded in creating its own sense of national identity—as the East German leadership had long claimed—could not help but undermine the state. Vadim Zagladin, also of the CPSU International Department, gave an interview in which he hinted that even reunification was no longer out of the question: ‘‘ ‘Reunification is not on the agenda at present,’ he said, repeating significantly ‘not at present.’ ’’53 All these developments, in both the internal and external policy of the USSR, combined to create new opportunities for German diplomacy and ensured that the upcoming bilateral summit meeting would be of major importance. The second Kohl-Gorbachev summit took place on June 12–15, 1989, in Bonn. Its success seemed to confirm two important features of positive economic linkage noted in Chapter 1—its ability to produce both trust and positive spillover effects to political issues. As noted below, the personal trust and friendship between Kohl and Gorbachev was quite evident by this time, as could be seen in their private conversations. Also, the USSR’s willingness to make real political concessions to West Germany had increased greatly, as indicated by the provisions of the new German-Soviet Joint Declaration and a number of other joint agreements. Still, Germany was clearly 53. The citations from Portugalov and Zagladin are from Patricia Clough, ‘‘Gorbachev Advisors see ‘Open’ Germanys,’’ The Independent, June 7, 1989. See also N. Portugalov, ‘‘Im Geiste guter Nachbarschaft,’’ Sowjetunion Heute, June 1989, 10.

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using general positive linkage—its aid was not directly linked to the Soviet political concessions. On June 13, Kohl and Gorbachev signed the Joint Declaration which had been planned at the Moscow summit the previous October.54 According to the chancellor’s adviser Horst Teltschik, the declaration was particularly important in that it confirmed the USSR’s support for the principle of selfdetermination and stressed the primacy of international law in foreign relations. Bonn was later able to use both of these principles to defend German reunification and discourage Soviet military intervention.55 In another small but important shift in a traditional Soviet political position, the USSR agreed to slightly change the way in which the name of the Federal Republic was written in Russian, a change which seemed to some to imply that it was the main German state and not one of two equal German states.56 Another important political advance for the Federal Republic was the Soviet decision to explicitly include the notion of minority rights in the Joint Declaration. The fate of the roughly two million Soviet citizens with German ethnic roots had often been a matter of dispute between the USSR and Germany. Now, however, German negotiators had achieved a breakthrough on the rights of that minority. Bonn had concentrated for years simply on winning ethnic Germans the right to emigrate to the Federal Republic. Now such emigration had been liberalized to a remarkable degree. Whereas in 1986 only 753 ethnic Germans were allowed to leave the country, in 1988 47,563 emigrated, and in the first half of 1989 fully 41,809.57 However, it now seemed possible that the German minority in the USSR would be able to exercise its cultural and political rights within the USSR, a result which German negotiators had never before dared to hope for. From March 29 to 31, for example, the new umbrella organization of Soviet Ger54. For general accounts of the meeting, see Bulletin, June 15, 1989, as well as Barbara Donovan, ‘‘Gorbachev’s Visit to West Germany: A New Chapter in Relations,’’ Radio Free Europe Research: RAD Background Report, no. 106, June 19, 1989. The text of the Joint Declaration can be found in Bulletin, June 15, 1989, 542–44. For analysis of the document, see Barbara Donovan, ‘‘The Soviet-West German Political Declaration,’’ Radio Free Europe Research: RAD Background Report, no. 107, June 20, 1989. 55. As quoted in Kuhn, Gorbatschow, 37. 56. The change, from ‘‘Federativnaya Respublika Germanii’’ to ‘‘Federativnaya Respublika Germaniya,’’ although seemingly subtle and insignificant, had been sought by German negotiators for decades. The first version, usually rendered in English as ‘‘German Federal Republic,’’ uses ‘‘German’’ in the same way that it is used in ‘‘German Democratic Republic’’; the implication is that each state is equally German. The second version, usually rendered as ‘‘Federal Republic of Germany,’’ implies that the Federal Republic is the real Germany, not merely ‘‘German.’’ 57. Figures cited in Oldenburg, ‘‘Sowjetische Deutschland-Politik,’’ 51.

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mans, ‘‘Rebirth’’ (Vorozhdeniye or Wiedergeburt) held its founding congress in Moscow. In addition to the Joint Declaration, Gorbachev’s visit also resulted in the signing of eleven other joint agreements, including the treaty for the mutual protection of investments and the agreement for the training of Soviet business leaders in West Germany, both of which had been proposed at the October 1988 summit meeting. In examining the eleven joint agreements, it seemed to observers that the pact on the protection of investments was the most important.58 Implicitly, such arrangements to deepen German-Soviet economic links constituted a reward for Gorbachev’s new stance on political issues of importance to Germany, such as minority rights and the confirming of principles that would keep alive the possibility of eventual German unification. The importance Gorbachev attached to economic cooperation with Germany was underlined in the major speech he delivered to German business leaders in Cologne on June 13. The Soviet leader explicitly linked security and economic policy by calling on German businessmen to help with the Soviet program of converting defense industries to civilian production. This was a good expression of the Soviet desire for demilitarization and increased foreign investment—cutting foreign policy ‘‘costs’’ and increasing foreign policy ‘‘benefits’’—in one comprehensive package. Gorbachev even seemed to implicitly link economic cooperation to an eventual resolution of the ‘‘German Question,’’ saying that if economic barriers between East and West were removed, political barriers would fall as well. If economic barriers such as the COCOM lists were removed, this would promote integration in Europe, which ‘‘also affects you, the leaders of German business, since you, like all Germans, have felt the pain of this division [of Europe] especially deeply.’’59 Unknown to the general public, one of the most crucial events which helped to pave the way for eventual German unification took place behind the scenes of the Bonn summit. Gorbachev and Kohl had a lengthy private conversation while walking along the Rhine, a conversation that made a large impression on both leaders. Kohl’s account of this conversation is worth quoting in some detail: 58. Fred Oldenburg, for example, described it as the ‘‘tragfa¨higste Abkommen’’ (most substantive accord). Ibid., 15. 59. The text of the speech can be found in Sowjetunion Heute, June 1989, 20. For an analysis, see Oldenburg, ‘‘Sowjetische Deutschland-Politik,’’ 44–45.

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It was by then already clear to him [Gorbachev] that the era of the arms race was over, and he also saw that the Soviet Union could not in the long run match the concentrated industrial power of the West if it continued along this road [of confrontation]. . . . Then I came to the number one theme: It makes no sense to argue that GermanSoviet relations will become ties between partners and, later, friends, if the question of German unity is still unresolved, and it is an error to believe, as Gromyko always put it, that history has spoken its last word [on the subject]. . . . Then I pointed to the Rhine and said that this water will go to the ocean, and if the river is dammed up it will overflow and destroy the banks, but it will reach the ocean. So it is with German unification . . . [Gorbachev] listened and did not contradict me. . . . Then it was, I think, very important that at the end of the conversation we again spoke about the huge economic problems that [the Soviet Union] had. He asked if I could help him [with those problems]. I said, if I could help in any way then of course I would.60 The quid pro quo implied in the ‘‘walk along the Rhine’’ seemed clear: Gorbachev would consider allowing German unification if Germany helped the USSR with its economic difficulties. Admittedly, Gorbachev still had not fully made up his mind at the time. Nikolai Portugalov of the International Department of the CPSU later reported that Gorbachev had told him of his conversation with Kohl, and then asked Portugalov, ‘‘But reunification won’t really happen, will it?’’ Portugalov, already beginning to suspect that reunification was indeed possible, merely remained silent.61 Still, the importance of the tentative, implied ‘‘deal’’ between Kohl and Gorbachev in the ‘‘walk along the Rhine’’ conversation cannot be overestimated; Kohl himself saw it as a major turning point, and both leaders mentioned the conversation several times at crucial points during future meetings in 1990, by which time Germany was openly using positive specific linkage.62 Noted analyst Timothy Garton Ash considers the implicit linkage of the ‘‘walk along the Rhine’’ to be clear, and understandable, given the history 60. Kohl quoted in Kuhn, Gorbatschow, 33–34. Gorbachev, who was also interviewed for Kuhn’s book, essentially confirmed the chancellor’s account of the conversation (35–36). 61. Author’s interview with Nikolai Portugalov, Moscow, April 1994. 62. For example, as detailed in Chapter 5, Kohl mentioned this conversation during the July 1990 talks in Moscow and the Caucasus which finally settled the external aspects of German unification. Also, Gorbachev reportedly referred to the conversation when he urgently requested a large German loan in the spring of 1990.

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of German-Russian/Soviet relations. Ash believes that Gorbachev was so constrained by economic problems in the USSR ‘‘that he was relying, almost in desperation, on the Federal Republic to provide economic support. In turning to Germany for long-term support in the Herculean task of modernizing Russia, he was taking his place in a long tradition that reached back at least to Peter the Great. But he was also looking for short-term support, to hold back the growing economic crisis.’’63 Gorbachev’s assistant, Anatoly Chernyaev, also agreed that the June visit to Bonn marked a turning point in German-Soviet relations: ‘‘The most important result [of the summit] was that, even in the GDR both the leadership and the people understood that in the Soviet Deutschlandpolitik the Federal Republic would now have priority. It would also become the [USSR’s] most important partner in building a new Europe.’’64 In sum, the period from early 1987 to June 1989 saw a radical increase in the rate of change within the USSR and in Soviet foreign policy. At the same time, there was a radical increase in the closeness of German-Soviet political ties and the Soviet Union’s need for German economic help. How, though, were these developments related? As we have seen, political developments both within the USSR and in the country’s foreign policy were driven by the Soviet Union’s collapsing economy. Therefore, it is not surprising to find that economic needs also played a role in shaping Soviet policy toward Germany during the same period. Of course, a simple monocausal explanation of Soviet Deutschlandpolitik will inevitably be inadequate. One could point to other factors that also contributed to the warming of German-Soviet relations by the summer of 1989, such as the personal rapport that had developed between Gorbachev and Kohl and the fact that both leaders were of the same generation, having experienced the horrors of the Second World War as children, not as adult participants like previous German and Soviet leaders.65 However, the large role of economics became clear again and again, both in official statements and behind the scenes, culminating in the ‘‘walk by the Rhine.’’ During the 1987–89 period, in Ash’s words, ‘‘At least in the economic area, Bonn had become 63. Ash, Im Namen Europas, 177. 64. Chernyaev, Die letzten Jahre einer Weltmacht, 259. 65. Chancellor Kohl referred to this as the ‘‘Gnade des spa¨ten Geburts,’’ or ‘‘the blessing of being born later.’’ Kohl believed that the younger generation (born after 1945) had largely forgotten the war, while the older generation (which had fought in the war) was too consumed by guilt and anger to fully resolve the war’s traumas. Only the middle generation—represented by himself and Gorbachev—was properly situated to both remember the war and yet lay its ghosts to rest.

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Moscow’s most important partner. It was clear that in return Bonn expected progress in the German Question.’’66 As this section has shown, both the psychological effects of positive general linkage (its ability to win a target state’s trust) and its political effects (positive spillover into various aspects of the bilateral relationship) were helping to move Germany and the USSR closer together. The role of positive general linkage in strengthening the foundations of bilateral ties would prove vital in the tumultuous months ahead, as the GDR collapsed and German unification began to be openly discussed.

The Fall of the Wall and the Rise of German Unity Between June 1989 and February 1990 the issue of German unification moved from an impossible dream to a looming reality. During this tumultuous period German leaders continued to apply carefully modulated doses of positive general linkage. They used aid to reassure Moscow that West Germany remained a trustworthy partner and would not try to move too rapidly to exploit the USSR’s increasing weakness. Since Moscow retained levers it could use to stop the move toward unity—including military force—such patience was wise. In the end this strategy paid off, as Gorbachev agreed in principle to allow Germany unity. However, as we shall see in Chapter 5, an extensive package of specific positive linkage would be needed to ensure that unification would occur on the West’s terms. In the months that followed Gorbachev’s visit to West Germany, events in Eastern Europe spun rapidly out of control. In Poland, for example, a noncommunist prime minister was formally installed in August. Most notably, the GDR, which had still seemed relatively stable in June, was shaken by increasing political turmoil. Throughout the summer, East German refugees had been gathering in Hungary to attempt to cross the Austrian border. On September 11 the Hungarians finally decided to allow them to cross the border freely. The Soviets did nothing, which only encouraged the increasingly restive population of East Germany and the other East European states. In the ensuing weeks, thousands more refugees gathered in the West German embassies in Prague and Warsaw, and the chaos began to spread to the GDR itself. For several months, regular demonstrations had been held each Monday evening in Leipzig; the crowds at these rallies now began 66. Ash, Im Namen Europas, 187.

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to swell, eventually reaching into the hundreds of thousands. The East German authorities tried desperately to maintain a facade of order for the celebration of the fortieth anniversary of the GDR on October 6, 1989, particularly since Mikhail Gorbachev was planning on attending the anniversary festivities. Even these efforts backfired. For example, in hopes of defusing the crisis, the communist leadership agreed on September 30 to allow the refugees in the West German embassy in Prague to be sent by train through the GDR to the Federal Republic. Yet this only caused more disorder; in a desperate attempt to flee the country, thousands of East Germans rushed the trains when they passed. In the context of these explosive developments, Gorbachev’s visit to East Germany assumed great importance. Soviet commentators were again sending out mixed messages in the weeks before the visit, with some urging caution and others seemingly already predicting the imminent fall of the Berlin Wall. Gorbachev himself had raised hopes for major changes in Eastern Europe with his speech to the Council of Europe in Strasbourg on July 6, 1989, in which he seemed to definitively dismiss the Brezhnev Doctrine. Valentin Falin, head of the International Department of the CPSU, reportedly made a secret report to the party Politburo in September in which he warned that the GDR would soon be shaken by uncontrollable popular upheaval. However, other Soviet commentators continued to state firmly that ‘‘reunification was not on the agenda.’’67 In this uncertain environment, a variety of sometimes unlikely plans for progress on the ‘‘German Question’’ were put forward. For example, the noted West German professor Wolfgang Seiffert sent a memorandum to Gorbachev through Dashichev and Chernyaev which read like a revival of the Jaksch Plan of the mid-1960s. This document, titled ‘‘Scenario for the Ending of the Division of Europe and the Reunification of Germany,’’ proposed a huge package of specific positive linkage: the Federal Republic would provide DM 500 billion to the USSR over ten to fifteen years in 67. For the text of Gorbachev’s speech in Strasbourg, see Pravda, July 7, 1989. Falin’s report was leaked to the West and discussed in Die Welt, September 15, 1989. An article firmly stating that ‘‘reunification is not on the agenda’’ was published in Pravda, September 24, 1989. In another example of the mixed messages emanating from Moscow at the time, Foreign Minister Shevardnadze gave a cautionary speech on September 26 at the United Nations, in which he seemed to return to old-style rhetoric about the dangers of West German ‘‘Revanchism.’’ Joseph Fitchett, ‘‘Warning Seen in Shevardnadze Speech,’’ International Herald Tribune, September 28, 1989, 1–2. However, at the same time the October issue of the Moscow News carried an article by Vladimir Simonov, titled ‘‘How Realistic is German Unification?’’ which began with these lines: ‘‘One day we will be able to put it in a museum for abstract art. . . . I mean the Wall, which divides Berlin in two.’’

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return for a Soviet decision to allow German reunification. Before sending the document, Seiffert canvassed a number of leading West German businessmen and won their support for the project.68 Certainly, this idea can to some extent be dismissed as a fantasy—after all, as far as is known it had no official backing in Bonn. In any case, the time was not yet ripe for this type of linkage. The hard-line regime of Erich Honecker was still in power in East Berlin and was still adamantly opposed to any discussion of reunification. However, the idea of negotiating some sort of German-Russian Interessenausgleich (loosely, ‘‘mutually beneficial deal’’) did seem to permeate the later thinking of many Soviet leaders, as will become clear in Chapter 5. Even conservatives like Falin and Portugalov, who also examined the Seiffert proposal, seemed to regret in hindsight that they did not explore it further.69 After all, in the end the USSR did allow German reunification, and it received compensation that, while still quite large, was only a fraction of the DM 500 billion proposed by Seiffert. During his visit to East Germany, Gorbachev met privately with the East German Politburo and uttered the phrase which has since become immortal: ‘‘Life punishes those who come too late’’ [Wer zu spa¨t kommt, den bestraft das Leben]. Subsequently, the exact meaning of this phrase has been hotly debated; some, including Gorbachev himself and most of the former East German leadership, claim that the phrase was used by the Soviet leader in referring to his own difficulties in reforming the USSR.70 However, at the time political observers—and, more important, the people of East Germany—clearly interpreted Gorbachev’s statements as a clarion call for far-reaching change in the GDR. In fact, it was during the Soviet leader’s visit and in the days immediately following that the decisive moments of the East German Wende (revolution—literally ‘‘the turn’’) occurred. While the festivities for the fortieth anniversary of the GDR proceeded, thousands of counterdemonstrators were brutally attacked by the police. The following Monday, October 9, a massive demonstration was planned in Leipzig. Many expected that the East German government would order police and troops to fire on the demonstrators, following the example of the Chinese massacre of anticommunist protesters in Tiananmen Square in June. However, at the last minute the march was allowed to proceed peacefully. At that moment it became clear that the Honecker regime 68. See the discussion of the Seiffert plan in Kuhn, Gorbatschow, 45–46. 69. Ibid., 27–28, and author’s interview with Nikolai Portugalov, Moscow, April 1994. 70. See, for example, the statements by Gorbachev, the East German leader Egon Krenz, and others in Kuhn, Gorbatschow, 48–50.

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was doomed. On October 18, the East German leader was replaced and the way was opened to rapid reform in the GDR, reform that soon would lead to a collapse of the communist regime and a rising chorus of demands for German reunification. Some analysts now argue—with the benefit of 20/20 hindsight—that it was simply impossible for Gorbachev to stop the rush to German unification. The fact that many of the same analysts had argued for years that no Soviet leader would ever allow reunification was quickly forgotten. In fact, Gorbachev did have many options to stop or slow down unification, particularly in the fall and winter of 1989. The USSR still had its Four Power rights over Germany as a whole, dating from the Second World War. Thus it was a legal fact that no change in Germany’s status could occur without Soviet consent. The country was still respected as a major world power, which could cause many problems elsewhere if it was not satisfied on the ‘‘German question.’’ Finally, the USSR had some 400,000 troops in the GDR, which could be used for a variety of forceful gestures, up to and including some sort of direct military intervention. Conservatives in the Soviet leadership and Soviet army were clamoring behind the scenes for military intervention, and few in the West realize how close the USSR came to taking that dangerous step. At the time of the fall of the Berlin Wall Gorbachev sent Kohl a frantic message, warning that the situation was out of control and that, even without explicit orders from the Soviet side, a bloodbath could occur in East Berlin.71 Nikolai Portugalov, at the time second-in-command of the CPSU International Department, notes that Gorbachev had to use all his powers of persuasion repeatedly and forcefully to prevent some sort of intervention from taking place. If he had reacted passively or indecisively, the intervention would have occurred.72 The value of Gorbachev’s action in preventing military intervention cannot be overstated; it removed Moscow’s strongest trump card and made the way to reunification much smoother. After the ouster of Honecker on October 18, the new East German com71. The incident is described in Teltschik, 329 Tage, 19–20; and Kvitsinsky, Vor dem Sturm, 15. Excerpts of Gorbachev’s letter and Kohl’s reply can be found in Chernyaev, Die letzten Jahre einer Weltmacht, 266–67. At the time, Gorbachev’s message was seen as a possible warning of military intervention and was taken very seriously by Kohl. When it reached him, he was in the middle of addressing a jubilant crowd in Berlin; he promptly altered his speech to call for calm and urge his listeners not to follow ‘‘radical voices and slogans.’’ Great efforts were made in the following days to make sure that any incidents which could provoke military intervention were avoided. 72. Author’s interview with Nikolai Portugalov, Moscow, April 1994. Portugalov echoes these comments in Kuhn, Gorbatschow, 9–10.

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munist leader, Egon Krenz, attempted to implement a program of moderate, Gorbachev-style reforms in the GDR. Facing an even more precarious economic situation than Gorbachev, Krenz was also tempted to attempt to work out some sort of economic/political deal with Bonn. In a telephone conversation with Chancellor Kohl soon after his election as general secretary, Krenz reportedly offered to accelerate democratization in the GDR if ‘‘massive support’’ was forthcoming from West Germany.73 At the same time the East German Politburo was studying a program to effectively ‘‘sell the Wall’’ to the Federal Republic in return for West German help in coping with the GDR’s mounting hard currency debt.74 From this point onward, the need for West German economic help served to drive the process of radical change in the GDR to an even greater extent than it was driving the changes in Soviet policy. Seeing clearly the weakness of the East German regime, Kohl’s government resolved that it would give no economic aid until the GDR allowed free elections; this was a very effective specific economic linkage, which played a large role in speeding the collapse of the East German communist government.75 Krenz traveled to Moscow on November 1 to discuss his plans for domestic reform and foreign policy changes with the Soviet leadership. However, Krenz was fatally undermined by his own lack of credibility with the East German population—he was, after all, known to have been a long73. Kuhn, Gorbatschow, 66. 74. At its first meeting after the fall of Honecker, the Politburo commissioned a report on the country’s foreign debt and other economic problems, since the new leadership suspected that Honecker and a few trusted associates had been hiding the truth even from their own colleagues. When the report was presented, it made sobering reading. Its conclusion was that some 8 to 10 billion deutsche marks were needed immediately to stave off the GDR’s financial collapse, but that there was no prospect of Bonn providing these funds without presenting major ‘‘political demands.’’ In return for these funds, the authors of the report suggested offering ‘‘to make the border between the two German states superfluous in its current form.’’ As was confirmed in a later interview, this meant offering to open the Wall in return for economic aid. The rationale for this desperate move was clear: ‘‘The only alternative was to obtain more capital. . . . If we could not do this, there would in any case be no choice but to join [the Federal Republic].’’ See Jorg Ro¨sler, ‘‘Die Einfluß der Außenwirtschaftspolitik auf die Beziehungen DDR-Bundesrepublik,’’ Deutschland Archiv 26, no. 5 (1993): 570–71. For the full text of the report to the Politburo, see ‘‘Schu¨rer’s Krisen-Analyse,’’ Deutschland Archiv 25, no. 10 (1992): 1112–20. 75. Contemporary accounts provide countless examples of quite open West German economic linkage in relations with the collapsing East German government. For example, in his book Horst Teltschik recalls that, in crafting a plan for economic aid to the GDR to be offered at the December 1989 summit meeting between Kohl and Hans Modrow in Dresden, political conditions were given clearly: ‘‘The conditions given to the GDR leadership were to create a firm timetable for political and economic reforms. That was the price the GDR would have to pay for ‘investments in the future’ from the Federal Republic.’’ See Teltschik, 329 Tage, 30–31, also 78 and 88–89.

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time Honecker loyalist and an admirer of the Tiananmen Square massacre—and by the sheer force of the pent-up popular demands for radical change. In the end, Krenz simply did not have time to implement any of his domestic or foreign policy plans. In an effort to meet popular demands halfway, the increasingly desperate East German regime decided to loosen travel restrictions. On November 9, the new travel procedures were announced, which provided for unlimited issuing of visas for foreign travel. Misinterpreting a garbled announcement to mean that all travel restrictions had been abolished immediately, thousands of East Germans crowded through the border crossing points into West Berlin, in effect bringing down the hated Berlin Wall. On a secret visit to East Berlin on November 24, Valentin Falin reportedly criticized the East German leadership for opening the Wall without first obtaining a financial quid pro quo from Bonn, although the West Germans had been ‘‘ready to support the GDR rather generously.’’76 The opening of the Wall marked a qualitatively new period in the East German reform process, as the possibility of a reformed GDR began to fade and the chances for outright German reunification began to increase. Not surprisingly, November 9 was the day picked by Horst Teltschik, Chancellor Kohl’s personal assistant, to open his narrative of the rush to reunification, 329 Tage (329 Days). On the eleventh, Kohl telephoned Gorbachev, and, after a delicate mention of the Federal Republic’s intention to supply the USSR with generous economic support, was able to extract a statement from the Soviet leader that the developments in the GDR were that state’s internal affair and the USSR would not interfere. The chancellor was jubilant, believing that an important breakthrough had been achieved.77 On November 13, Hans Modrow was elected as the new minister president of the GDR. Almost immediately, on November 17, he proposed the creation of a Vertragsgemeinschaft (treaty community) between the Federal Republic and the GDR. Only four days later, Nikolai Portugalov of the CPSU International Department arrived in Bonn to meet with Teltschik.78 By his own account, Portugalov was serving two masters on this trip. Chernyaev, Gorbachev’s personal foreign policy adviser, had directed him to simply sound out the German government’s reaction to the fall of the Wall. However, his own 76. Ibid., 73–74. 77. Ibid., 28–29. 78. For accounts of this visit, see Kuhn’s interview with Portugalov (in Kuhn, Gorbatschow, 81–84), and Teltschik, 329 Tage, 42–44.

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boss, Valentin Falin of the CPSU International Department, had told Portugalov to try to draw out the Germans on the possibility of a plan along the lines proposed by Seiffert, in which the Federal Republic would provide massive economic aid—and make some political concessions—in return for Soviet acceptance of German reunification. In this environment, with both the Soviets and the East German communist leadership apparently speculating about the creation of some sort of poorly defined German confederation or even eventual German unification, Chancellor Kohl saw the chance to take the stage with his own bold plan for reunification. As Teltschik told Kohl after his meeting with Portugalov, ‘‘If Gorbachev and his advisers are already discussing the possibility of reunification and various associated problems, then it is high time for us to go on the offensive.’’79 Therefore, on November 28, 1989, Kohl delivered a major address to the West German Bundestag which became known as the ‘‘Ten Points speech.’’80 In this speech, Kohl laid out a ten-step process for deepening cooperation between the GDR and the Federal Republic, which would culminate in the creation of a federal state. Although no clear timetable was given for this process, the general impression among observers was that simply by stating the goal of reunification Kohl’s plan had accelerated events. The plan also contained a large dose of specific positive economic linkage directed at the GDR, in that Kohl stated that ‘‘I have offered to greatly expand our help and our cooperation if a major change in the political and economic system of the GDR is decided upon and irreversibly set in motion.’’ In the wake of Chancellor Kohl’s ‘‘Ten Points’’ speech, which showed that reunification was now definitely ‘‘on the agenda,’’ the possibility of a nonviolent but politically assertive response was discussed in Moscow. Some of the conservative group around Valentin Falin, the head of the CPSU International Department, advocated a quick, concrete counteroffer to the Kohl plan, which would take advantage of the fact that the old system in the GDR still had not collapsed entirely and allow Moscow to shape German unity along a path favorable to the USSR. Falin hoped that Kohl might be persuaded to make some key concessions—such as agreeing that the unified Germany would be neutral or at least outside NATO’s military command.81 79. Teltschik, 329 Tage, 44. 80. For the text of the speech, see Karl Kaiser, Deutschlands Vereinigung: Die internationalen Aspekte (Bergisch Gladbach: Bastei Lubbe, 1991), 158–68. 81. At least two distinct conservative factions could be identified at this time with respect to Soviet German policy. First, there were hard-liners who criticized the policy but were not involved in Soviet decision-making on Germany on a day-to-day basis, such as Yegor Ligachev and

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However, at the time Gorbachev and much of the rest of the Soviet establishment continued to believe that it was premature to even discuss unification. A Soviet foreign ministry spokesman rejected Kohl’s plan as being a diktat to the GDR which was ‘‘not in keeping with the universally adopted norms of relations between sovereign states.’’ At a news conference on December 3, Gorbachev condemned ‘‘any artificial attempt to accelerate the process.’’82 Repeatedly, Gorbachev and others stressed that the ‘‘postwar realities’’ in Europe—which included the existence of two German states—should not be altered. In this tense environment, it was still impossible for Bonn to use specific linkage to influence Moscow. Openly offering economic aid in return for Soviet consent to reunification would have outraged Soviet hard-liners and possibly forced Gorbachev to react with force. Instead, West Germany continued to apply patient positive general linkage, aiming to build trust, reassure the Soviets, and help them to adjust to the fact that reunification was now a real possibility—a possibility which should not be feared. On December 5, 1989, Foreign Minister Genscher traveled to Moscow to meet with the Soviet leadership. Gorbachev, still in shock over the Ten Points speech, had harsh words for the foreign minister, telling him, ‘‘You have written the music, and now you are marching to it.’’ Gorbachev maintained this attitude for the next month, even as the mood in the streets in East Germany shifted decisively toward support for reunification. When Chancellor Kohl visited Dresden on December 19, he was inundated by many representatives of the Soviet military. Second, within the circle of Soviet leaders active in negotiations with Germany there was a conservative group known informally as the ‘‘Germanists.’’ This group was made up of Soviet ‘‘German experts’’ who had been active in the foreign policy establishment long before Gorbachev came to power, and thus were little affected by the spirit of Gorbachev’s ‘‘New Thinking.’’ Valentin Falin, head of the CPSU International Department, was often regarded as the leader of this group, which also included his deputy Nikolai Portugalov; the Soviet ambassador to Bonn, Yuli Kvitsinsky; and several others. As was seen, for example, in the November 1989 visit of Portugalov to Bonn, this group sometimes seemed to pursue its own foreign policy initiatives without the full approval of Gorbachev or Shevardnadze. The ‘‘Germanists’ ’’ plans are discussed in detail in Falin, Politische Erinnerungen. Also, author’s interview with Nikolai Portugalov, Moscow, April 1994. There is, of course, no guarantee that the plan put forward by Falin and Portugalov would have succeeded in changing the conditions of German unification. However, the episode does help to refute the idea that the USSR somehow had ‘‘no choice’’ but to passively accept reunification on Bonn’s terms. 82. Foreign ministry spokesman Yuri Gremetskikh quoted in ‘‘Kremlin: Plan ‘Clear Attempt’ to Stir Nationalist Sentiment,’’ Washington Post, November 30, 1989. Gorbachev cited in Teltschik, 329 Tage, 63. See also the accounts of Shevardnadze’s speech in Brussels on December 19, in which he also stressed the ‘‘postwar realities’’ and the importance of the GDR as a strategic ally of the USSR. Edward Cody, ‘‘Shevardnadze Firm on the Germanys,’’ International Herald Tribune, December 20, 1989, 1–2; text of speech in Kaiser, Deutschlands Vereinigung, 181–85.

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enthusiastic crowds, chanting ‘‘Helmut, Helmut’’ and ‘‘Deutschland Einig Vaterland.’’83 Given Gorbachev’s commitment to allow the GDR ‘‘freedom of choice’’ and the right to self-determination—as expressed in the German-Soviet Joint Declaration which he had signed in Bonn in June—he could hardly ignore the will of the East German people. By the end of this period, to the dismay of the conservatives around Falin, the new mood in East Germany had eroded the possibility of creating a ‘‘deal’’ on reunification involving German aid on the massive scale proposed by Seiffert. Moscow’s bargaining power, while still important, was declining noticeably. During January 1990, the Soviet leadership gradually began to reconsider its essentially negative position on German unification. Would it not be better, some speculated, to admit that reunification was now likely and work actively to ensure that it would take place in a way favorable to the USSR? However, other leaders were apparently still stunned at the rush of events, and wondered if, after the Ten Points speech, the USSR could still trust Helmut Kohl and the West German government. In this context, Kohl’s decision in January to extend yet another economic carrot to the Soviet Union was of great political importance. As Kohl’s assistant Horst Teltschik recounts, the Soviet ambassador to Bonn, Kvitsinsky, contacted him on January 7 with a request from Shevardnadze for urgent economic aid: ‘‘He reminded me that the Chancellor had promised Gorbachev help during his visit to Bonn in June. He wanted to know if this offer was still in force. They now urgently needed help in the form of food deliveries, above all meat. . . . The Chancellor realized that Shevardnadze’s request offered the chance to improve the climate of relations with the Soviet Union.’’84 Kohl responded quickly, arranging within an hour to ship 120,000 tons of meat to the USSR. Within a few weeks, a final deal was arranged: the Federal Republic would send 52,000 tons of beef, 50,000 tons of pork, 20,000 tons of butter, 15,000 tons of milk powder, and 5,000 tons of cheese. The Soviet Union would pay for some of this aid, but Bonn would subsidize the purchase by DM 220 million. The reference by Kvitsinsky to the June summit meeting and Kohl’s promise of economic aid was noted quickly by the Germans: it was an implicit reminder of the ‘‘walk on the Rhine’’ conversation. This was an important signal, implying that the tacit understanding reached then—that German economic aid would help to ensure Soviet support of Germany’s 83. See the accounts of this visit in Teltschik, 329 Tage, 87–92, and Kuhn, Gorbatschow, 89–91. 84. Teltschik, 329 Tage, 100. For details of the final package, see 114.

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political agenda—was still valid. As Teltschik noted, ‘‘Such [aid] actions contribute more to the security of Europe than new weapons systems.’’85 Other observers have also seen the importance of Kohl’s rapid response to this Soviet aid request. Timothy Garton Ash notes that ‘‘it would of course be quite absurd to suggest that German unity was bought for 52,000 tons of beef. But this was an important and very specific signal that the prospect of Germany being Gorbachev’s greatest helper in his embattled attempt to modernize the Soviet Union was made not less but more real by the possibility of German unification.’’86 It should be reiterated that any linkage to German unity was not yet explicit (specific); the food aid still aimed, as mentioned above, to support the overall ‘‘climate of relations’’ between the two partners. Once again, positive general linkage was showing its value—in deepening mutual trust and leading to a positive spillover effect to other aspects of bilateral relations, as predicted in Chapter 1. The effects of this renewed goodwill soon became clear, as the Soviet leadership recovered from the shock of the previous two months and moved closer to accepting unification. As January drew to a close, the evidence mounted that the USSR had now decided that German unification could no longer be prevented. The best the Soviet Union could do would be to shape the process to ensure that its interests were respected. On January 24, Nikolai Portugalov gave an interview to a German newspaper in which he stated that ‘‘if the people of the GDR want reunification, then it will come. We will in no way oppose this decision and will not interfere.’’87 Less than a week later, on January 30, the East German minister-president, Hans Modrow, traveled to Moscow. Modrow faced serious political difficulties at home; he was still deeply unpopular, and had just been forced to agree to free elections on March 18, elections his party of ‘‘reform communists’’ seemed likely to lose. He thus decided to attempt to capitalize on the mounting demands for German unification by creating his own plan for unity, which he discussed with Gorbachev at their Moscow meeting. A number of the details of Modrow’s plan, such as its provision that a reunified Germany would have to be neutral, were not acceptable to Bonn. However, Gorbachev’s decision to accept the plan was a sensation, since he now openly admitted that, in principle, ‘‘no one casts any doubt’’ on the Germans’ right to unify. Not surprisingly, the following day the conservative German newspaper Bild printed a huge 85. Ibid., 102. 86. Ash, Im Namen Europas, 350. 87. Portugalov interview with Bild-Zeitung, January 24, 1990.

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headline, in the German national colors of black, red, and gold, saying, ‘‘He Said Yes!’’88 Within days of the Modrow visit to Moscow, Chancellor Kohl decided to take a major step forward on the road to German unity: he announced on February 6 that he would soon begin negotiations with the East German government over the creation of a monetary union. Here again was a clear example of the role of West German economic strength—and Eastern economic weakness—in driving the reunification process. It was universally understood that if a monetary union was created, reunification would be well on the way to becoming a reality. Yet there seemed to be little choice. East Germans were still crossing the open inner-German border by the thousands; some 60,000 had entered the Federal Republic in January alone, in addition to the 400,000 who had arrived in 1989. In these circumstances, it was difficult for even the most suspicious observers to believe that Bonn was deliberately exacerbating matters in the GDR. The simple fact was that even without deliberate action, the magnetic power of the mighty deutsche mark was irresistible. At the time it seemed clear that ‘‘if we want to keep them from coming to the D-Mark, we will have to bring the D-Mark to them.’’ Chancellor Kohl’s advisers worried, however, that the decision to negotiate the monetary union would be resented by the Soviets, since it came on the eve of Kohl’s planned visit to Moscow on February 10.89 During their February talks in Moscow, Kohl and Genscher repeatedly used the GDR’s perilous economic situation to justify their insistence that reunification must be allowed to proceed. They argued that any delay in reunification would simply lead to chaos in the GDR, which surely could not be in Gorbachev’s interests.90 They also, of course, were careful to mention the large West German shipment of food as an example of Bonn’s willingness to support the USSR. It is surely not coincidental that the final agreement on the food shipments had been signed the day before Kohl and 88. Serge Schmemann, ‘‘West Germans Assert Gorbachev Has Cleared Way to Reunification,’’ New York Times, February 1, 1990, 1. See also Michael Dobbs, ‘‘Gorbachev Appears to Soften Opposition to German Reunification,’’ The Washington Post, January 31, 1990, and Kuhn, Gorbatschow, 100–105. A clear statement of the new Soviet position was made by Shevardnadze on February 2: ‘‘I would like to stress that we have not had in the past, and do not have now, any problem with the principle of self-determination of the two German states. That is the natural right of peoples—the right to a free choice and to an independent path of development.’’ Quoted in ‘‘Shevardnadze Outlines Policy on German Unity,’’ TASS statement, February 2, 1990, Foreign Broadcast Information Service, Soviet Report (FBIS-SOV) 90–024, February 5, 1990, 33–34. 89. Teltschik, 329 Tage, 129–30. 90. Ibid., 130–31, 137.

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Genscher left for Moscow.91 Additionally, the Germans stressed that the GDR’s economic ties with the USSR would be upheld after unification. In the end, Gorbachev confirmed his position that ‘‘reunification is the business of the Germans.’’ Reunification would be allowed to proceed, with the USSR concerning itself only with the external aspects of the question. A jubilant Teltschik, who was present at the decisive Kohl-Gorbachev discussion, raced to record this statement accurately in his notes, while inwardly exulting, ‘‘This is the breakthrough!’’92 As the Germans’ reaction shows, Gorbachev’s decision was not easy or inevitable, as it sometimes appeared in retrospect. However, the USSR’s agreement in principle to German unification still did not resolve many questions. All sides knew that the Soviets retained important Four Power rights, and that a forum would have to be found to allow the USSR to express its views on the final shape of reunification. Such a negotiating forum, the so-called Two Plus Four process, was created less than a week after the Kohl-Gorbachev summit. The formula had been devised by Foreign Minister Genscher and the U.S. secretary of state, James Baker. It was formally agreed to by the Soviets at the meeting of the foreign ministers of the Four Powers and the two Germanys in Ottawa, Canada, on February 13.93 The basic notion of the process was that the ‘‘Two’’ (the two German states) would decide on the internal aspects of unification, while the ‘‘Four’’ (the Four Powers) would work with the Germans in resolving the external aspects of unification. The creation of the Two Plus Four process marks another point on which ex-Soviet ‘‘conservatives’’ and ‘‘liberals’’ disagree about the meaning of a particular course of action. Valentin Falin and the ‘‘Germanists’’ still berate Shevardnadze for agreeing to the Two Plus Four talks, and particularly for agreeing to name them ‘‘Two Plus Four’’ rather than ‘‘Four Plus Two.’’ They argue that it could have been possible to persuade the West to agree to true Four Power talks about the German question, from which the two Germanys would have been excluded. If that was impossible, at least Shevardnadze should have insisted that the Four Powers be at the center of deci91. See ‘‘Finanzielle Hilfe der Bundesregierung fu¨r die UdSSR zum Kauf von Nahrungsmitteln,’’ Bulletin, February 9, 1990. 92. See the account of the discussions in Kuhn, Gorbatschow, 108–11, and Teltschik, 329 Tage, 138–41. For the text of Kohl’s ‘‘Message to all Germans,’’ in which he discussed the results of the talks, see Bulletin, February 13, 1990. The official meeting communique´ can be found in Kaiser, Deutschlands Vereinigung, 192–93. 93. For the communique´ of the Ottawa meeting, see Deutsche Aussenpolitik 1990/91, 81.

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sion making, at most consulting with the two Germanys—that is to say, a Four Plus Two formula.94 In all, the period between the Kohl-Gorbachev summit of July 1989 and their next meeting in February 1990 saw dramatic advances on the question of German unity. By the end of this period, the USSR had made two key concessions. First, it had agreed to ‘‘decouple’’ the internal and external aspects of reunification. This meant that the two Germanys would be able to proceed with unification while its external aspects were still being debated. This was an important concession, since it allowed the Germans to, in effect, present the world with a fait accompli. Once the ‘‘internal’’ aspects of reunification were completed, Soviet power to affect the ‘‘external’’ aspects would decline greatly. Second, the USSR agreed at Ottawa to the creation of the ‘‘Two Plus Four’’ process for regulating the external aspects of unification. This, too, was a significant concession; it allowed the two Germanys to participate in the process as at least equal-ranking players, and it established a framework which included only the Four Powers and the two German states, thus making it difficult for Moscow to slow reunification by arguing that other countries should also be included.

Conclusion Initially, West Germany used linkage quite cautiously in its relations with Gorbachev’s government. Chancellor Kohl and his colleagues were well aware that Moscow was a superpower in the military sense and had long seemed relatively impervious to German economic penetration. However, as the true weakness of the Soviet economy and its foreign policy implications became clear, West Germany began to move more openly to a policy of positive general linkage. At first the inducements used were small, but soon more meaningful aid was given; the loan of DM 3 billion of late 1988 marked a key breakthrough to a policy of real economic support for the USSR. Still, however, Germany was careful to not tie its aid, either implicitly or explicitly, to any specific Soviet political concession. The ‘‘walk along 94. See Falin, and author’s interview with Nikolai Portugalov, Moscow, April 1994. There was some evidence that the West might have accepted a ‘‘Four Plus Two’’ formula. The British and French were thought to be particularly sympathetic to this idea; the British foreign secretary Douglas Hurd reportedly even mentioned the idea of ‘‘Four Minus Two,’’ that is to say, true Four Power talks. Also, the Western allies had agreed to one brief Four Power meeting in Berlin on December 11, 1989. In any case, this discussion again shows that Moscow was not necessarily doomed to passively allow German unity on the West’s terms.

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the Rhine’’ conversation between Kohl and Gorbachev at the Bonn summit in June 1989 marked another important stage in this policy. For the first time the ultimate objective of the linkage policy was hinted at: German economic aid would help to gain Soviet acquiescence to reunification. However, this linkage remained implicit. Even after events in the GDR began to take on a momentum of their own in the fall of 1989 Germany initially maintained its cautious approach. In summing up the case of positive general linkage outlined in this chapter, two key questions must be answered. First, what role, if any, was played by economic linkage in the key Soviet decisions outlined above—to approve German unification ‘‘in principle’’ and to permit the Two Plus Four negotiating process to begin? Second, if German aid did play a role, why was it able to succeed? Although the fact that general linkage was used in this case means that one cannot point to a single decisive linkage, economics did play an indirect role in Soviet decision-making in several ways. First, the Soviet Union was affected by both such concrete measures as the loan of DM 3 billion of late 1988 and the German food shipments, and by a more general concern for German economic power. Some analysts, like Vyacheslav Dashichev, had already raised the argument that a unified Germany would be a uniquely valuable economic partner for the USSR. It would combine the technical and management skills (and the hard currency) of the Federal Republic and the traditionally close links to the USSR of the GDR: ‘‘If East Germany is infused with West German capital and management, the long-established contacts between East German and Soviet industry could provide the channels for greater transfers of German high technology to the Soviet market.’’95 Other commentators were even more blunt about the apparent role of economics in the Soviet decision to allow unification to proceed: The Kohl-Gorbachev meeting [of February 1990] provides tangible proof that economic power checks military power today. Gorbachev has to know that he cannot stabilize his collapsing economy without the vital inputs East German factories and trading organization can provide him. And he knows that only West Germany has the economic muscle and the will to get the East German economy working again. The price Gorbachev must pay is unification. This in turn cre95. Quotation from Richard Smith, ‘‘The Reliance of the Soviets on Germany,’’ International Herald Tribune, February 2, 1990. For Dashichev’s views, see Dashichev, ‘‘Common European Home Conception.’’

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ates a new German superstate that will dominate the Soviet Union’s foreign trade and financial transactions for a decade or more. If a decade from now Gorbachev has fed and clothed his subjects well enough for them to have kept him in power, it will be due to German actions and decisions.96 Finally, even if one advocates the view that developments in the GDR helped to drive the Soviet decision to agree in principle to reunification, one must ask: what caused the events in the GDR? As we have seen, West German economic influence played a large role here as well. In all, then, the economic linkage case discussed in this chapter can be summarized as follows: Case 17 1988–1990 Linkage type

German goal(s)

Results

Positive general (Soviet bond sales in Germany beginning in 1987; the January 1988 renewal of the 1978 treaty; the DM 3 billion loan of October 1988 [the first large loan to the USSR by a Western state]; Joint Ventures; the food aid of January 1990)

General progress of relations; gradually closer link to specific German goals. (‘‘Walk on Rhine’’ talk between Kohl and Gorbachev in July 1989 as the first link between economic aid and German reunification)

Successful: German-Soviet ties improve dramatically, leading to ‘‘Gorbymania’’ summit in Bonn July 1989; FRG becomes more important to USSR than GDR; Soviets agree ‘‘in principle’’ to unity February 1990.

When we analyze the reasons for the success of German linkage in this case, several factors which relate to this study’s theoretical discussion can be raised. First, it became clear at a number of points between 1988 and early 1990 that the aid helped to significantly increase the level of trust between West German and Soviet leaders. Second, the aid also had an important positive spillover effect; once aid was given, progress was often made in political negotiations, even if neither side had made a direct (specific) economic-political linkage. Third, this case shows that—as postulated in Chapter 1—both economic and ideological weakness can increase a state’s vulnerability to linkage. As was detailed at the beginning of this chapter, the USSR’s economic problems played a large role in driving Gorbachev’s reform program in both domestic and foreign policy. This made German economic aid much more attractive. At the same time, the decline in com96. Jim Hoagland, ‘‘Unification: The Reason for Gorbachev’s Retreat,’’ Washington Post, February 12, 1990.

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munist ideology left Moscow unable to unite even its own leadership—let alone the entire Soviet people—to resist the West’s economic temptations. Instead, a new ideology of ‘‘common human values’’ spread steadily, hastening the USSR’s embrace of both norms and political goals advocated by West Germany for many years. The process of economic and ideological collapse was even more rapid in the GDR; thus, not surprisingly, that state was even more vulnerable to West German economic leverage. What might have happened if Bonn had not courted the Soviets so carefully with positive general linkage during this period? It is quite possible that Moscow would have trusted the West German leaders much less; hence German unification could have been delayed or achieved only on terms less acceptable to the West. It is even possible that the Gorbachev leadership would have succumbed to the pleas of hard-liners and used force to halt the move toward unity. After all, in the absence of economic aid it would have been much more difficult for Gorbachev to persuade his internal critics that ties with West Germany—and even, possibly, with a reunified Germany—could be beneficial to the USSR. It must be stressed, however, that despite the Soviet concessions in late January and early February 1990, the debate over reunification was far from over. The USSR still intended to induce Germany to agree to reunification on Soviet terms. Most important, it wanted the West Germans to agree that a united Germany would leave the NATO alliance and become neutral. A neutral Germany had long been anathema to the Bonn government and its Western allies, who had rejected Soviet overtures on this score since the Stalin note of 1952. The USSR was also determined to force Germany to agree to legally binding guarantees of its future borders, particularly the Oder-Neisse line, and to major restrictions on its armed forces. Finally, the Soviets would also continue for some months to attempt to slow the reunification process by suggesting a bewildering succession of ideas to either include other states in the negotiations or embed the negotiations in a vaguely defined ‘‘all-European process.’’ For example, Shevardnadze suggested in early February that a popular referendum on German unity should be held in every European state, as well as the United States and Canada, to ensure that Germany had international support for reunification.97 In short, Chancellor Kohl still faced many obstacles in his quest to win full Soviet support for German unity. As will become clear in the next chapter, a large package of specific positive linkage would be needed to resolve these key issues. 97. See Francis Clines, ‘‘Global Vote on Germany Urged by Shevardnadze May Slow Reunification,’’ New York Times, February 3, 1990.

5

Reunification and After

By February 1990 German reunification had begun to seem like a real possibility. The West German government had succeeded in winning Gorbachev’s consent to the abstract idea of unification. This concession, however, still did not resolve the truly crucial questions: When would Germany unite? And would a united Germany remain part of the West? For months to come Moscow would work hard to delay unification—for decades, if possible— and to force a future unified Germany to leave the NATO alliance or even join the Warsaw Pact. Furthermore, Moscow hoped to retain its Four Power rights over Germany even after unification and keep Soviet troops in the former GDR permanently. Clearly, such conditions would have left Germany without true freedom or sovereignty, a fate the West German government was determined to avoid. It pushed for Germany to unify rapidly, to remain in NATO, to gain full sovereignty, and to be freed from all Soviet troops. These conditions, though, would effectively mark the end of Soviet power in Eastern Europe, also effectively ending the USSR’s superpower status. How could Moscow be persuaded to accept this? This historic moment marked the triumph of Germany’s policy of posi-

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tive linkage. Four distinct cases of specific positive linkage can be noted during the 1990–92 period. First, West Germany had to assemble a massive package of economic aid to help win Moscow’s consent to German unification on Bonn’s terms. This was accomplished by July 1990. Yet before unification could truly be secured, three further doses of specific positive linkage were needed, as the reunification deal was ‘‘signed, sealed, and delivered.’’ First, the deal had to be signed—formalized in the September 1990 Two Plus Four Treaty. This permitted unification to take place on October 3. Second, the deal had to be sealed—as the treaty was ratified by the Supreme Soviet in March 1991. It was only at that point that Moscow’s Four Power rights over Germany were finally terminated. Finally, the reunification package had to be delivered—that is to say, implemented—with the gradual withdrawal of Soviet troops from the former GDR. Each of these three additional political concessions required further doses of specific positive linkage by the Germans. It was only at the end of this process, with the completion of the Soviet troop pullout in August 1994, that the German goal of a united country, whole and free, was truly achieved. This chapter will detail, then, four cases of successful positive linkage. Why was linkage so successful at this time? As we shall see, the reasons that can be cited seem to fit well with the observations made in Chapter 1. For example, West Germany had carefully built up a relationship of trust with Moscow, through years of positive spillover from a mostly positive linkage policy—from the time of Brandt to the more recent linkage detailed in Chapter 4. Additionally, the USSR (and later, Russia) were especially vulnerable to economic linkage in 1990–92. As was discussed at the start of this study, governments may be particularly susceptible to linkage when they have very weak economies and are democratizing, exposing them to intense popular demands for a better standard of living. Finally, positive linkage was able to win political allies for Germany within the collapsing USSR, since aid benefited some groups more than others, another phenomenon discussed in Chapter 1.

The ‘‘Package Deal’’ Emerges: February to July 1990 In the five months that followed the important February 1990 meetings in Moscow and Ottawa, the question faced by West German negotiators was obvious: how could the USSR be induced to agree to German reunification on Bonn’s terms? The Federal Republic simply could not accept some of

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the points raised by Moscow, notably the concept of a neutral Germany and the suggestion that German unity must be delayed until an ‘‘all-European’’ security system had been fully implemented. It was gradually decided in Bonn that Moscow must be offered a ‘‘package deal’’ of sorts. As Teltschik later put it, ‘‘The key question was—what ‘price’ would finally have to be paid so that the Soviet Union would be ready to accept [German] NATO membership and the dissolution of the Four Power responsibilities?’’1 Bonn would make some limited political concessions, but in order to obtain its main demands it would have to pay a ‘‘price’’ of significant economic aid. As in the previous two years, positive linkage would be used. This time, though, it would be specific positive linkage, tied clearly to the issue of obtaining German unity on West German terms. The problems Bonn faced in its ties with the Soviets were large and not easily resolved. For some time after the February meetings in Moscow and Ottawa, the USSR maintained its hard-line positions on several key elements of the ‘‘external aspects’’ of German unification. Observers speculated that this was due in part to Gorbachev’s need to appease conservative forces within the Soviet hierarchy.2 Gorbachev and Shevardnadze insisted that German unification be postponed until after progress had been made in converting the loose, thirty-five-nation ‘‘Helsinki process’’ (formally the CSCE, Conference on Security and Cooperation in Europe) into a true allEuropean security organization.3 Much to the distress of the Germans, the Soviets did not seem to have a clear idea of what this suggestion really meant. In any case, German diplomats were very unhappy with the idea of involving thirty-five states in negotiations over German unity. The Soviets also persisted for several months in insisting that German unity would have to be sealed by a formal peace treaty, since no such treaty had been signed after the Second World War. Here again, the Germans balked; they feared that every state which had been involved in the war against Hitler— including those which had only been nominal members of the anti-Nazi 1. As quoted in Kuhn, Gorbatschow, 123. 2. See, for example, Alexander Rahr, ‘‘Conservative Opposition to German Reunification,’’ RFE/RL Report on the USSR, May 11, 1990, 15–17. Numerous examples of articles in the Soviet press expressing hard-line views could be cited; see, for example, M. Aleksandrov, ‘‘German Unification and an All-German Home,’’ Literaturnaya Rossiya, March 16, 1990, 16–17; reprinted in Joint Publications Research Service (JPRS), UIA-90–007, April 27, 1990, 3–6. 3. See the statement of Shevardnadze in Paul Lewis, ‘‘Shevardnadze Calls for Meeting This Year on German Unification,’’ New York Times, February 16, 1990, and that of Gorbachev in Pravda, February 21, 1990. In his statement Gorbachev also explicitly called for a peace treaty before unification.

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alliance, such as many South American countries—could be brought into the negotiations. The Soviets also continued to insist that some way be found to ensure that the reunified Germany not be a full member of the NATO alliance. Among the possible alternatives put forward by Moscow were the following: the unified Germany could be a member of the Warsaw Pact; it could be a member of both NATO and the Warsaw Pact; or it could be entirely neutral. Alternatively, the former West German lands could remain in NATO, while the former East German lands could be neutral, could remain in the Warsaw Pact, or could at least stay neutral or in the Warsaw Pact for a transitional period. Yet another option was that the united Germany could remain a formal member of NATO, but would have to drop out of the organization’s unified military command, as France had in the 1960s.4 None of this bewildering array of options was acceptable to Bonn or its Western allies. Meanwhile, despite the USSR’s demand that the process of German unity be slowed down, the situation in the GDR continued to push unification forward. In view of the ongoing economic collapse of the GDR, discussions between East and West German negotiators on monetary union were hurriedly opened on February 20, 1990. The lure of rapid unification with the prosperous Federal Republic played a major role in ensuring a victory for the ‘‘Alliance for Germany,’’ sponsored by Kohl’s CDU, in the March 18 East German parliamentary elections. The East German elections dealt a stunning double blow to the Soviet effort to slow reunification and ensure that it would occur within the guidelines laid down in Moscow. First, the election removed the Modrow government from office, a government that had basically supported the Soviet view of unification—as seen, for example, in Modrow’s cautious January 30 reunification plan. Second, the election brought to power a regime that was tightly tied to the Kohl government in Bonn and had been elected on a platform of the most rapid 4. See the discussion of Soviet options in Kuhn, Gorbatschow, 130–31. In an interview printed in Pravda on March 7, Gorbachev flatly stated that ‘‘We will not agree [to German membership in NATO]. That is absolutely out of the question.’’ ‘‘Phased Approach Needed,’’ Pravda, March 7, 1990, 1, 5; reprinted in FBIS-SOV-90–045, March 7, 1990, 24–26. The option of a united Germany being a member of both military alliances for a five-to-seven-year transitional period appears in Craig Whitney, ‘‘Soviets Flesh Out View on Germany,’’ New York Times, April 11, 1990, A1. Nikolai Portugalov proposed adopting a ‘‘French status’’ for Germany in NATO during his meeting with Teltschik on March 28, and also demanded a formal peace treaty as a condition of reunification. Teltschik, 329 Tage, 183–88. See also the account of the visit of Valentin Falin to East Berlin in mid-May, during which he still insisted that a neutral Germany was the only way to avoid ‘‘another German invasion of the Soviet Union.’’ Kuhn, Gorbatschow, 138.

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possible reunification. The change in East Berlin from the Modrow government to that of Lothar de Mazie´re ensured that the USSR would be isolated at the upcoming Two Plus Four talks, and that the time available to Moscow to influence the external aspects of German unification would be limited. This timetable would be further accelerated on May 18, when the GDR and the Federal Republic signed a treaty of monetary union, to take effect on July 1. Additionally, as had been the case since at least the summer of 1989, Moscow’s negotiating position was being undercut by the statements of various Soviet academics and commentators. On March 20, Dashichev gave an interview to the German newspaper Die Welt in which he stated that it would actually be in Moscow’s interests to have a united Germany be safely ‘‘tied down’’ by membership in NATO rather than being a neutral ‘‘loose cannon.’’ Other commentators such as Alexander Bovin, Mikhail Bezrukov, and Andrei Kortunov soon echoed these views.5 However, despite these statements—which gave the West Germans some reason to hope that Moscow’s position on the external aspects of German reunification was not set in stone—the Soviet side continued to officially stick to its demands. In view of the Soviet position, Bonn decided to respond by offering some limited political concessions. First, it was decided in mid-February that, although Bonn still insisted that the united Germany remain in NATO, it would agree that NATO troops would not advance into the territory of the former GDR after unification.6 Second, the Federal Republic agreed in March to allow Poland to participate partially in the Two Plus Four talks. Germany would also make a firm declaration on the permanence of the Oder-Neisse border before unification, although it still refused to sign a legally binding border treaty until after unity was achieved.7 Along with these limited political concessions, Bonn began to prepare a large package of economic aid for the USSR, which will be detailed in the remainder of this section. As we shall see, this package included virtually all the instruments of positive linkage cited in Chapter 1, again showing how 5. See ‘‘A United Germany Must Be Bound Within the Framework of NATO,’’ Die Welt, March 20, 1990, 9; Alexander Bovin, ‘‘Deutschland in der NATO: Warum Nicht?’’ Die Zeit, March 23, 1990, 53; and Mikhail Bezrukov and Andrei Kortunov, ‘‘The German Sphinx,’’ New Times, April 10–16, 1990. 6. Teltschik describes the formal German decision on this point, which occurred on February 19. Teltschik, 329 Tage, 152. 7. For details on the Oder-Neisse issue, see Randall Newnham, ‘‘Poland and Germany, 1989–1991: The Role of Economic Factors in Foreign Policy,’’ The Donald W. Treadgold Papers in Slavic Studies, no. 26 (June 2000). The right of Poland to participate in the talks was officially conceded by Bonn at the first preparatory meeting of the Two Plus Four talks on March 14, 1990.

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vital it is to look at many instruments to gain an accurate view of the role of economic incentives. The German side was well aware that, in view of the USSR’s increasingly obvious economic weakness, such aid could play an important role in smoothing the way to reunification on Bonn’s terms. The February summit in Moscow had merely strengthened this view. Teltschik records that Chancellor Kohl was quite clear on the importance of economic linkage in a speech to the CDU leadership on April 23: Kohl repeated his view that economic ties to the Soviet Union would be of central importance to the unification process. This applied above all to the upholding of the GDR’s obligations [to the Soviets]. He would therefore suggest economic aid for the Soviet Union and Eastern Europe at the world economic summit [G-7 summit] in Houston. For the Soviet Union the question of future economic ties would be more important in the end than the NATO membership of Germany.8 As noted in Kohl’s speech, the first element of the West German aid package to Moscow to take shape was the concept that the Soviets must be fully cushioned against any losses caused by the collapse of their economic ties to the GDR. The GDR, as a long-time Soviet ally and member of the CMEA, had extensive trade links to the USSR. It was the USSR’s leading Eastern trading partner, just as the Federal Republic was the country’s largest Western trading partner.9 It also was involved in a variety of joint ventures and cooperative research and investment schemes under the CMEA umbrella. For example, the GDR had committed itself to help the Soviets pay for developing the massive Yamburg gas field in Siberia. It was clear that after East and West Germany signed a monetary union agreement, which would in effect annex the GDR to the Federal Republic in economic terms, there would be no basis for the GDR’s economic ties to Moscow. Most of the trade and investment links were unprofitable in strictly economic terms. The issue of the effect of unification on GDR-Soviet economic ties had been raised by Gorbachev at the Moscow summit in February, and was soon being discussed within the West German govern8. Teltschik, 329 Tage, 204. 9. For more on the importance of GDR-Soviet economic links, see Heinrich Vogel, ‘‘Die Vereinigung Deutschlands und die Wirtschaftsinteressen der Sowjetunion,’’ Europa-Archiv, no. 13–14 (1990): 408–14; Popper, ‘‘Eastern Europe’’; and Alexei Kireyev, ‘‘What’s the Price of a West German Mark?’’ New Times, June 5–11, 1990, 12–13.

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ment. A Soviet diplomatic note to Bonn, delivered on April 19, confirmed that this issue was of ‘‘cardinal importance’’ to the USSR.10 A way would have to be found, even at great cost, to ensure that the GDR’s economic commitments to the Soviet Union were kept intact after German monetary union. The next element of the Federal Republic’s package of aid to the USSR was the offer of a comprehensive treaty of friendship and cooperation to bind the two countries after German unification. This idea was first broached within the West German government in early April, and was officially discussed with the Soviet ambassador, Yuli Kvitsinsky, on April 23.11 This proposed treaty became known in German and Soviet circles as the ‘‘big treaty,’’ since it would unite the provisions of such previous bilateral agreements as the 1970 Moscow Treaty and the Joint Declaration of June 1989 into one comprehensive agreement. The ‘‘big treaty’’ was both a political and an economic document; while it would not in itself contain any explicit economic aid, it would commit the united Germany to stand by the USSR in the future, in all ways. This commitment was important to the Soviet leadership, which feared that if it agreed to unification on Bonn’s terms, it would lose all leverage over Germany and thus forfeit any hope of maintaining a close economic and political relationship with the country after unification. Kohl and his government seemingly saw no legal difficulty in proposing to immediately negotiate this treaty on behalf of the future united Germany, although they had adamantly refused to negotiate a treaty with Poland committing the united Germany to respect the Oder-Neisse line. The offer of the ‘‘big treaty’’ certainly played a role in changing the Soviet view about the future united Germany; more and more, it was seen as a valuable potential partner rather than a threat. In fact, at the time Kohl made the offer, the usually cautious Ambassador Kvitsinsky responded that he hoped that it would mark ‘‘a return to the good times of Russian-German cooperation in the spirit of the Bismarckian tradition.’’12 This reply was encouraging, but probably also somewhat embarrassing to the Germans, since they were eager to avoid giving the impression that Germany was striving to create an alliance or a Rapallo-like ‘‘special relationship’’ with Moscow. Still, it did show the powerful positive spillover effect that aid could cause, as was discussed in Chapter 1. 10. ‘‘UdSSR gegen raschen Beitritt,’’ Su¨ddeutsche Zeitung, April 21, 1990. 11. For accounts of the origin of this treaty proposal, see Kvitsinsky, Vor dem Sturm, 19–20, and Teltschik, 329 Tage, 192–93 and 204–7. 12. Kvitsinsky, Vor dem Sturm, 19.

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Next, a third element of Bonn’s economic aid package for Moscow began to fall into place: the concept of a large, immediate West German loan to the Soviet state. By the late spring of 1990, the USSR’s financial situation was becoming increasingly perilous. Soviet Prime Minister Ryzhkov reportedly declared bluntly in May that ‘‘we have no more money,’’ while one of Gorbachev’s advisers said, ‘‘Without large credits from the West, we will not be able to build the market economy.’’13 In this situation Germany’s commitment to help the USSR when it ran into economic difficulties—as expressed by Kohl in his private talk with Gorbachev on the banks of the Rhine in June 1989—became increasingly vital to the Soviets. The idea of an immediate large German loan to Moscow was first broached by Shevardnadze during his meeting with Chancellor Kohl on May 4, a meeting Horst Teltschik later described as a ‘‘key discussion’’ (Schlu¨sselgespra¨ch).14 Shevardnadze confirmed that he was making this request on behalf of Gorbachev and Ryzhkov. As had been the case with many past credits, it was agreed that private banks would provide the loan, and the Bonn government would guarantee it. In view of the worsening economic situation in the USSR, it was clear to all sides that no such loan could be made without the active support of the German government. Along with his request for a German credit, Shevardnadze made a political concession: he tentatively agreed that a summit meeting between Kohl and Gorbachev could be arranged for mid-July. This was seen as highly important by the German side, since it was clear that no such meeting would be agreed to unless there was a real expectation of a major breakthrough on the external aspects of German unification. Shevardnadze also hinted that a compromise was possible in the NATO question. Fully aware of its political significance, the German side acted quickly to respond to Shevardnadze’s credit request. Kohl immediately contacted the directors of the two largest German banks, Deutsche Bank and Dresdner Bank. Within days, it had been arranged that Horst Teltschik and representatives of the two banks would travel to the Soviet capital to discuss the proposed credit. On May 13, Teltschik arrived in Moscow with the speaker of the Deutsche Bank, Hilmar Kopper, and the president of the Dresdner Bank, Wolfgang Ro¨ller.15 A German diplomat stationed at the embassy in Moscow at the time confirmed that this mission was very unusual in its se13. Quoted in Zloch-Christy, East-West Financial Relations, 100. 14. For an account of this crucial meeting, see Teltschik, 329 Tage, 218–21. 15. For accounts of this visit, see Kvitsinsky, Vor dem Sturm, 24–31, and Teltschik, 329 Tage, 226–28 and 230–35.

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crecy; the embassy knew nothing about it until after the visitors had departed. Even the German Air Force, which provided the plane that took Teltschik to Moscow, was not informed of the identity of the passengers. Also, the fact that such a theoretically ‘‘low-ranking’’ delegation—led only by the chancellor’s assistant, Teltschik—should be allowed to meet privately with Gorbachev, Ryzhkov, and Shevardnadze was quite unusual.16 In their talks with Ryzhkov and Shevardnadze, the German delegation soon learned that the Soviet side was hoping for a credit package that would total some 20 billion deutsche marks. The Soviets hoped that this credit could be given for a term of ten to fifteen years, with no payments due in the first five years. The Germans agreed to provide a credit of DM 5 billion—smaller than the Soviet request, but still the largest credit ever granted to the USSR in its seventy-year history. Clearly, this credit was politically motivated: in his talks with Ryzhkov and Shevardnadze, Teltschik stated that he thought that ‘‘if we can reach agreement today, this will also help to settle the problems in the area in which Shevardnadze is conducting negotiations [i.e., the talks on German unification].’’17 He also explicitly connected this new credit to the Kohl-Gorbachev ‘‘walk on the Rhine’’ of June 1989, thus again emphasizing the perceived economic/political linkage. In addition to the large West German loan, another economic ‘‘carrot’’ was also offered by Teltschik during his secret May visit to the Kremlin. Teltschik proposed that Bonn cover the costs of maintaining the Soviet army in the GDR after that country adopted the West German mark.18 For some time, Moscow had been aware that if monetary union proceeded, it would need huge amounts of hard currency to maintain its troops in East Germany; this concern had been mentioned by the Soviets as early as February, soon after the start of intra-German talks on monetary union.19 As the talks proceeded in the spring of 1990, Moscow’s fears grew. Now Teltschik brought explicit assurances that Bonn would provide the necessary hard currency to maintain the Soviet garrison. The importance of Teltschik’s mission and the resulting massive loan to the USSR cannot be underestimated; it was clearly a major part of the ‘‘package deal’’ of specific positive linkage which eased the way for Soviet 16. Author’s interview with Herr Scha¨fer, then of the Bundeskanzleramt, Bonn, June 1994. 17. Cited in Kvitsinsky, Vor dem Sturm, 28. 18. See Stephen Szabo, The Diplomacy of German Unification (New York: St. Martin’s Press, 1992), 84. 19. See ‘‘Moskau erwa¨gt harsche Note an Bonn,’’ Stuttgarter Zeitung, February 28, 1990.

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acceptance of German unification on Bonn’s terms. As the analyst Fred Oldenburg notes, ‘‘All support for the USSR must be understood as part of the entire package solution to the German question. When Shevardnadze agreed [to the loan], the connection of ‘Money and Unity’ was established beyond any doubt.’’20 Most German officials remained coy in public about the increasingly obvious specific linkage between the massive German aid to the USSR and Soviet approval of German unification on Bonn’s terms. However, in private the linkage could be spelled out more clearly, as one leading official of the West German Defense Ministry did in early May: ‘‘We are suggesting that if the Soviets are forthcoming, that we’ll probably give them something that will be of the utmost importance to Gorbachev’s economic and political program of reform. If, on the other hand, they set out to stall or block German reunification, I can imagine that would certainly impact on our willingness to assist in assuring that Soviet reforms succeed.’’21 The political nature of the proposed credit to Moscow of DM 5 billion was made even more clear as Chancellor Kohl moved to finalize the deal. On May 21 he met with the German bankers who had traveled to Moscow with Teltschik, confirming to them that he would agree to the deal only ‘‘if it was made clear in advance that the Two Plus Four talks would be concluded successfully.’’ Also on that day he directed Teltschik to convey the same message to the Soviet embassy in Bonn, and he then prepared a letter to Gorbachev which again restated the linkage. In this letter Kohl also made it clear that the so-called ‘‘big treaty’’ of friendship and cooperation could only be signed if Germany were allowed to reunify promptly, and demanded that ‘‘a constructive solution to the outstanding questions’’ be found ‘‘before the end of the year.’’22 It was becoming increasingly obvious to all that, with the race to reunification nearing its conclusion, Kohl had moved from general to specific linkage: no further aid would be forthcoming if Bonn’s plan for German unity was not approved—and approved quickly. The final loan agreement, which was approved on June 22, 1990, provided for a credit of DM 5 billion, to run for twelve years, with no payments 20. Fred Oldenburg, ‘‘Die Deutschlandpolitik Gorbatschows, 1985–1991,’’ Berichte des Bundesinstituts fu¨r ostwissenschaftliche und internationale Studien, no. 17 (1992): 29. 21. As quoted in Diana Schemo, ‘‘Analysts Say Gorbachev May Use Unity Talks to Aid U.S.S.R.,’’ Baltimore Sun, May 6, 1990. 22. The meeting with the bankers and the contents of the Kohl letter are discussed in Teltschik, 329 Tage, 243–44.

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due for the first six and a half years of the loan. In strictly economic terms, it was clear that the loan was at best useless and at worst counterproductive, as a devastating critique in the newspaper Handelsblatt made clear.23 Unlike any other German credits to any other countries, the loan was being given without being tied to any purchases from Germany or to any Soviet economic reforms. In all probability, the loan would simply ‘‘disappear into the huge hole of a chaotic Soviet economy.’’ It would also be extremely risky; the banks involved showed that they were well aware of this by agreeing to hold only 10 percent of the loan on their own portfolios, instead of the customary 15 percent. The German state would, in all probability, lose not just 5 billion but almost 10 billion deutsche marks on the loan, since it had guaranteed the repayment of not only the principal of the loan, but also the DM 4.6 billion in interest which would accrue on the credit. However, politics, not economics, had dictated the terms of the credit, and it went ahead despite the warnings of the financial community. In political terms, it was to prove quite successful. In addition to the credit of DM 5 billion, Kohl and his government soon added another ‘‘sweetener’’ to their package of economic aid: the Germans would try to persuade other Western states to aid the USSR as well. This proved to be a difficult task. Despite the Federal Republic’s persistent claims that aid to the Soviets was ‘‘good for the West’’ or ‘‘good for the world economy,’’ other Western leaders were well aware that the main reason for Kohl’s sudden interest in supporting Gorbachev was that it was ‘‘good for Germany.’’ It is instructive to contrast the German attitude on aid to the USSR with that of other major powers, such as the United States and Japan, as was done in Chapter 4 when discussing Germany’s loan to the USSR of DM 3 billion in 1988. Tokyo and Washington preferred to pursue their own national goals—not Germany’s—in relations with Moscow. At the end of May Gorbachev traveled to the United States for a summit meeting with President Bush. Despite intensive effort, he was unable to convince the U.S. leader to even sign a trade treaty with the USSR, let alone provide any major economic aid. The United States continued to hold to its own distinct policy of specific economic linkage, and demanded further 23. Citations in this paragraph are from Klaus Engelen, ‘‘Von Schmidt-Gierek Nichts Gelernt,’’ Handelsblatt, June 27, 1990. As Engelen notes, the only other large, untied credit ever given by the Federal Republic was a credit of DM 1 billion given by Chancellor Schmidt to the Poles in 1975. This loan, too, had been given for political purposes, despite clear signs that it was foolish in economic terms. See also ‘‘Deutscher Jumbo-Kredit fu¨r die Sowjetunion perfekt,’’ Neue Zu¨rcher Zeitung, June 25, 1990.

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Soviet concessions on such issues as the question of Soviet aid to Cuba and the treatment of the Baltic republics, which were then agitating to secede from the Soviet Union.24 Similarly, Japan also preferred to use its aid policy to pursue its own national goals: it was pursuing a negative strategy of denying all aid until the USSR agreed to return the disputed Kurile Islands. As the Japanese prime minister reminded Kohl when the German leader urged him to help Gorbachev: ‘‘The Chancellor has emphasized the connection between financial support and the Soviet attitude toward German unity. However . . . similar positive developments have not yet taken place in Asia and the Pacific region. . . . The question of the Northern Territories [Kuriles] is still unresolved.’’25 However, despite the negative reaction of many of its partners, Germany persisted in its efforts to persuade the West to aid Gorbachev. Kohl was aware that this could only help his efforts to obtain rapid German unification. Whether or not additional aid could be squeezed out of the other states, Kohl would at least get credit in Moscow for trying. Therefore, the chancellor used every opportunity to obtain more aid for the USSR. He stressed the issue in a series of letters to other Western leaders and in his bilateral meetings with them, as well as at the multilateral EC and G-7 summits in late June and early July. He was unsuccessful in inducing the other states to give more aid; at both summits the participants would only agree to write cautiously worded declarations of support for Gorbachev and to set up commissions to study the problem further.26 Nonetheless, as Kohl had hoped, his show of support—coupled with the rejection of the other states—helped to convince Moscow that Germany was its most reliable partner in the West. In addition to the parts of the German ‘‘financial package’’ mentioned thus far, another area deserves to be discussed: government-backed Hermes export credits, designed to guarantee Soviet payment for German exports to the USSR. Throughout 1990, the Bonn government continued to allow Hermes credits to be issued freely for exports to the Soviet Union. By May, 24. See the account of this meeting in Chernyaev, Die letzten Jahre einer Weltmacht, 291–93. 25. Letter from Prime Minister Kaifu to Kohl, as reported in Teltschik, 329 Tage, 290–91. For more on Japanese-Soviet economic linkage, see Randall Newnham, ‘‘How to Win Friends and Influence People: Japanese Economic Aid Linkage and the Kurile Islands,’’ Asian Affairs 27 (winter 2001): 247–60. 26. The discussions at the Dublin summit of EC leaders are reported in Teltschik, 329 Tage, 287–88. For details of the G-7 meeting in Houston, see Teltschik, 329 Tage, 305–10, and Bulletin, July 13, 1990.

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the Soviets had over DM 10 billion in such credits outstanding.27 For years, Germany had claimed that its policy of issuing Hermes credit guarantees to the USSR was merely a matter of economic routine, despite the clear evidence that it was in fact an indirect form of economic aid and was politically motivated. However, with the USSR sliding ever closer to bankruptcy by mid-1990, the fiction that the credit guarantees were not political became ever more transparent. It was estimated in May that the USSR had racked up over DM 1 billion in arrears on payments to West German exporters in the previous six months alone. In these circumstances, it was clearly irrational in economic terms for the Federal Republic to continue to freely grant export credit guarantees to the Soviets. Respected financial analysts such as F. Wilhelm Christians of the Deutsche Bank firmly rejected the idea of giving any additional credits to the USSR in these circumstances.28 However, the Hermes credits continued to be granted. There could only be one reason for this: it was politically impossible for Bonn to stop issuing Hermes guarantees, or even to restrict them by attaching new limitations to the credits, in the midst of the debate over German unification. Thus, the continuing flow of Hermes credits—despite the ever-increasing risk that they would never be repaid—must be considered part of the German financial ‘‘package’’ that helped to induce the Soviets to accept reunification. Throughout May and June 1990, however, the Soviet leadership still continued to make efforts to shape the external conditions of German unification. At the May 5 meeting of the foreign ministers of the Two Plus Four group, held the day after he had met with Kohl to request a German credit, Shevardnadze insisted that German membership in NATO was still not acceptable. He further suggested that the ‘‘inner’’ and ‘‘outer’’ aspects of German unification did not have to be solved at the same time. Perhaps Germany could reunify internally but still be subject to Four Power controls for some time, until all external aspects of reunification were settled.29 Needless to say, the German side did not react positively to these suggestions. In late May, at a meeting with French President Franc¸ois Mitterrand, Gorbachev also stuck to a hard-line position. He made it clear that Soviet troops would not be withdrawn from the GDR unless a plan for German 27. See ‘‘Schon jetzt starke Unterstu¨tzung fu¨r Osteuropa,’’ Frankfurter Allgemeine Zeitung, May 2, 1990. 28. The estimate on Soviet arrears and the opinions of Christians can both be found in Michael Wall, ‘‘Bonn, Money, Moscow, and Unity,’’ AP Wire report, May 21, 1990. 29. For a complete text of Shevardnadze’s statement, see Pravda, May 6, 1990. Extensive excerpts can also be found in Kaiser, Deutschlands Vereinigung, 212–17.

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reunification was found which pleased Moscow.30 Soon thereafter, Gorbachev traveled to Washington for a summit with George Bush; here, too, he made it clear that he was not willing to accept the membership of a united Germany in NATO.31 Finally, at the second meeting of the Two Plus Four foreign ministers, held in East Berlin on June 22, Shevardnadze surprised the assembled delegates by presenting another hard-line plan for German reunification. He suggested that after reunification Germany could remain a member of both NATO and the Warsaw Pact for a period of five to seven years, and that during this time Four Power rights would continue to be in force. He also demanded that the united German army be reduced to 250,000 men, barely half the size of the current West German force alone. Finally, he suggested that all foreign forces be withdrawn from a united Germany, with Western forces in Berlin being withdrawn only six months after unification—long before the Soviet forces surrounding Berlin would be removed.32 Again, the Federal Republic, supported by its Western allies, firmly rejected the Soviet plan. It was generally believed that this was the last serious effort by Soviet hard-liners to influence the reunification negotiations. Gorbachev and Shevardnadze apparently needed to show their conservative opponents at home that they had at least tried to obtain a neutral Germany, particularly in view of the fact that the Twenty-Eighth Party Congress of the CPSU was about to open in Moscow.33 The Germans believed that if they again sweetened the ‘‘package deal’’ 30. John-Thor Dahlberg, ‘‘Gorbachev Warns West on German Role in NATO,’’ Los Angeles Times, May 26, 1990. 31. See the accounts of the Washington summit in Szabo, Diplomacy of German Unification, 85–88. Teltschik reports that the U.S. secretary of state, Jim Baker, told the press bluntly after the meeting that no progress had been made on the key issues related to German unification. Teltschik, 329 Tage, 255. 32. This plan had been worked out by such conservative thinkers as Kvitsinsky, who had been summoned back from Bonn to become deputy foreign minister in May. For a copy of the plan, see Kvitsinsky, Vor dem Sturm, 41–46. For an account of the East Berlin meeting, see Oldenburg, ‘‘Die Deutschlandpolitik Gorbatschows,’’ 30, and Serge Schmemann, ‘‘Shevardnadze Seeks Curbs on Forces in New Germany,’’ New York Times, June 23, 1990. Shevardnadze’s speech at the meeting was printed in Pravda, June 23, 1990, 6. 33. Conservatives in the USSR had stepped up their attacks on German unification as the summer proceeded. For example, at the congress of the hard-line Russian Communist Party on June 19, General Makashov of the Urals military district bluntly stated that a unified Germany would surely be a military threat, and that analysts who asserted otherwise were speaking in ‘‘formulas which are calculated to appeal to the feeble-minded. . . . Only a blind person or a criminal can fail to see this.’’ He also condemned the fact that ‘‘the Soviet army is being driven without a fight out of countries which our fathers liberated from fascism.’’ See ‘‘Makashov Addresses 19 June Russian Conference,’’ FBIS-SOV-90–120, June 21, 1990, 92–93.

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they were offering to the Soviets the decisive political breakthrough could finally be achieved. There was some evidence that seemed to show that the specific positive linkage was having an effect. The top Soviet leaders had been more forthcoming in their private statements than in public; Shevardnadze, for example, had told Western diplomats at the East Berlin Two Plus Four meeting that his hard-line presentation was mainly intended to protect Gorbachev from conservative critics at home, and that compromise was still possible. Also, both Gorbachev and Shevardnadze had signaled that the elements of the German financial package presented thus far would influence their positions on the decisive political questions of reunification. In his June letter to Kohl thanking him for the offer of the credit of DM 5 billion, Gorbachev stated that he was sure that the external aspects of German unification could be resolved soon and that a German-Soviet summit could be scheduled for mid-July. Teltschik evaluated this letter as ‘‘a positive response to Kohl’s statement [in his letter to Gorbachev of May 22] that he hoped that the credit would ease the way to the solution of the German Question.’’34 At the July German-Soviet summit in Moscow, Gorbachev again confirmed the impact of the loan of DM 5 billion, calling it a shrewd ‘‘chess move’’ which came at exactly the right time.35 Shevardnadze, too, seemed to be aware of the linkage between German economic help and a resolution of the political problems of German unification. When Genscher told him that the credit of DM 5 billion had been approved, he ‘‘reacted euphorically and made it clear that other questions could now be resolved.’’36 In all, the Germans hoped that the sentiment expressed in an article in Literaturnaya Gazeta in early July was shared by the Soviet leadership: ‘‘Up to now, the main efforts of Soviet diplomacy have been geared to preventing a united Germany from becoming a part of NATO. Yet this question may, to all appearances, be considered settled. Would it not be better to pay more attention to the economic aspect?’’37 At about this time Germany also took two other steps that provided large economic benefits to Moscow. Both had been discussed at a series of midlevel German-Soviet meetings in May and June. In each case, the actions were designed to compensate the USSR for possible financial losses caused 34. Teltschik, 329 Tage, 265. 35. Cited in ibid., 325. 36. Ibid., 249. 37. A. Kortunov and A. Izyumov, ‘‘What Lies Behind the Government’s Interests in Foreign Policy,’’ Literaturnaya Gazeta, no. 28 (1990): 14; cited in Suzanne Crow, ‘‘The Changing Soviet View of German Unification,’’ Radio Liberty Report on the USSR, August 3, 1990, 3.

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by the economic union of the GDR and the Federal Republic, which was scheduled to take place on July 1, 1990. However, this ‘‘compensation’’ was in fact deliberately structured to be especially beneficial to the USSR, as part of the overall German effort to use specific positive linkage to persuade Moscow to accept Bonn’s plan for German unification. First, following up on the commitment made by Teltschik during his May visit to Moscow, Germany agreed to provide the USSR with DM 770 million in immediate aid to pay for the expenses of the Soviet occupying army in the GDR.38 With the impending changeover to the deutsche mark in East Germany, these troops would have found themselves penniless without West German aid. Their units would have also been unable to pay utility bills or buy food from local suppliers. Thus, from July 1 West Germany was in effect paying the salaries of the Soviet army in East Germany, a step which surely reduced any residual possibility that these troops could be used to stop reunification, and indeed gave the Soviet military a direct financial stake in allowing reunification to proceed. As we shall see, this effort to court a key power group within the USSR would soon pay dividends. Although German and ex-Soviet officials have come to regard this financing arrangement for the Soviet military in the GDR as perfectly normal, in reality it is one of the most extraordinary examples of economicpolitical linkage seen in this study. It must be recalled that at the time this arrangement was made there was no agreement on when—if ever—these troops would be withdrawn. The GDR was still in existence and still a member of the Warsaw Pact. West Germany and NATO were still in theory directing the bulk of their military effort to oppose the force West Germany was now financing. Germany was in effect ‘‘buying out’’ the entire 400,000-man Soviet army in the GDR, an army that had been the primary security threat to the Federal Republic for over forty years. A clearer illustration of the ability of economic power to counter military force can hardly be imagined.39 Finally, as a second sign of Bonn’s determination to show the USSR that German unification would bring only economic benefits, West Germany agreed to permit the USSR to continue to purchase GDR products with rubles after the East German changeover to the deutsche mark. This would be a concrete way to ensure that East German–Soviet economic ties were 38. Author’s interview with Dr. Go¨ckel, East-West Economics Desk, German Foreign Ministry, Bonn, June 1994. See also Teltschik, 329 Tage, 279. 39. For more on this case, see Newnham, ‘‘Army for Sale?’’

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maintained after the creation of the all-German monetary union, as Bonn had long pledged.40 Again, this measure was officially considered to be merely an effort to help the Soviets avoid economic losses, but in reality it provided a major windfall to the USSR. The rationale for the measure was simple; since it was not convertible into hard Western currency, the socalled ‘‘Transfer Ruble’’ used in trade between the USSR and GDR would no longer be valid after the introduction of the deutsche mark. This would mean that numerous contracts for East German deliveries to the USSR could not be fulfilled, imposing a noticeable loss on the Soviets. Bonn decided to solve this problem as follows: it would allow Russian buyers to pay for East German shipments by giving rubles to the West German government, which would exchange them at a rate of DM 2.34 per ruble and pay the East German supplier. The arrangement would remain in place from July 1 to the end of 1990. In the end, this generous measure proved to be extremely expensive. The possibility of turning virtually worthless rubles into deutsche marks led to an amazing array of illegal and semi-legal transactions. East German and Soviet companies concluded many new trade arrangements in the months following July 1, often selling nearly worthless GDR products to Soviet buyers at grossly inflated prices. The Soviet buyers would pay in rubles, and the resulting windfall of deutsche marks would be split by the East German and Soviet firms. Even legitimate transactions resulted in similar economic distortions, since much existing East German–Soviet trade involved goods that were grossly uncompetitive and thus virtually worthless. In the end, some 10.5 billion rubles were converted into DM 23.5 billion by this arrangement.41 Some DM 18 billion of this involved shipments to the USSR.42

Reaching the Summit: July 1990 By early July, then, a tempting package of economic aid had been laid before Moscow. The USSR’s trade and investment links to the former GDR 40. See, for example, accounts of the visit of West German economics minister Helmut Haussmann to Moscow in late May, shortly after Teltschik’s secret visit to the Soviet capital. During this visit Haussmann agreed to a communique´ which stated that Bonn would ensure that the creation of the monetary union ‘‘did not affect the interests of the USSR or the obligations of both German states resulting from existing agreements and treaties with the Soviet Union.’’ Gerhard Hennemann, ‘‘Moskau erwartet von Bonn einen Lastenausgleich,’’ Su¨ddeutsche Zeitung, May 23, 1990. 41. Author’s interview with Herr Vaubel, Referat for Foreign Trade, Ministry of Economics, Bonn, June 1994. 42. Author’s interview with Herr von Studnitz, Referat for Poland, Foreign Ministry, Bonn,

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would be upheld—and indeed, made more lucrative—after reunification. The so-called big treaty would ensure that overall German-Soviet economic and political cooperation would continue. A loan of DM 5 billion would be extended to the Soviets. The Red Army troops remaining in the GDR would be maintained at Bonn’s expense. West Germany would continue to try to wring more aid for the Soviets from other Western states. And Hermes export credits would continue to flow freely, regardless of Moscow’s ability to repay them. The Federal Republic was using many of the linkage instruments mentioned in Chapter 1 simultaneously. It had been made clear to the Soviets, however, that this aid was part of a positive specific linkage package. It was contingent upon their willingness to make concessions in the ‘‘German question.’’ Accordingly, by July 1990 the prospects that the Soviet Union would agree to German reunification on Bonn’s terms began to increase. The CPSU Congress was winding down; and despite some attacks from conservatives, Gorbachev’s position remained secure. A decisive breakthrough occurred on July 11. After Kohl’s return from the Houston G-7 summit, at which he had argued strongly for increased Western aid to the USSR, the German leader received an invitation from Gorbachev to visit his home area of Stavropol during the upcoming German-Soviet summit. The Germans were jubilant: they were sure that Gorbachev would never have invited Kohl to his home in the Caucasus region unless he was sure that the visit would be friendly and successful. The upcoming summit in Moscow and the Caucasus would be the decisive moment in the creation of German unity. All observers now realized that, in the words of one Western diplomat, ‘‘two-plus-four is really becoming one-on-one. The game is really now between the Germans and the Soviets.’’43 Kohl, Genscher, and the German finance minister, Theo Waigel, departed for the Soviet Union on July 14.44 The presence of Waigel was one more indication that economic linkage would continue to be an important part of the ‘‘package deal’’ for German unification that Bonn had been asMay 1994. The Transfer Ruble policy was also applied to East German trade with the other CMEA states. 43. Quoted in Frederick Kempe, ‘‘West Germany Lends the Soviets $3 Billion While Seeking Concessions,’’ Wall Street Journal (European Edition), June 22, 1990. 44. See Stent, Germany and Russia Reborn, 131–37. For perhaps the best ‘‘insider’’ account of the July summit, see Teltschik, 329 Tage, 316–42. Another interesting account, based on official meeting protocols from the Soviet side, is provided in Mikhail Gorbachev, Gipfelgespra¨che: Geheime Protokolle aus meiner Amtszeit (Berlin: Rowohlt, 1993), 161–77. See also Chernyaev, Die letzten Jahre einer Weltmacht, 305–6, and Szabo, Diplomacy of German Unification, 98–102 and 106–8. For the texts of the press conference given by Kohl and Gorbachev after the meetings and Kohl’s declaration upon returning to Germany, see Europa-Archiv, no. 18 (1990): D479–D490.

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sembling for months. As is confirmed by Horst Teltschik, who participated in all the Gorbachev-Kohl meetings in July 1990, the crucial meeting of the summit took place in Moscow on the morning of July 15, before the leaders departed for southern Russia.45 Kohl informed Gorbachev that if no solution to the thorny problems of German membership in NATO and Soviet troop withdrawal could be reached, the German delegation would simply return to Bonn. Kohl then reminded Gorbachev of the major elements of the ‘‘package deal’’ Germany was offering. He mentioned the June 1989 ‘‘walk on the Rhine,’’ with its implied economic/political linkage. Then, to further show his sincerity, the chancellor handed Gorbachev a draft of the so-called big treaty, the proposed long-term treaty of German-Soviet friendship and cooperation. Kohl expressed his willingness to negotiate this treaty on behalf of the united Germany even before unification, a questionable tactic in international legal terms. He also reminded Gorbachev of his efforts to win Western aid for the USSR at the Houston (G-7) and Dublin (EC) summits. As he had told other East European leaders, Kohl told Gorbachev that the road to Europe—that is to say, the road to closer cooperation with the West—ran through Germany. He then pointedly reminded Gorbachev of the economic/political linkage underlying these economic ‘‘carrots,’’ stating that ‘‘all efforts for financial and economic cooperation are part of the package deal,’’ in other words, they were predicated on Soviet cooperation on the external aspects of reunification.46 Gorbachev agreed to all the crucial German political demands: Germany could remain in NATO, the USSR would renounce its Four Power rights as soon as reunification was completed, and the Soviet troops would be withdrawn from the GDR. In making these concessions, though, Gorbachev was careful to note that they were not unconditional. He insisted, for example, that a treaty be drawn up providing for German support for the Soviet troops in the former GDR until their withdrawal, as well as German help in resettling those troops in the USSR. The Soviet protocol of the meeting shows that Gorbachev began to haggle with Kohl quite specifically: Kohl

We could provide help with the retraining of members of the army for civilian professions, particularly for those which will be needed for the transition to a market economy. Gorbachev And housing.47 45. For an account of the crucial Moscow meeting, see Teltschik, 329 Tage, 319–24. The importance of this meeting was also confirmed from the Soviet side. Author’s interview with Nikolai Kolikov of the Gorbachev foundation, Moscow, March 1994. 46. Teltschik, 329 Tage, 321. See also Szabo, Diplomacy of German Unification, 100. 47. Gorbachev, Gipfelgespra¨che, 175.

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Although in retrospect some analysts have asserted that Gorbachev had no choice but to make major political concessions, at the time the German delegation was elated; Teltschik made it clear that the result was a ‘‘sensation’’ and ‘‘we had not expected such clear statements by Gorbachev.’’48 Furthermore, it was clear to all that there were causal links between this unexpectedly decisive victory and the German package of economic aid. As Gorbachev himself put it during the crucial Moscow meeting: ‘‘Some have implied that we are selling the victory which we won at such a high price and with so much sacrifice [in the Second World War] for German Marks. One should not oversimplify the connection, but we must also see that this is a reality.’’49 The following day, at the mountain resort of Arkhyz in the Caucasus Mountains, the two sides continued their discussions and fleshed out the details of the tentative agreements reached in Moscow. The Germans outlined the latest additions to the package they were offering the Soviet side. At the meetings the previous day, Gorbachev had mentioned the importance of German financial support for the Soviet troops during their remaining time in the former GDR, and had also again called attention to the importance of the GDR’s many economic agreements with the USSR.50 The German side thus knew that to ensure that the political concessions made by Gorbachev were translated into reality more reciprocal economic concessions would have to be forthcoming. The German side was already providing temporary financial support for the Soviet forces in East Germany. It now agreed to fund those forces until they were withdrawn, and also agreed to a massive program for building housing for the troops in the USSR. The Soviets had hinted for several months that their country’s housing shortage could delay the withdrawal of the troops from Germany.51 At Arkhyz, the Germans succeeded in speeding up the withdrawal of the troops by promising generous financial support. When Gorbachev told the German delegation that the troops could only be withdrawn in five to seven years, Kohl promptly stated his offer of help for the retraining and housing of the returning troops, and Gorbachev 48. Teltschik, 329 Tage, 324. 49. Gorbachev, Gipfelgespra¨che, 171. 50. Teltschik, 329 Tage, 324–25. 51. On May 25, for example, Soviet officials had confirmed that they had stopped the partial withdrawal of their forces from the GDR—which had been taking place under the terms of Gorbachev’s December 1988 offer to unilaterally cut Soviet forces—because of the shortage of housing in the USSR for returning soldiers. See John-Thor Dahlberg, ‘‘Gorbachev Warns West on German Role in NATO,’’ Los Angeles Times, May 26, 1990.

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then amended his estimate of the time required for the withdrawal to ‘‘three or four years.’’52 Again, the causal link between aid and Soviet concessions was clear. The two sides also discussed details of the German plan to ensure that the GDR’s obligations to the USSR for the costs of maintaining the Soviet army in East Germany were fully met. The GDR had long covered part of the cost for the stationing of Soviet troops on its territory; thus the West German agreement to do the same was in formal terms merely an extension of the East German commitment. However, as was the case with the Transfer Ruble provision to support GDR-USSR trade (outlined above), both sides were surely aware that the West German commitment to subsidize the Soviet army was in reality much more beneficial than the old arrangement with the GDR. The troops would be receiving the same number of marks as before, except that now the marks would be West German rather then East German. It was obvious to all that the deutsche mark was far more valuable than the old East German currency. In order to formalize both sets of German commitments to the Soviet army in the GDR—the aid for the maintenance of the troops as well as the special program for their withdrawal and resettling in the USSR—it was decided that two separate treaties should be negotiated: one on the conditions for the presence of Soviet troops in the former GDR after reunification, and one for their withdrawal ¨ berleitungsvertrag). (the U The question of the economic agreements between the USSR and GDR was also dealt with. It was agreed that Soviet Prime Minister Ryzhkov would send a letter to Kohl listing all the existing agreements between Soviet and East German firms, and that these would be upheld as far as possible by the German side. It was also agreed that a special arrangement would have to be negotiated for Soviet-owned property in the GDR.53 Finally, as noted above, it was agreed that the comprehensive German-Soviet cooperation treaty would be negotiated before unification. With the end of the meeting in Arkhyz, the terms of the package deal that had been taking shape all spring were now clear. Germany would provide the following economic aid: support for the maintenance of the Soviet troops in the GDR and their resettlement in the USSR; support for East German–Soviet trade via the Transfer Ruble arrangement; and the ‘‘big treaty’’ of long-term cooperation. To this must be added, of course, the 52. Teltschik, 329 Tage, 336. 53. Ibid., 337.

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credit of DM 5 billion that had already been given to the Soviets and the continuing German support of the Hermes program. Roughly speaking, the entire package would eventually be worth well over 50 billion deutsche marks.54 In return the USSR agreed to allow the united Germany to remain in NATO, to restore full German sovereignty, and to withdraw all Soviet troops from the former GDR within three to four years. It would still be some months before all these agreements were negotiated in detail, but the basic structure of the specific positive linkage in this case was now clear. It can be summarized as follows: Case 18 1990 Linkage type

German goal(s)

Results

Positive specific (July 1990 deal between Kohl and Gorbachev includes support and housing for Soviet troops in GDR; upholding East German economic links with USSR; DM 5 billion credit set up in secret Moscow visit by top Kohl aide. Total value reaches ca. DM 50 billion)

Soviet consent to German unity; Germany can stay in NATO; Soviet troops are to leave the GDR within four years; USSR agrees to drop Four Power rights

Successful: USSR agrees in principle to all German demands

The importance of the economic package in securing the USSR’s consent to German reunification on Bonn’s terms was clearly recognized by commentators at the time. The Economist, for example, published a cartoon after the Caucasus meeting showing a smiling Kohl striding through a door labeled ‘‘NATO,’’ while Gorbachev, the doorman, examines the large bag of deutsche marks he received as a tip.55 Additionally, as was noted above, the causal connection was quite clear at several points in the talks themselves. However, leaders on both the German and the Soviet sides tended to downplay the obvious economic/political linkage in their public statements. Both sides feared that if the extent of the linkage were made clear, Gorbachev’s tenuous position as Soviet leader could be jeopardized.56 Also, 54. For details, see Table 5.1. 55. The Economist, July 21, 1990, 47. Since the meeting was held near Stavropol, the cartoon accompanied an article entitled (with a fine sense of historical irony) ‘‘Encounter at Stavrapallo.’’ 56. As Szabo notes, ‘‘[Economic linkage] was one of the Great Unspokens of the history of German unification. No one wanted to discuss it openly, fearing that if the impression were created that the Germans were buying the GDR, it would undermine Gorbachev’s already precarious position.’’ Szabo, Diplomacy of German Unification, 93.

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the Germans did not want to appear to be too powerful; already many in Europe, both in the East and West, feared that a German ‘‘economic superpower’’ would soon come to dominate the continent. What explains the dramatic success of economic linkage in this case? First, the scale of the aid package was very large—quite possibly the largest single bilateral aid package offered in the history of international relations. Second, it was carefully timed. Bonn was well aware of Moscow’s economic problems, and stepped forward with aid at the right time—when Moscow was struggling economically, but still had important political assets to offer in return for aid. Third, it was based on needs articulated by the Soviets themselves; the Germans were careful to try to match both the types and amounts of aid to Soviet requests. Here again, the trust-building effects of past aid were evident, as Moscow was willing to frankly discuss its needs with the Germans. Finally, Bonn faced little or no competition from other donors. Here another advantage of positive linkage noted in Chapter 1 becomes clear; few countries will be willing to spend enough to ‘‘outbid’’ a wealthy donor state. In fact, in 1990 no other Western state was willing to offer Gorbachev substantial aid. This further increased Bonn’s political leverage. Admittedly, it is not fully accurate to use economics alone to explain the Soviet Union’s decision to allow reunification to proceed on Bonn’s terms. The West did make some limited political concessions to Moscow in the run-up to the Kohl-Gorbachev summit. First, at their meetings in Turnberry, Scotland (in June), and in London (in July), the leaders of NATO stressed that they favored friendly ties with Moscow and would not take advantage of the USSR’s weakened position in Eastern Europe.57 NATO agreed that the territory of the former GDR would not be occupied by NATO troops, although it would be politically part of NATO. Also, the West agreed to work to institutionalize the all-European CSCE process, thus further assuring the Soviets that their security would be respected. Still, the importance of the NATO concessions was not overwhelming, despite rhetoric at the time that the alliance had been ‘‘transformed.’’ At the London meeting, for example, NATO committed itself to use nuclear weapons only as a ‘‘last resort.’’ But when had NATO ever planned to use such weapons except as a last resort? NATO’s commitment to keep open 57. See the text of the ‘‘Turnberry Statement’’ and the meeting’s final communique´ in Europa-Archiv, no. 17 (1990): D447–D453. The text of the ‘‘London Declaration,’’ issued at the NATO summit on July 5–6, 1990, can be found in ibid., D456–D460. For an analysis of the two meetings, see Szabo, Diplomacy of German Unification, 88–92.

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the option of the first use of nuclear weapons in the event of a Soviet attack was unchanged, despite Soviet demands. Also, NATO made a ‘‘solemn commitment to nonaggression’’—a concession that was similarly rhetorical, since the alliance had always been a defensive one. Finally, time would show that NATO’s willingness to ‘‘not take advantage’’ of Moscow’s withdrawal from Eastern Europe would not last long, as Poland, Hungary, and the Czech Republic all became NATO members. Still, even such small ‘‘concessions’’ provided valuable political cover for Gorbachev at the time. He could assure his conservative domestic opponents that allowing Germany to remain in NATO was not an overwhelming defeat, since this was a ‘‘new and improved’’ NATO. Finally, Germany itself made one concession to Moscow in the area of high politics: it agreed to gradually reduce the armed forces of a united Germany to 370,000 men. Again, however, this concession was less meaningful than it seemed at the time—despite the fact that it had been hotly disputed within the German government. The reduction in German armed forces looked impressive when compared to the hypothetical combined strength of the East and West German armies, about 660,000 men. But the Federal Republic had intended in any case to dissolve the East German army, which was considered a bastion of hard-line communists. Also, even the West German forces, about 490,000 men in mid-1990, would surely have been reduced greatly in any case as the Soviet threat diminished. Indeed, today it is difficult for the German leadership to convince its people that a force of even 300,000 men is worthwhile. However, at the time of the July 1990 German-Soviet summit, the reduction in German armed forces, like the NATO ‘‘changes,’’ provided Gorbachev with useful political cover. Still, the evidence just discussed makes it clear that economic linkage played at least a large if not a predominant role in the decisive negotiations that finally resolved the thorny ‘‘German Question’’ after over forty years of stalemate. This fact offers dramatic proof for this study’s conclusion that economics can be used for linkage purposes, even against powerful countries and in issue areas that fall squarely into the realm of high politics. However, despite the importance of the decisive breakthrough achieved at the Moscow/Arkhyz summit, much work still remained to be done: the economic/political package outlined at the summit would have to be negotiated in detail, ratified by both sides, and put into effect. The next few months would show that these tasks were far from trivial—and would involve three further discrete cases of specific positive linkage.

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Signing the Deal: July to September 1990 With the Soviet acceptance of the German ‘‘package deal’’ at the Caucasus summit in July, it appeared that the process of regulating the external aspects of German reunification had essentially been completed. The Two Plus Four process was soon brought to an end, with the signing of the Treaty on the Final Settlement with Respect to Germany on September 12, 1990, in Moscow. However, if bilateral German-Soviet relations are examined in more detail, it becomes clear that the process was in reality much more complicated. Behind the scenes of the apparently smooth progression from Arkhyz to the September 12 treaty signing, the USSR was maneuvering intensely to improve the ‘‘payoff ’’ of the Caucasus deal, while the Germans desperately tried to hold the package together long enough for the Two Plus Four agreement and four bilateral pacts to be signed, allowing reunification to be completed. As we shall see, this tense two-month period involved another clear case of specific positive linkage. In return for the prompt completion of the treaties, the Germans gave an additional DM 10 billion to fund the Soviet troop pullout from the GDR. In the immediate aftermath of the Caucasus summit, the third meeting of the foreign ministers of the Two Plus Four countries, held in Paris on July 16–17, was quite successful. The German and Soviet representatives reported on the results of the Arkhyz summit, and with the participation of a delegation from Poland, the thorny question of the Oder-Neisse border was resolved. Most important for the Germans, the participants agreed that they would complete their work on the external aspects of reunification at their next meeting, on September 12 in Moscow.58 The September meeting in Moscow also seemed to go according to plan—with the slight exception of a last-minute British objection to the provision that NATO troops would not be able to conduct exercises on the territory of the former GDR. The final Two Plus Four treaty was essentially based on the provisions negotiated at Arkhyz: the USSR agreed that Germany could remain in NATO, that Soviet troops would be withdrawn by the end of 1994, and that Four Power rights would be ended, thus giving Germany full sovereignty. The Germans confirmed that they would respect 58. For reports on this meeting, see Oldenburg, ‘‘Die Deutschlandpolitik Gorbatschows,’’ 32–33, and Vertrag u¨ber die abschließende Regelung in bezug auf Deutschland (Bonn: Presse- und Informationsamt der Bundesregierung, 1990), 15–16. The text of Shevardnadze’s speech at the Paris meeting can be found in Vestnik of the Foreign Ministry of the USSR, September 1990, 37–38, and his statement at the meeting’s final press conference at 39–40.

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their borders, would limit their armed forces to 370,000 men, and that German troops affiliated with NATO would not enter the territory of the former GDR until the Soviets had withdrawn. The bilateral economic ‘‘package deal’’ between the USSR and Germany was not mentioned, except in Section 1 of Article 4, where Germany confirmed its willingness to sign a treaty regulating the maintenance and withdrawal of Soviet forces from the former GDR.59 To those who were not closely involved in the process, it seemed that ‘‘the final meetings of the 2Ⳮ4 talks . . . were anticlimactic.’’60 However, behind the facade of amity and smooth progress, on the bilateral German-Soviet level the two months between Arkhyz and Moscow were far from anticlimactic. They were a blur of meetings and negotiations, in which the two sides attempted to complete work on several large and complex treaties under intense time pressure. To make matters more complicated, the Soviets, knowing that the September 12 deadline for the completion of the Two Plus Four treaty gave them an important temporary source of leverage, attempted to squeeze the Germans for the maximum possible economic benefit. The Soviets also had another important lever: while they had agreed at Arkhyz to renounce their Four Power rights when the final Two Plus Four treaty came into effect, it was already clear that some months could elapse between German reunification and the formal ratification of the agreement. The Germans were thus anxious to win still another political concession from Moscow, namely Soviet agreement to voluntarily suspend the Four Power rights for the period between German unification and the ratification of the Two Plus Four treaty. By now the basic fact that economic linkage would play a role in the final settlement of German unification was obvious, and the Soviet side could drop all pretense—at least in private—and bargain with gusto. In the period between mid-July and September 12, the German and Soviet sides hurried to conclude four major treaties, three of which were originally envisioned in July as part of the German package of specific positive economic linkage. However, during this period the Germans found it necessary to add significantly to the original package, in return for further Soviet political concessions. Hence, this period can be considered another distinct case of linkage. 59. For the text of the Treaty on the Final Settlement with Respect to Germany, see Szabo, Diplomacy of German Unification, 129–34. For Genscher’s speech to the meeting, see Vertrag u¨ber die abschließende Regelung in bezug auf Deutschland, 51–56. 60. Szabo, Diplomacy of German Unification, 109.

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The first agreement was the Treaty over the Conditions for the Limited Stay and the Modalities for the Planned Withdrawal of Soviet Troops (Vertrag u¨ber die Bedingungen der befristeten Aufenthalts und die Modalita¨ten des planma¨ßigen Abzugs sowjetischer Truppen). This agreement regulated the technical aspects of the withdrawal of Soviet troops and their legal status in a reunified Germany. While mainly a technical accord, it was hardly without cost for Germany, as will be outlined below. This agreement was closely linked to the far more costly Agreement on Certain Transitional Measures ¨ b(Abkommen u¨ber einige u¨berleitende Maßnahmen, also known as the U erleitungsabkommen). This agreement contained the details of the large financial package Bonn was offering for the maintenance, withdrawal, and resettlement of the Soviet forces. Also, the two sides were still working on the so-called big treaty, formally the Treaty on Good Neighborliness, Partnership, and Cooperation (Vertrag u¨ber gute Nachbarschaft, Partnerschaft und Zusammenarbeit). To these agreements, all of which had been envisioned at the Arkhyz summit, Moscow now added a demand for a fourth treaty, to be called the Treaty on the Development of Comprehensive Cooperation in the Area of Economics, Industry, Science, and Technology (Vertrag u¨ber die Entwicklung einer umfassenden Zusammenarbeit auf dem Gebiet der Wirtschaft, Industrie, Wissenschaft, und Technik). This treaty was to contain, among other provisions, a commitment by Bonn to uphold trade agreements between the former GDR and the USSR. The Soviets demanded that all these treaties be finalized before the signing of the final Two Plus Four agreement. On August 17, 1990, Genscher and Shevardnadze met in Moscow to review the two sides’ progress in negotiating the four crucial bilateral accords.61 The new Soviet request for a specific economic cooperation accord was agreed to, and the two sides discussed drafts of the ‘‘big treaty’’ and the two treaties concerning the Soviet military forces in the GDR. The meeting was tense; the German side suspected the Soviets of trying to nachbessern—that is to say, to rewrite the conditions of the package agreed to at Arkhyz. The Soviets, for example, suddenly proposed that they be given five years to withdraw their troops from the GDR instead of the four years agreed to at Arkhyz, since they had since discovered that they would need more time to transport the army’s equipment. Genscher pointedly rejected this demand, telling Shevardnadze that Germany’s willingness to 61. For an account of this meeting, see Kvitsinsky, Vor dem Sturm, 53–57. The joint news conference held by the two foreign ministers after their meeting can be found in Izvestiya, August 19, 1990, 4; reprinted in FBIS-SOV-90–161, August 20, 1990, 32–36.

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support the troops and their withdrawal would ‘‘only be valid for a limited amount of time.’’ Meanwhile, the Soviets suspected the Germans were also trying to rewrite the Arkhyz package in their favor.62 Hard bargaining over each of the four major German-Soviet bilateral treaties continued in the following weeks. The first of the treaties to be finished was the last one proposed, the economic cooperation agreement. After several days of negotiations with Soviet Deputy Premier Sitaryan, Economics Minister Haussmann was able to inform the chancellor on September 6 that the text of the economic cooperation treaty was ready to be signed. The final text of the agreement contained a number of important provisions.63 The most significant of these was the implementation of the German commitment to support continued exports from the former GDR to the Soviet Union. In addition to the Transfer Ruble plan, which had already gone into effect, the Bonn government agreed to subsidize firms supplying the USSR to ensure that they would not go bankrupt as East Germany converted to capitalism. By the time the treaty was negotiated, Bonn had already given the East German government some DM 2 billion for this purpose, and several billion more had to be spent before the year was over. The Germans also agreed that Hermes credits for Soviet purchases in Germany would continue to flow freely at ‘‘the most favorable possible terms,’’ despite the looming Soviet credit problems already noted. In a further effort to support bilateral trade, particularly East German– Soviet trade, the Germans agreed to allow Soviet exports to enter the eastern part of Germany without paying tariffs or conforming to EC norms or quality standards. This provision brought much grumbling from the EC Commission. Finally, Bonn also agreed to negotiate with the USSR on taking over the GDR’s share of investments in the Soviet Yamburg gas field project and Krivoi Rog ore processing facility, both of which involved possible multibillion deutsche mark commitments. The text of the so-called big treaty was also difficult to negotiate. The 62. On the Soviet demand and Genscher’s response, see Kvitsinsky, Vor dem Sturm, 57. Teltschik relates that the Germans were sure that ‘‘the Soviet side was trying to nachbessern.’’ Teltschik, 329 Tage, 354. Meanwhile, Kvitsinsky complained that the Germans had pretended to react favorably to a Soviet draft of the ‘‘big treaty’’ at the Arkhyz summit in order to trick the Soviet side into making large political concessions, then had suddenly become much cooler toward the Soviet proposal after they had pocketed the Arkhyz concessions. Kvitsinsky, Vor dem Sturm, 55–56. 63. The complete text of the treaty can be found in Bulletin, November 15, 1990, 1382–87. See also ‘‘Langfristiger Wirtschaftsvertrag mit Moskau unterschriftsreif,’’ Frankfurter Allgemeine Zeitung, September 7, 1990, and ‘‘Handelsgarantien fu¨r Moskau kommen teuer,’’ Su¨ddeutsche Zeitung, November 9, 1990.

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USSR hoped that it would contain many specific suggestions for economic cooperation, and also provide for cooperation on security issues. The Soviet deputy foreign minister, Kvitsinsky, told the Germans that the USSR planned to rely primarily on Germany in the future, creating a true ‘‘special relationship.’’64 Germany insisted that the economic provisions be ‘‘greatly shortened,’’ especially since a separate economic cooperation treaty was also being negotiated, and resisted making security commitments that would weaken its ties to NATO. The negotiations went down to the wire: Kvitsinsky traveled to Bonn for talks at the Foreign Ministry on August 27–28, but in the end the final draft was not hammered out until just before the Moscow Two Plus Four meeting.65 The ‘‘big treaty’’ (formally the Treaty on Good Neighborliness, Partnership, and Cooperation) eventually contained the following provisions.66 First, it placed a significant emphasis on economic cooperation (Articles 8–10), despite the fact that a separate bilateral treaty on that subject was being negotiated. This offers further proof of the importance of economics to the Soviet leadership at this time. One particularly interesting economic provision was contained in Article 20, where both sides agreed that ‘‘they will help each other to develop cooperation with international, in particular European organizations and institutions of which one side is a member, if the other side expresses a relevant interest.’’ Here the German side was making a striking commitment: to act as Moscow’s ‘‘advocate’’ within the EC and other Western organizations. Germany’s actions at the summit meetings of the EC and G-7 in the summer of 1990 had already shown that this commitment was real. In the months to come, Germany would continue its efforts to persuade Western organizations to support the USSR. In December, for example, Bonn was able to induce the EC to give a large credit to the USSR for food aid. In Article 15 of the ‘‘big treaty,’’ however, Bonn was able to win a small political concession from Moscow which helped to reciprocate its economic generosity. The Soviet side agreed to guarantee the right of the German minority in the USSR to ‘‘preserve [its] language, culture, or traditions [and] develop [its] national, linguistic and cultural identity.’’ It was of great significance to Bonn that Soviet Germans could now develop their culture within the USSR, rather than being forced to choose between assimilation and emigration. 64. Teltschik, 329 Tage, 353. 65. See Kvitsinsky, Vor dem Sturm, esp. 59. 66. The text of the treaty can be found in Europa-Archiv, no. 3 (1991): D85–D90. For an English translation, see FBIS West European Report (WEU), 90–178, September 13, 1990, 7–10.

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However, German and Soviet negotiators had the most difficulty with the two treaties concerning the Soviet army in the GDR. As was noted above, the Treaty over the Conditions for the Limited Stay and the Modalities for the Planned Withdrawal of Soviet Troops was mainly a technical agreement. However, it too contained a number of provisions that were beneficial to the Soviet side and costly to the German government.67 Perhaps most notably, the Soviet army in East Germany was allowed to ship goods into and out of Germany without customs inspections or paying any tariffs. This provision would soon allow Soviet soldiers and officers to carry out an array of semilegal and illegal activities, ranging up to the shipment of stolen German cars to Russia in sealed army trains. The Soviet forces were also exempted from all internal German taxes, including the gasoline tax. Many other small provisions of the treaty also would add up to significant costs for the German government. ¨ berleitungsvertrag, though, which caused the most GermanIt was the U Soviet friction in the days leading up to the final meeting of the Two Plus Four process, and in fact almost caused that meeting to be aborted. It was here that Germany made the largest unplanned addition to the original package, in return for Moscow’s agreement to sign the reunification treaties. At the Arkhyz summit, the Germans had promised to pay for the maintenance and withdrawal of the Soviet troops in Germany and to build housing for returning troops in the USSR. In return for this, the Soviet leadership had agreed to withdraw the troops within four years. However, the Germans had not discussed the specific amount of money required to meet their commitments. This was to prove a costly oversight. ¨ berFor some weeks after the Arkhyz meeting the negotiations over the U leitungsvertrag were stalled, with the Germans offering an aid package totaling only about 6 billion deutsche marks, while the Soviets mentioned amounts up to 36 billion.68 With the September 12 Moscow Two Plus Four meeting fast approaching, the Soviets showed that they could be fierce negotiators. A letter from Shevardnadze to Genscher on August 27 called the German offer ‘‘totally insufficient’’ and pointedly noted that the Soviet commitment to withdraw its troops depended on the size of the German 67. The text of the treaty and its associated appendices (Anlagen) can be found in Bulletin, October 17, 1990, 1284–1300. For some examples of the problems which soon began to occur as the Soviet army in the GDR deteriorated, see ‘‘Den Ru¨ckzug nicht gelernt,’’ Der Spiegel, March 4, 1991, 144–56. 68. The Soviet ambassador to Bonn, Vladislav Terekhov, presented a letter to the Germans with the figure of DM 36 billion. Stent, Germany and Russia Reborn, 138.

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financial support.69 The German strategy was to be fairly generous in the question of support for the Soviet troops after their withdrawal (in housing and retraining), but less generous in subsidies for the troops while they were still in Germany. In this way, the Soviet army would have a financial incentive to withdraw as quickly as possible. On September 7, in their first direct contact since the Arkhyz summit, Chancellor Kohl telephoned Gorbachev in an attempt to resolve the impasse over funding the troop withdrawal.70 The chancellor offered DM 8 billion. Gorbachev reacted harshly, pointedly reminding Kohl that the conclusion of the Two Plus Four talks could be endangered if the ‘‘solution to the financial questions’’ was not found. In the end, the two leaders could only agree to hold another telephone conversation on Monday, September 10, less than forty-eight hours before the opening of the Moscow Two Plus Four meeting. The Germans realized that Gorbachev’s ‘‘surprisingly hard’’ effort to pressure the chancellor showed clearly that ‘‘the financial packet is a central part of the entire result’’ of the unification talks. When Kohl again telephoned Gorbachev, he had a much better offer ready—11 to 12 billion deutsche marks.71 However, Gorbachev again insisted on more, claiming that at least 15 billion would be needed to ensure that German unification could proceed. Under this pressure, the chancellor folded. He agreed to give the Soviets an interest-free loan of DM 3 billion on top of the 12 billion he was already offering, bringing the total payment to DM 15 billion. In the end, this loan would cost the Germans some DM 1.5 billion in interest payments alone, with no guarantee that the loan itself would ever be repaid. Thus the real cost of the package was probably closer to DM 16.5 billion, almost three times greater than the initial offer of 6 billion. In the end, two short telephone calls had cost the German government some DM 10 billion; yet they had saved the unification deal. ¨ berleitungsvertrag contained the following major The final text of the U 72 provisions. For the program of constructing housing for returning Soviet troops Bonn would commit DM 7.8 billion. DM 200 million was to be spent on retraining the troops for civilian occupations, and 1 billion was allocated for the transport costs involved in returning the army to Russia. 69. Teltschik, 329 Tage, 352. 70. This crucial telephone conversation is recounted in detail in ibid., 359–61. 71. For an account of the second phone call, see ibid., 361–63. 72. The text of the treaty can be found in Europa-Archiv, no. 3 (1991): D63–D67. See also Timothy Aeppel, ‘‘Friendship Treaty and Troop-Related Aid Deepen Bonn’s Economic Ties with Soviets,’’ Wall Street Journal (European Edition), September 14, 1990.

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Finally, DM 3 billion was earmarked to supporting the Soviet troops during their stay in the former GDR. The troop withdrawal package thus totaled DM 12 billion, as agreed to by Kohl during his telephone negotiations with Gorbachev. To these sums must be added the interest-free credit of DM 3 billion agreed to by Kohl, which would supposedly be used by the USSR to fund its share of the troop withdrawal costs—but in reality disappeared quickly into the Soviet treasury. In addition to the large commitments contained in the four GermanSoviet treaties, Bonn agreed to a further last-minute economic incentive in the final days before the Two Plus Four meeting. On August 29, as the final negotiations over the four treaties were reaching a critical stage, Kohl arranged for the German minister of agriculture, Ignaz Kiechle, to draft a plan to give the USSR a billion deutsche marks’ worth of food aid. During his crucial telephone conversation with Gorbachev on September 7, Kohl attempted to use this new package of food aid to convince the Soviet leader ¨ berleitungsvertrag, but without success. to be flexible on the costs of the U In the end, the food aid package—which provided for the shipment of 255,000 tons of meat and 60,000 tons of butter—was finalized just before the crucial Moscow meeting.73 The Soviets insisted on another German concession at the final Two Plus Four meeting in Moscow which was quite questionable under international law. They demanded that the so-called big treaty—the umbrella agreement that was to regulate German-Soviet cooperation in both political and economic terms—be initialed by the German negotiators at the Moscow meeting. Neither of the two German states was empowered under international law to sign treaties on behalf of the future, united Germany. However, the Soviets argued that, strictly speaking, ‘‘initialing’’ was different from ‘‘signing,’’ and thus should be allowed.74 The Germans felt that they had no choice but to agree, because the USSR could still delay the signing of the crucial Final Settlement treaty. The German-Soviet Treaty on Good Neighborliness, Partnership, and Cooperation was initialed on September 13, immediately after the signing of the Final Settlement pact. Finally, the Germans agreed to make one more last-minute concession to the Soviets at the final Two Plus Four meeting. The East and West German negotiators agreed to sign a joint letter to the Four Powers, which was designed to address certain Soviet concerns that had not been explicitly 73. See Teltschik, 329 Tage, 355, 360–61. 74. The Soviet demand was raised during a meeting between Kvitsinsky and Kohl on August 28. See Teltschik, 329 Tage, 353–54, 356–57.

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covered in the Final Settlement treaty.75 In this letter, the German negotiators committed themselves to respect the property confiscations made by the Soviet military government in Germany between 1945 and 1949. This agreement was important, since it ensured that the land occupied by Soviet military bases in the GDR would now be free from any legal disputes with former owners. The Soviets hoped to be able to extract yet another large monetary settlement from the united Germany by selling this land back to the Germans. Additionally, the letter also contained yet another promise by both Germanys to ensure that treaties between the GDR and the USSR—particularly the numerous economic agreements—would be respected after unification. In the end, though, Germany’s patience and sizable economic concessions were rewarded. The Two Plus Four agreement was signed on schedule on September 12. The vital political concessions made by Gorbachev at the Arkhyz summit were now formally recorded. On October 1, 1990, another major milestone on the road to German unification was passed when the foreign ministers of the Four Powers met in New York and formally agreed to suspend their Four Power rights at the time of German unification.76 Thus, the final Soviet political concession sought by Bonn as part of the reunification package had been achieved. However, even this declaration still did not fully terminate the Four Power rights. Only with the ratification of the September 12 Final Settlement treaty would the rights be extinguished in legal terms. In all, then, this case of specific positive linkage can be summed up as follows: Case 19 1990 Linkage type

German goal(s)

Results

Positive specific (Kohl offers extra DM 10 billion in aid as a result of direct pressure from Gorbachev)

Final Soviet agreement to actually sign Two Plus Four Treaty

Successful: treaty signed September 12, 1990; Germany reunified October 3, 1990

In addition to the main German economic concession—the DM 10 billion addition to the troop withdrawal aid—several smaller concessions must be 75. For the text of the joint letter, see Szabo, Diplomacy of German Unification, 135–36. 76. For the text of the agreement, see Kaiser, Deutschlands Vereinigung, 310–11. For an account of the meeting, see ‘‘Deutschland erlangt seine Souvera¨nita¨t zuru¨ck,’’ Frankfurter Allgemeine Zeitung, October 2–3, 1990, 5.

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noted. These include the billion deutsch marks in additional food aid as well as two less quantifiable concessions. First, Bonn agreed to sign a treaty on economic and scientific cooperation which had not been envisioned at the July summit. Implementing this treaty would commit the Germans to a number of future expenditures, although of an uncertain amount. Second, both German states pledged that the reunified Germany would respect the USSR’s seizures of property in East Germany from 1945 to 1949. This gave Moscow clear title to these lands, which were largely used for Soviet military bases. The Kremlin hoped to eventually receive large payments from Germany for these bases as its troops pulled out. The role of this aid in ensuring that the treaties related to unification were finalized was very clear. In particular, the Kohl-Gorbachev telephone conversations discussed above make it obvious that Moscow would have refused to sign the Two Plus Four treaty as scheduled without additional German aid. In all probability, this step would not have prevented unification altogether; the process was too far advanced, with monetary union completed and political unification ready to be carried out. But a Soviet refusal could have forced another round of Two Plus Four talks and at least delayed the scheduled unification, a serious blow to Kohl’s government.

Sealing the Deal: September 1990 to April 1991 Even after reunification formally took place on October 3, 1990, and the rest of the world assumed that the ‘‘German Question’’ had been fully resolved, much work remained to be done. Some of the elements of the Arkhyz ‘‘package deal’’ still had to be formalized as signed treaties. Then Bonn realized that yet more economic aid would be necessary to wring another political concession from Moscow: the final ratification of the Two Plus Four treaty and the accompanying bilateral accords. Many do not realize that until the Supreme Soviet actually ratified the Two Plus Four agreement the USSR still formally maintained its Four Power rights in Germany. The German side was not able to consider the reunification process truly completed until the Soviet side turned over the ratification documents on March 15, 1991, and the Four Power rights could finally be dissolved. Thus this section will involve yet another case of specific positive linkage, as Germany offered special Hermes credits and aid to Soviet victims of the second World War to speed the ratification process. On October 3, the two Germanys were finally reunited. In a massive out-

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pouring of joy at the former Reichstag building in Berlin, hundreds of thousands of flag-waving Germans cheered the speeches of Chancellor Kohl, President von Weisza¨cker, and other dignitaries. Kohl was now riding an immense wave of popularity and would soon be overwhelmingly reelected in the first all-German elections on December 2. However, there was still work to be done on the bilateral German-Soviet package that had allowed reunification to occur. With the accession of the states (La¨nder) of the GDR to the Federal Republic, the Bonn government was now finally entitled under international law to sign treaties on behalf of the united German state. The two German-Soviet treaties that applied to the Soviet army in the GDR, which had to go into effect immediately, were therefore signed quickly in the days following unification: the most ¨ berleitungsvertrag, on October 9, important and costly agreement, the U and the treaty on the conditions for the temporary stay and eventual withdrawal of the Soviet troops on October 12. The other two treaties, which were also ready to be signed, were held until President Gorbachev arrived in Bonn on November 9 for a summit meeting with Kohl. At that meeting, with most of the major bilateral issues now finally behind them, the leaders signed the economic cooperation agreement and the ‘‘big treaty.’’77 Despite the fact that German unification had now been formally accomplished, Moscow retained some bargaining power in the ‘‘German Question.’’ The Germans were well aware that the Supreme Soviet still had to ratify the Two Plus Four agreement and the accompanying bilateral German-Soviet treaties before reunification could be considered complete. Immediately after the signing of the Two Plus Four accord on September 12, Moscow began to use this new source of leverage. On September 27, Kohl received a letter from Gorbachev that warned the Germans against treating officials of the former East German government too harshly. If these former officials were persecuted, warned Gorbachev, the reaction in Soviet public opinion and in the Supreme Soviet could jeopardize ratification of the German treaties.78 Clearly, Germany’s need to continue to assuage the Soviets—through such means as the careful application of positive economic leverage—had not disappeared. The following months would show that Gorbachev’s threat about the mood of the Supreme Soviet was justified. The Supreme Soviet was a 77. For accounts of the meetings in Bonn and the speeches and news conferences of Gorbachev and Kohl, see the articles collected in FBIS-SOV-90–219, November 13, 1990, 13–35. See also Deutsche Aussenpolitik 1990/91, 256–57, and Kvitsinsky, Vor dem Sturm, 63–65. 78. Teltschik, 329 Tage, 372.

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strange hybrid body. It had been elected as a permanent body from the larger Congress of People’s Deputies, which had in turn been elected in partially democratic national elections in the spring of 1989. At that time the Supreme Soviet was seen as remarkably liberal, since it contained Boris Yeltsin and a few other outspoken anticommunist deputies. However, the bulk of the body was still made up of old-style apparatchiks, many of whom had been able to run unopposed or were ‘‘elected’’ to represent the old Soviet mass organizations such as trade unions. By late 1990, the Supreme Soviet had become a significant brake on further reforms, and it was very angry about the proposed treaty package related to German unification. This could be seen clearly in the outspoken debate held October 1–4 over the nullification of the Soviet–East German Friendship Treaty of 1975.79 On the face of it, the debate was absurd; it was obvious to all that when the GDR united with the Federal Republic on October 3 the treaty would lose its legal validity. Yet for several days the Supreme Soviet considered whether it should demand that this treaty be upheld. Many deputies asked who was responsible for ‘‘losing the GDR,’’ and indeed for ‘‘losing Eastern Europe.’’ Ominously, the respected establishment ‘‘Germanist’’ Valentin Falin led this attack. Soon the attack by conservative forces on Gorbachev’s reform policies in general and the treaties with Germany in particular escalated still further. On December 20, 1990, after much harsh questioning about his role in drafting the treaties with Germany, Foreign Minister Shevardnadze suddenly resigned.80 Gorbachev himself seemed to be siding more and more with the conservatives; he failed to defend Shevardnadze and soon began a harsh and violent crackdown on the independence movements in the Baltic states. In this environment, the Germans began to have real concerns that the Supreme Soviet might refuse to ratify the package of German-Soviet treaties and the crucial final treaty of the Two Plus Four process. In view of this delicate situation, Germany decided to offer Moscow several more economic carrots. First, a major program of private and public food aid was launched in late November, with the expressed goal of helping the USSR to ‘‘make it through the winter.’’81 The economic/political linkage aspects of this plan were quite clear. The public was urged to help the 79. See Kvitsinsky, Vor dem Sturm, 66–69. 80. See the account in Chernyaev, Die letzten Jahre einer Weltmacht, 334–35, which notes the role of relations with Germany in hastening Shevardnadze’s downfall. 81. See the text of the November 28 appeals by Chancellor Kohl and Foreign Minister Genscher for private food donations to the USSR in Bulletin, November 30, 1990, 1480.

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Soviets, since they had helped Germany by allowing reunification to proceed. Also, the government itself contributed large amounts of food, mainly from the reserves of the German army and from stocks that had been kept ready in Berlin to meet the threat of a new Soviet blockade of the city. Horst Teltschik met in Moscow on November 27–28 with Gorbachev and other officials to coordinate the program.82 The German food aid program was a shrewd psychological move; as they had with the earlier food programs in February and September, the Germans were showing their willingness to literally keep the Soviet people from starving. Fear of the rigors of hunger and winter is deeply ingrained in the Russian psyche, and thus the German aid was received with deep gratitude. In addition to the food aid program Bonn decided that, beginning on January 1, 1991, it would permit the USSR to obtain Hermes credits with unusually favorable terms. This measure was seen as a replacement for the support of trade between the USSR and the former GDR provided under the transfer ruble arrangement, which was due to expire at the end of 1990. Yet again, the USSR was being shown that reunification would not bring about losses, but large economic gains. The generous Hermes credits served a dual purpose for Bonn; they aided the USSR and also helped to prop up the failing economy of the former GDR, by supporting exports from that part of Germany. The Hermes credits would be given without any cash down payment on the USSR’s part—previously a 15 percent initial payment had always been required. The credits would run for ten years, rather than the previous maximum of eight and a half years. Finally, no payments would be required at all for three years, while previously no ‘‘grace years’’ had been permitted. All three of these provisions violated the OECD’s common policy on export financing and were only permitted because Germany obtained a special waiver from the OECD.83 It was indicative of the USSR’s political importance that these special conditions were not offered to Poland or other East European states.84 The generosity of 82. See ‘‘They Are Ready to Help Us,’’ Pravda, November 27, 1990, 5; reprinted in FBISSOV-90–235, December 6, 1990, 20–21. 83. Author’s interview with Herr Vaubel, Referat for Foreign Trade, Ministry of Economics, Bonn, June 1994. 84. This political bias is confirmed, albeit reluctantly, by German officials. Author’s interview with Ruprecht Brandis, Referat for Hermes Credits, Ministry of Economics, Bonn, June 1994. It is clear to even the casual observer that Hermes credits are, by their very nature, always ‘‘political.’’ For example, the Inter-Ministerial Committee that decides on the conditions under which Hermes credits will be granted to a particular state is made up of officials from the Foreign Ministry, Ministry of Economics, Finance Ministry, and Ministry for Economic Cooperation (which specializes in aid to underdeveloped states). This in itself determines that decisions will be made on the basis of a mixture of economic and political criteria. Also, the risks covered by Hermes

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the terms was particularly striking when one considers that the USSR’s economic condition, already weak in mid-1990, had now reached a truly critical level. Banks flatly refused to lend to the Soviets. The USSR now owed German exporters almost 2 billion deutsche marks and had a total hard currency debt of some 60 billion dollars,85 and other Western states refused to aid the country unless comprehensive economic reforms were carried out. The generous Hermes funding arrangements were discussed during the visit of the new German economics minister, Ju¨rgen Mo¨llemann, to Moscow in February 1991. Der Spiegel summed up the arrangements bluntly: ‘‘The Germans are essentially paying for the shipments [from the former GDR to the USSR] themselves.’’86 The end of 1990 also brought another event which was a harbinger of great changes to come. In December, the premier of the Russian Republic (RSFSR), Ivan Silayev, visited Germany.87 For the first time, the leader of a Soviet republic was able to sign several international treaties with Germany. This marked an important milestone in the growing autonomy of the republics from the Soviet central government, a process that would vastly accelerate in the coming year, particularly after Boris Yeltsin was elected as the new president of the Russian Republic. Few observers realized it at the time, but the USSR would dissolve entirely within a year. At the beginning of 1991, the issue of the ratification of the package of treaties relating to German unification was still very much in doubt. Deputy Foreign Minister Kvitsinsky, the former ambassador to Bonn, formally presented the treaties to the Foreign Affairs Committee of the Supreme Soviet on December 14, 1990. That body grudgingly sent them on to the full Supreme Soviet for consideration on January 9. Part of the reluctance to proceed with the treaty ratification came from the feeling that more money could be squeezed out of the Germans if the Soviet side delayed the process. As Kvitsinsky put it, ‘‘The wish to get as much money out of the Germans as possible in connection with reunification lurked in the back of many [deputies’] minds.’’88 include political risks, that is to say, the risk that political developments in the debtor state will prevent repayment. Thus Hermes credits are hardly purely economic instruments, as they are sometimes portrayed. 85. This estimate for the size of Soviet debt at the end of 1990 was calculated by the Institute of International Finance (Washington). Cited in ‘‘Kaum Sorgen um Bedienung der SowjetKredite,’’ Frankfurter Allgemeine Zeitung, August 20, 1991. 86. ‘‘Da mu¨ssen wir nachschieben,’’ Der Spiegel, February 18, 1991, 120–21. See also Heinz Schmitz, ‘‘Bonner Geschenke an Moskau,’’ Handelsblatt, February 15, 1991. 87. For an account of this visit, see ‘‘Russian Delegation in Germany,’’ Izvestiya, December 15, 1990, 5; reprinted in FBIS-SOV-91–017S, January 25, 1991, 48–49. 88. See the account of the ratification process in Kvitsinsky, Vor dem Sturm, 83.

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A particular focus of the conservatives’ demands for further monetary compensation was the issue of war reparations and compensation for Soviet citizens who had suffered in the Second World War. Some members of the Supreme Soviet began to mention fantastic sums of possible reparations that could allegedly be extracted from the Germans in return for allowing reunification to proceed, reaching up to almost 2 trillion deutsche marks.89 The Soviet leadership soon seized on this issue as a valuable way to ‘‘sweeten’’ the reunification deal still further. On February 12, 1991, Gorbachev and the new foreign minister, Aleksandr Bessmertnykh, both sent letters to their counterparts in Germany urging that Bonn provide at least some aid to Soviet war victims. Kvitsinsky was dispatched to Bonn on February 26 for discussions on the issue. In the end, Bonn agreed to create a Foundation for Soviet-German Understanding, which would be supported by a large grant from the German government, to compensate war victims. Kvitsinsky assured the Germans that this last economic concession would be a ‘‘big help’’ in the final debate over the ratification of the treaty package.90 The linkage between the aid and the treaty ratification was clear. The crucial Supreme Soviet debate over the ratification of the bilateral treaties with Germany and the Two Plus Four final agreement took place on March 4, 1991. Deputy Foreign Minister Kvitsinsky led the defense of the agreements, stressing their benefits to the USSR. It is noteworthy that he was supported by General Dmitry Yazov, the minister of defense, who was usually known as a conservative on foreign policy issues. His support, Kvitsinsky believed, ‘‘influenced many doubters and fence-sitters.’’91 Here it seemed obvious that Germany’s package of generous aid for the Soviet army—which had been specifically designed to ensure that the army would have a vested interest in German unification—appeared to have paid off. The conservatives, led by Colonel Nikolai Petrushenko, countered with their argument that the treaties damaged the USSR’s vital interests.92 In 89. For a good discussion of the reparation issue and its role in the ratification debate, see Kvitsinsky, Vor dem Sturm, 83–85. The 2 trillion figure is based on a study by a German professor that was circulated among the conservative members of the Supreme Soviet, which estimated the damage to the USSR in the war at DM 1.9 trillion, and suggested that in view of this sum, the Federal Republic should be willing to provide reparations of at least several hundred billion DM. 90. Ibid., 85. See also ‘‘Compassion for War Victims—Duty or Goodwill Gesture?’’ Izvestiya, March 8, 1991, 6, and ‘‘Ohne Bonner Bu¨rgschaft hat Gorbatschow bei der Deutschen Bank keinen Kredit,’’ Handelsblatt, March 1, 1991. 91. Kvitsinsky, Vor dem Sturm, 98. For the text of Kvitsinsky’s statement in support of the treaties, see 86–96. For more details on the March 4 debate see ‘‘Parlamentarisches Muskelspiel im Obersten Sowjet,’’ Stuttgarter Zeitung, March 5, 1991. 92. For details of the conservative viewpoint on the treaties, see ‘‘After the Unification of

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the end, the vote was surprisingly one-sided: only nineteen deputies opposed the Two Plus Four agreement, only six voted against the Friendship and Cooperation accord (the ‘‘big’’ treaty), and only three opposed the economic cooperation agreement. Between thirty and forty deputies abstained on each vote.93 With the ratification of the Two Plus Four treaty, Germany finally regained its full sovereignty after almost fifty years, as was confirmed when the Soviet ambassador to Germany deposited the official ratification documents with the German government in Bonn on March 15.94 Still, some ambiguity remained; the Supreme Soviet delayed its final vote on the ratification of the two treaties related to the Soviet army in the former GDR for several weeks. With the firm support of the Soviet military— General Mikhail Moiseyev stated at the final debate that ‘‘any delay is detrimental to the interests of the Soviet army’’—the last two treaties were approved on April 2, 1991. For Soviet conservatives, this final vote was a bitter pill: Colonel Viktor Alksnis said that ‘‘April 2 is now a day of mourning; it is the day the USSR lost the Second World War.’’95 This case of specific positive linkage can be summarized as follows: Case 20 1991 Linkage type

German goal(s)

Results

Positive specific (German government sets up fund for victims of the Second World War and agrees to export credit terms that violate OECD rules in generosity; new food aid)

Ratification of treaties related to German unity by Supreme Soviet

Successful: treaties ratified in March and April of 1991; German willingness to give more aid falls sharply after the votes

This continuing success of German linkage in the face of the sharp conservative turn in Soviet politics in the winter of 1990–91 is striking. It can be attributed to several factors. First, Germany was again quite shrewd in its timing and the choice of its aid instruments. In particular, both food aid to ‘‘help Russia through the winter’’ and aid to victims of the Second World Germany: Toward a Parliamentary Discussion of the Package of Treaties—For and Against,’’ Sovetskaya Rossiya, March 2, 1991, 4; reprinted in JPRS-UIA-91–005, April 3, 1991, 23–28. 93. Kvitsinsky, Vor dem Sturm, 99. 94. For the text of the official ratification documents, see Deutsche Aussenpolitik 1990/91, 364–66. 95. For details of the final debate over the two military treaties on April 2, see Kvitsinsky, Vor dem Sturm, 100–101.

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War were popular measures. This helped to deepen Russian-German trust. Second, Germany could take advantage of the fact that its previous aid had made the USSR more dependent—an important effect of positive linkage noted at the start of this study. Delaying ratification of the Two Plus Four treaty and other agreements could delay the pullout of Soviet troops from the former GDR and the end of the USSR’s Four Power rights. Yet failing to ratify the agreements could also delay the flow of billions of deutsche marks in aid contained in these treaties, money that was by now crucial to the USSR’s solvency. Third, this aid dependency had a particular effect on a key interest group in the USSR: the army. As could be seen from the army’s efforts to lobby in favor of the treaty package, the high command was eager to receive the German aid it was due under the troop withdrawal accords. Since the Red Army was often seen as a vital part of the conservative opposition to Gorbachev, its position on this issue was particularly surprising and influential. As was predicted in Chapter 1, aid designed to win over key political groups can be especially effective.

Delivering the Deal: April 1991 to December 1992

At last, it seemed that German reunification had been guaranteed. However, in early 1991 the USSR still had over 300,000 troops on the soil of the reunified country, and this represented one last important source of political leverage. Because of this residual Soviet political strength, which would soon be inherited by the new state of Russia, Germany had at least some incentive to continue its policy of positive economic linkage for some time after reunification had been formally accomplished. In particular, as we shall see in this section, Germany proved to be willing to apply one last large dose of specific positive linkage in December 1992, aiming to induce Russian President Boris Yeltsin to accelerate the troop pullout by four months and drop the demand that further payments be given for Russian property in the former GDR. In the months after the signing of the reunification treaties, many Soviet leaders, particularly within the military, demanded yet more German funding for the troop withdrawal program. Among others, General Matvei Burlakov, the commander of the Soviet forces in Germany, called for Germany to pay DM 10.5 billion for the property being vacated by the departing

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troops and also build 19,000 more apartments in the USSR for the Soviet army.96 On April 11, 1991, the state secretaries of the German Finance and Economics ministries, Horst Ko¨hler and Dieter von Wu¨rzen, visited Moscow.97 They were pressed by the Soviet side to agree that Germany should pay a substantial sum for the Soviet army property in the former GDR, a theme that would be repeated often in the following months. Also, they were given a personal letter from Gorbachev to Chancellor Kohl, in which the Soviet leader asked for up to DM 30 billion in additional economic aid. With this demand, though, the Soviet leader had finally reached the limit of Bonn’s willingness to give. Gorbachev repeated his request two months later in another personal letter to Kohl, which was published in the German newsmagazine Der Spiegel. In it he claimed that the withdrawal of Soviet forces from the former GDR would cost the USSR DM 40 billion. He asked that Germany grant the USSR a credit of DM 15 billion and also consider paying some 20–23 billion for the Soviet army property in the GDR.98 However, no aid on this scale was forthcoming. It is of course not coincidental that the German willingness to aid the USSR dropped sharply within days of the ratification of the treaties that secured German unity. In the few months remaining before the collapse of the USSR, the Germans persistently deflected the USSR’s requests for more aid. Some aid agreed to earlier was continuing to flow, of course, such as the special Hermes credits arranged for all of 1991. However, no significant new aid was agreed to. To deflect the Soviet demands, Kohl and his government employed a tactic that had worked well during the previous summer: they stepped up their efforts to persuade other Western states to help the USSR. During the visits of Economics Minister Mo¨llemann to Moscow on May 27 and Soviet Foreign Minister Bessmertnykh to Bonn on June 12, one of the primary topics of discussion was the need for other states to aid the USSR.99 96. See, for example, ‘‘More Cash Wanted for Withdrawal from FRG,’’ Berlin ADN report; reprinted in FBIS-SOV-91–039, February 27, 1991, 23–24, and the examples cited in Suzanne Crow, ‘‘Germany: The ‘Second Crisis’ of Soviet Foreign Policy,’’ Radio Liberty Report on the USSR, March 15, 1991, 9–12. For a Soviet view, see Igor Maximychev, ‘‘Cossacks Riding Through Berlin,’’ International Affairs (Moscow), June 1991, 52–60. 97. See Kvitsinsky, Vor dem Sturm, 103–5, and ‘‘30 Milliarden Mehr,’’ Wirtschaftswoche, May 17, 1991. 98. For the text of the letter, see ‘‘I Press Your Hand,’’ Der Spiegel, June 17, 1991, 134. 99. On the Mo¨llemann visit, see ‘‘Mo¨llemann in Moscow,’’ AP wire report, May 27, 1991; on Bessmertnykh’s visit, see ‘‘Talks in Bonn,’’ Izvestiya, June 14, 1991, 5; reprinted in FBIS-SOV91–118, June 19, 1991, 17–18.

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The last summit meeting between Kohl and Gorbachev was held in early July in Kiev.100 The meeting was an uneasy one. Gorbachev continued to press Kohl for more aid, repeating his demand for loans and payment for Soviet army facilities in the former GDR, while the chancellor continued to resist. Additionally, the meeting offered fresh evidence of the impending collapse of the USSR. Boris Yeltsin had by now been elected as the president of Russia; this was considered to be one reason why Gorbachev chose to meet Kohl in the Ukraine instead of in Moscow. However, in the Ukraine, too, nationalist stirrings were becoming ever stronger. The Ukrainian leader, Leonid Kravchuk, insisted on meeting with Kohl and pressing his claim that the Ukraine was now a sovereign state in its own right. The KohlGorbachev meetings were also disrupted by demonstrators waving Ukrainian flags and shouting ‘‘Gorbachev Go Home.’’ The one thing both Kohl and Gorbachev could clearly agree on was that other Western states should step up their aid to the USSR. Both the Germans and the Soviets hoped that the upcoming G-7 summit, to be held in London in July, would agree to major new aid for the USSR. Chancellor Kohl launched an all-out effort to persuade his Western allies to invite Gorbachev to the summit and to agree to support the USSR. He also suggested that the USSR be admitted to such organizations as the IMF and the World Bank. However, he faced essentially the same barriers that had stymied him in the lead-up to the previous summer’s G-7 meeting in Houston. The other countries simply did not share Germany’s urgent national interest in aiding the USSR, despite their rhetorical support for Gorbachev. The United States and Japan remained especially opposed to aiding the Soviets. The Americans again had a laundry list of specific political concessions which they hoped to wring from Gorbachev, while Japan was still fixated on the Kurile Islands. German Finance Minister Theo Waigel accused the Americans and Japanese of concentrating on exclusively ‘‘regional problems’’—perhaps forgetting that Bonn’s eagerness to help Gorbachev was due to its own ‘‘regional’’ concerns. Additionally, all Bonn’s allies could see by the summer of 1991 that Gorbachev’s power was waning rapidly. In the end, Gorbachev was allowed to attend the London 100. For reports on this meeting, see Elfie Siegl, ‘‘(K)ein Spaziergang in der Ukraine,’’ Frankfurter Rundschau, July 5, 1991; Elenor Randolph, ‘‘Kohl Urges Allied Help to Kremlin,’’ Washington Post, July 6, 1991; and ‘‘Kohl als Fu¨rsprecher Gorbatschows,’’ Neue Zu¨rcher Zeitung, July 10, 1991. See also Kvitsinsky, Vor dem Sturm, 117. The text of the joint news conference given by Gorbachev and Kohl after their meeting can be found in Pravda, July 6, 1991, 5.

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summit—although not as a full participant—but did not receive any concrete pledges of additional aid.101 By now the end of the USSR was fast approaching. Gorbachev tried desperately to persuade the leaders of the increasingly independent union republics to agree to a new Union Treaty that would preserve the Soviet Union as a loose confederation. However, the signing of the treaty was aborted by the attempted hard-line coup on August 19. In the aftermath of the coup attempt, all the republics declared their independence and the USSR effectively ceased to exist. Gorbachev was by now losing power daily, as the government of the Russian Republic, under President Yeltsin, took over more and more of the powers previously held by the central regime. German and Soviet leaders continued to meet to discuss the country’s economic and political problems, but it was increasingly evident that the Germans would not consider giving further aid to a country that was about to collapse.102 Finally, in November, Boris Yeltsin traveled to Bonn and was received as what he, to all intents and purposes, already was: the leader of an important independent state.103 Within weeks, at the end of December, the Soviet Union had been formally dissolved. German-Soviet relations were thus replaced by German relations with fifteen newly independent states. In some ways, the breakup of the USSR helped Germany. All the new states were smaller, less powerful militarily, and weaker economically than the old Soviet Union, thus enhancing German bargaining power in relations with them. Some of the new states would clearly be particularly dependent on Germany, such as the small Baltic states of Latvia, Lithuania, and Estonia. However, Germany also faced unprecedented complications in dealing with the fifteen former Soviet states. For example, previously questions relating to the German minority in the USSR could be decided largely by Gorbachev; now the minority was scattered across several independent states, greatly complicating issues of minority rights and resettlement. Similarly, the various forms of German aid to the USSR—such as the troop-housing project—would now have to be split up among the various states, and the USSR’s debts would also have to be divided. For example, it was eventually decided that the DM 200 million to be spent on job train101. For a report on the G-7 summit, see ‘‘Ein bißchen unheimlich,’’ Der Spiegel, July 22, 1991, 16–18. 102. On the German view of the situation in the USSR after the coup, see ‘‘Wir setzen auf die Deutschen,’’ Der Spiegel, September 16, 1991, 18–21. 103. More details on the Yeltsin visit are given in the following section.

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ing for the troops being withdrawn from the former GDR would be split up as follows: Russia would receive 65 percent, Ukraine 12 percent, Belarus 4 percent, and Kazakhstan 2 percent.104 Clearly, though, the most important German partner among the former Soviet states would be Russia. The Russian republic, led by Boris Yeltsin, contained the bulk of the USSR’s population, resources, and weaponry. Thus German diplomacy has focused mainly on Russia in recent years, although Ukraine is also important (given its size and location), as are the Central Asian republics (mainly because of their substantial German minorities). Yeltsin traveled to Bonn for a summit meeting with Kohl in mid-November 1991, when the USSR still was officially in existence.105 At this summit, Yeltsin agreed that Russia would assume responsibility for its share of the debts of the USSR after the breakup of the country, an important precondition for further German economic support. He also made a major concession on the question of the German minority in Russia, committing himself to work for the reestablishment of the former autonomous German republic in the Saratov area on the Volga. The Volga Germans had been deported from this area, where they had lived since the time of Catherine the Great, during the Second World War. Bonn agreed to set up a special fund of DM 50 million to support the German minority in Russia. However, other economic aid was not forthcoming; Bonn continued its policy, in force since the spring of 1991, of denying major new aid while firmly stating that it was the turn of other Western states to help Russia. The German policy was understandable: after all, it was estimated at the end of 1991 that Germany alone had provided about $45.5 billion in aid to the USSR, which accounted for fully 57 percent of the world total of such aid.106 Yet it also reflected the simple fact that at the time Bonn believed it had achieved its major political goals with respect to Moscow; hence little further economic linkage was needed. The German policy of offering only modest aid—largely in the form of advice and technical assistance—continued after Russia and the other for104. Fred Oldenburg, ‘‘Das vereinigte Deutschland und das neue Rußland,’’ Deutschland Archiv 6, no. 11 (1993): 1249. 105. For details on this summit, see ‘‘Bonn hilft Jelzin ‘mit Rat und Tat’ bei der Reform,’’ Handelsblatt, November 22, 1991, and ‘‘Es trifft uns auch weiter,’’ Der Spiegel, November 23, 1991, 18–22. The text of the joint statement signed by Kohl and Yeltsin at the meeting can be found in Vestnik Ministerstva Vneshnikh Snoshen SSSR, December 31, 1991, 13–15. 106. Cited in Timothy Aeppel and Terence Roth, ‘‘Germany Finds Lesson Or Two in Its Efforts to Aid Former Soviets,’’ Wall Street Journal (European Edition), January 31, 1992.

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mer Soviet states became fully independent at the end of 1991. For example, Aleksandr Shokin, responsible for employment and social issues in the new Russian government, visited Bonn in January 1992 and was only able to sign agreements for German technical assistance and advising on social issues; no new aid was forthcoming. The first visit of the new Russian foreign minister, Andrei Kozyrev, to Bonn also produced meager results, as did the visit of the German economics minister, Ju¨rgen Mo¨llemann, to Moscow, Ukraine, and Kazakhstan in early February.107 At the same time, Chancellor Kohl’s cabinet decided to adopt the same delaying tactic used by the G-7 at its previous summits to avoid giving further aid to the USSR: it ordered a comprehensive study on the aid that had been given so far and its effectiveness.108 The new, relatively restrictive aid policy was apparent, for example, in the Hermes program. As was noted above, Hermes credit insurance had become increasingly important by 1991, as the Soviet Union’s credit rating steadily declined. The new Russian republic and the other successor states to the USSR (most now formally members of the Confederation of Independent States, or CIS) were equally dependent upon these credits. Until the end of 1991, in addition to the generous terms outlined above (no cash down payments, a three-year grace period, and a ten-year repayment period) Hermes credits had been awarded without limitation. Germany decided that this policy exposed the government to potentially astronomical losses if any of the CIS states should default—since the total amount of Hermes credits issued to the USSR had reached an estimated DM 30 billion by the end of 1991—and decided to impose a limit of DM 5 billion on new Hermes guarantees in 1992. Even this amount was given only because of the residual political importance of the former Soviet states; as one commentator put it, ‘‘We are not talking about some banana republic which is peripheral to world affairs, but about the CIS.’’109 Throughout 1992 the issue of the withdrawal of Russian troops from eastern Germany continued to be the largest item on the agenda of German 107. For Shokin’s visit, see ‘‘Employment Minister Meets Genscher in Bonn,’’ TASS wire service, January 7, 1992; reprinted in FBIS-SOV-92–005, January 8, 1992, 38–39. On Kozyrev’s visit, see ‘‘Bonn-Moscow: Dialogue Between Partners,’’ Izvestiya, January 17, 1992, 5. On Mo¨llemann’s trip, see ‘‘German Economics Minister Meets with Gaidar,’’ ADN wire report, February 3, 1992, in FBIS-SOV-92–023, February 4, 1992, 26–27. 108. ‘‘Who, How Much, and When . . . FRG Industrialists Elaborate Economic Aid Plans,’’ Izvestiya, January 20, 1992, 5. 109. See Gerhard Hennemann, ‘‘Haarscharf am Rand der Legalita¨t,’’ Su¨ddeutsche Zeitung, January 23, 1992.

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relations with the former Soviet states.110 At first these troops were formally under the command of the CIS minister of defense; however, as it became clear that the confederation would evolve into a loose ‘‘United Nations of the former Soviet Union,’’ Russia took over control of the troops in the spring of 1992.111 Thus Russia became the Federal Republic’s main partner in managing the withdrawal of the troops, although other republics such as Ukraine and Belarus were involved to some degree, particularly since some of the housing for returning soldiers was being built on their territory. The withdrawal continued to be endangered by demands from Russian hard-liners for more German aid and threats that the withdrawal would be slowed or even stopped if their demands were not met. The commander of the Soviet troops in the former GDR, General Burlakov, frequently complained that his troops were not being treated with due respect, were being harassed by German ‘‘hooligans,’’ and that the apartments they had been promised after the withdrawal were not being completed quickly enough.112 Still, the pullout continued on schedule; by early 1992, 165,000 troops had left German soil, which put the process at near the halfway point.113 In December 1992, Chancellor Kohl met with Yeltsin at an important summit meeting. The meeting served as clear proof that economic linkage could be at least as effective with the Russians as it had been with the Soviets. The Germans employed the tactic of specific positive linkage one more time. Kohl was eager to win Russian agreement to two important political issues, both related to the withdrawal of former Soviet troops from the ‘‘Neue La¨nder,’’ troops which Russia now commanded. The 1990 treaty regulating the troop departure had not specified what was to become of the property and land the soldiers left behind. The USSR (and later Russia) 110. For a good overview of the troop withdrawal process under both the USSR and the exSoviet states, see Ulrich Brandenburg, ‘‘The ‘Friends’ Are Leaving: Soviet and Post-Soviet Troops in Germany,’’ Aussenpolitik 44, no. 1 (1993): 77–88. For a moderate Russian view of the withdrawal issue, see ‘‘Army: Germany Recognizes Russia as USSR’s Rightful Successor,’’ Nezavisimaya Gazeta, February 15, 1992, 1–2. 111. See ‘‘Troops Abroad Under Russian Jurisdiction,’’ TASS wire report, March 16, 1992, in FBIS-SOV-92–051, March 16, 1992, 47. 112. For the conservative Russian view, see ‘‘You See Strange Things in Germany: Russian Military Detain Hooligans, Police Let Them Go,’’ Krasnaya Zvezda, October 19, 1992, 3. See also the interview with hard-line leader Colonel Viktor Alksnis in ‘‘Kremlin Colonel Threatens: Russian Soldiers Stay in Germany,’’ Bild, November 2, 1992, 1–2. For a more optimistic view of the progress of the housing projects in Russia, see ‘‘Es Sind Wunderbare Wohnungen,’’ Der Spiegel, March 23, 1992, 126–30. 113. Figures cited in interview with General Burlakov in ‘‘Whose Bombs Are Rusting in German Soil?’’ Pravda, March 12, 1992, 5.

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had demanded massive German compensation for the military bases it was abandoning. Germany, however, concerned that the bases were contaminated by toxic wastes that would be expensive to clean up, demanded that they be given up without compensation (the so-called Null Lo¨sung, or Zero Solution). Kohl was also anxious to speed up the Russian withdrawal if at all possible. It was originally scheduled to be completed at the end of 1994; however, Kohl would be forced to hold national elections in Germany before that time and was anxious to have the troop withdrawal finished first.114 With these motivations, Bonn was suddenly again willing to give new economic aid, after about eighteen months of vigorous stalling. In the end, another economic/political deal was arranged. Russia agreed to complete the troop withdrawal four months ahead of schedule, by the end of August 1994, and also agreed to give back military lands in the former GDR without additional compensation. In return, Germany agreed to add DM 550 million to the amount it would spend to build housing for officers of the former Soviet army, bringing the total amount invested in that project to DM 8.35 billion. It was planned to build some 9,000 additional housing units with the money, bringing the total constructed to about 45,000.115 Germany also agreed to postpone discussion of the Russian debt resulting from the Transfer Ruble arrangement of late 1990— estimated at DM 17.6 billion—for five years. During this period the Federal Republic would assume the interest payments. This alone was expected to cost the German taxpayers billions, even assuming that the Russians would eventually be able to repay the principal.116 As the arrangement to exchange concessions on the Transfer Ruble issue and a payment of DM 550 million on troop housing for Soviet political concessions shows, Bonn was still willing to loosen its purse strings if its political interests could be served in the process. 114. Under the German Basic Law, elections for the Bundestag must be held at least once every four years. Kohl had last been reelected in December 1990. 115. Author’s interview with Herr Lambach, Foreign Ministry, Bonn, June 1994, and with Georg Boomgaarden, German embassy in Moscow, March 1994. For the text of the agreements reached at the meeting, see Bulletin, December 22, 1992. For a report on the housing program for returning ex-Soviet troops, see ‘‘Information zum Wohnungsbauprogramm fu¨r die aus dem Gebiet der ehemaligen DDR zuru¨ckkehrenden Soldaten der GUS-Streitkra¨fte,’’ Bundesministerium fu¨r Wirtschaft, May 1994. German officials generally admitted the linkage to the Null Lo¨sung, but denied the importance of the election issue, although this connection was acknowledged by the German press and German scholars. However, even the importance of achieving the Null Lo¨sung on Soviet army property was considerable, since Moscow had initially demanded over DM 20 billion for this property. 116. See ‘‘Wertlose Guthaben,’’ Der Spiegel, December 14, 1992, 102–3.

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This example of specific political linkage, the final one covered in this study, can be summarized as follows: Case 21 1992 Linkage type

German goal(s)

Results

Positive specific (December 1992 Yeltsin-Kohl summit: grant of DM 550 million; agreement to give ten-year grace period for billions in Soviet debt for trade with the former GDR)

Faster Russian troop pullout from the former GDR—before next German elections; Russian agreement to drop demand for compensation for military bases in the former GDR (could have delayed pullout)

Successful: four-month speedup in troop withdrawal (from December to August 1994); demand for military base compensation dropped

Clearly, then, economic linkage would work just as well with the new Yeltsin regime as with the former USSR. In fact, it can be argued that the new Russian government could be even more vulnerable to such linkage. It faced an even bleaker economic situation than Gorbachev had, with measures of production and income continuing to fall steadily while foreign debt mounted. Also, while Gorbachev had allowed only partial democratization and never stood for popular election himself, Yeltsin faced the need for regular elections and thus could be expected to care more about popular demands for economic progress. As authors such as Drezner have recently noted, democratic states may be particularly vulnerable to economic linkage.117

The End of Linkage? 1992–1994 By the end of 1992 it seemed that the Germans had essentially fulfilled all their major political goals in relations with the Russia. Hence, aside from the December 1992 package, little further bilateral aid was forthcoming, despite the country’s clear need and its progress toward democratization and market reform after 1991. This shows yet again that earlier German aid was mainly politically motivated. Still, there was reason for Bonn to remain cautious, as the withdrawal of Russian troops from the former GDR would not be completed until August 31, 1994. This section, then, will consider these final two years, which brought the external aspects of the unification 117. Drezner, ‘‘Trouble,’’ 195.

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process to a conclusion. It will briefly discuss some of the remaining bilateral issues during this period, including Russia’s ties to the European Community (later, European Union) and the role of the German minority in Russia. Finally, it will sum up Germany’s economic position vis-a`-vis the Russian state at this time, showing clearly that Germany had retained and even strengthened its role as a dominant economic actor in the former Soviet area. This economic role gave Germany a strong basis for further economic linkage in the future, if it should again need Moscow’s help to achieve important political objectives. After the December 1992 Kohl-Yeltsin summit, Bonn steadfastly refused to grant major new bilateral aid to the Yeltsin government and other former Soviet states. This could be seen in Germany’s treatment of Hermes credits, which had been given without limit and under generous special conditions to the Gorbachev regime. As noted above, they were restricted for the first time in 1992. The amount of new export credits allowed each year was then further limited, to 4 billion in 1993 and 3.5 billion in 1994. The 1994 figure was even subdivided into a DM 2.5 billion limit for Russia, DM 400 million for Kazakhstan, and 300 million each for Ukraine and Belarus.118 In a further effort to slow the growth of the looming Hermes burden, the German government decided to stop offering the CIS special conditions on Hermes loans at the end of 1993. The importance of the Hermes credits in Germany’s overall aid to the CIS states can be seen by the fact that those states absorbed some 20–25 percent of all new Hermes coverage, and the total value of Hermes-insured loans owed by the CIS in May 1994 was some DM 43 billion.119 Some observers, particularly in Russia, believed that it was not coincidental that German credit policy was tightening steadily: it showed that Russia’s political importance to Germany, while still high, had fallen noticeably since 1990. Russia now had less and less political leverage over 118. Author’s interview with Herr Vaubel, Referat for Foreign Trade, Ministry of Economics, Bonn, June 1994. The other republics were to be given Hermes loans on the basis of their economic conditions: the Uzbek, Turkmen, Kirghiz, and Moldavian republics were to be given Hermes backing on a case-by-case basis, while the other four CIS states—Georgia, Azerbaijan, Armenia, and Tajikistan—were considered too unstable to be eligible for Hermes credits. Another reason for slowing down the growth in Hermes credits was that the Bonn cabinet had decided, in September 1992, that East German firms should now orient themselves to the world market, rather than continuing to concentrate on exports to the former USSR. Thus the second reason for German support of Hermes credits to Russia—to help industry in the former GDR— was gradually diminishing. Author’s interview with Georg Boomgaarden, German embassy in Moscow, March 1994. 119. Author’s interview with Ruprecht Brandis, Referat for Hermes Credits, Ministry of Economics, Bonn, June 1994. Needless to say, if the ex-Soviet states were to default on these loans the burden on the German taxpayer would be enormous.

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Germany, especially as the deadline for the final withdrawal of Russian troops from the former GDR, August 31, 1994, approached.120 In all, the vast majority of German bilateral aid, and nearly all the aid given as grants rather than credits, was awarded in 1990 or early 1991. Once the USSR ratified the treaties with Germany that secured reunification, the flow of new aid dropped dramatically—with the exception of the December 1992 package. Only about DM 10 billion in aid was given in the two years after the collapse of the USSR, whereas almost 80 billion was given in the previous two years.121 This is especially interesting, since, by objective criteria, the later Russian government of Boris Yeltsin probably was more worthy of outside support than was the still-communist government of Gorbachev in 1990–91. However, Yeltsin’s government had less to offer Bonn politically than did Gorbachev at the time of reunification. As the economist Jeffrey Sachs said in response to an interviewer who noted Germany’s large overall aid payments to the USSR: ‘‘What have the Germans really paid for? They paid for Gorbachev and for the withdrawal of the Red Army. Only very little was then left over for Yeltsin.’’122 Throughout 1993 and 1994 the Russian troop withdrawal from Eastern Germany continued on schedule. With every passing month, Moscow’s leverage over the Germans decreased. However, other issues still remained on the bilateral agenda during this period. While Bonn did not offer any further large aid packages, aid continued to play a more subtle role behind the scenes. This could be seen both in discussions on the role of the German minority in Russia and Russian ties with the European Union. With the gradual resolution of the troop withdrawal question, another perennial issue in German-Russian relations again assumed greater importance: the German minority in Russia.123 In fact, as early as late 1992 the new German foreign minister, Klaus Kinkel, informed his Russian counterpart Andrei Kozyrev that ‘‘the state of bilateral relations is now determined by the [Russian] attitude to the settlement of the problems of ethnic Germans 120. In interviews in Moscow in April 1994, the author was confronted several times by the question: ‘‘Will Germany still care about supporting Russia after August 31?’’ 121. See Table 5.1 in concluding section of this chapter. 122. Interview with Sachs in ‘‘Der Westen hat Versagt,’’ Die Zeit, January 28, 1994, 19. 123. For an overview of the situation of the German minority in the former Soviet Union, see Alfred Eisfeld, ‘‘Zwischen Bleiben und Gehen: Die Deutschen in den Nachfolgestaaten der Sowjetunion,’’ Aus Politik und Zeitgeschichte, B48/93, November 26, 1993, 44–51. See also Barbara Dietz, ‘‘Anders als die anderen: Zur Situation der Deutschen in der Sowjetunion und der deutschen Aussiedler in der Bundesrepublik,’’ Osteuropa 42, no. 2 (February 1992): 147–59. On the situation of Germans in the Central Asian republics, see Markus Wolf and Alexander Frank, ‘‘No Future for Ethnic Germans in Kazakhstan?’’ Aussenpolitik 44, no. 2 (1993).

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in Russia.’’124 As was noted above, during his November 1991 visit to Bonn Yeltsin agreed to work to revive the former German Autonomous Republic on the Volga. To date, this promise has not been fulfilled, largely because of the resistance of the local Russian inhabitants. After a stormy visit to the region, Yeltsin was forced to agree that no German republic would be set up unless 90 percent of the area’s inhabitants were German.125 This figure will probably never be obtained in the Saratov region on the Volga, which is now almost exclusively populated by ethnic Russians. From 1992 to 1995, approximately 200,000 members of the German minority emigrated to the Federal Republic each year.126 This massive continuing emigration spurred Bonn to continue its efforts to create a secure area within the former USSR, where the minority could live as Germans without being forced to emigrate. With the apparent collapse of the Volga Republic concept, numerous other ideas for settling the problem of the German minority were floated. Several areas in the former USSR set up small German ‘‘autonomous areas,’’ which have proved to have little political power and little power to attract German settlers. There was even some competition among the former Soviet republics to see who could attract the most German settlers, since aid money from Bonn was allocated to each major German community.127 Perhaps the most interesting—and controversial—solution to the ‘‘German problem’’ in the CIS was the settlement of some members of the minority in the formerly German area around Kaliningrad (Ko¨nigsberg), now an isolated enclave on the Baltic Sea cut off from Russia proper.128 Even under Gorbachev some progress was made in opening this area, which had formerly been a secretive, closed region with a heavy Soviet military presence. The area was formally opened to Western visitors on January 1, 1991. Soon thereafter, Soviet conservatives began to complain about the ‘‘Germanization’’ of the area, as the old name of Kaliningrad, Ko¨nigsberg, came into common use and a few Russian Germans began to settle in the region. 124. As cited in ‘‘News Conference with Kozyrev,’’ ITAR-TASS wire report, October 7, 1992; reprinted in FBIS-SOV-92–196, October 8, 1992, 10. 125. Oldenburg, ‘‘Das vereinigte Deutschland,’’ 1252–53. 126. The exact figures were 195,576 for 1992; 207,347 for 1993; 213,214 for 1994; and 209,409 for 1995. Statistisches Jahrbuch fu¨r das Bundesrepublik Deutschland, 1996, 85. 127. See, for example, ‘‘Ethnic Germans to Return to Ukraine,’’ ADN wire report, February 27, 1992; reprinted in FBIS-SOV-92–041, March 2, 1992, 51–52, and ‘‘So gutes Land,’’ Der Spiegel, March 9, 1992, 71–78. 128. For an overview of the Kaliningrad/Ko¨nigsberg problem at this time, see Peer Lange, ‘‘Das Gebeit Kaliningrad: Wegscheide fu¨r Rußlands politische Strategie,’’ Europa-Archiv, no. 10 (1993): 289–98, and ‘‘Sie ta¨ten morgen kommen wolle,’’ Der Spiegel, January 7, 1991, 124–27.

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These complaints continued after the breakup of the USSR. Many Russians feared that the reunited German state would use its economic influence to gradually gain influence in the enclave, and that Russian sovereignty over the region would eventually be lost.129 As yet, however, these fears have proved largely groundless; only a few thousand Russian Germans have settled in the region, since most prefer to move directly to the much wealthier Federal Republic.130 In all, the problem of the German minority has come to be an important one in German relations with the former Soviet states, and it has proved to be another area in which Germany quietly attempts to employ economic linkage. This problem will probably continue to be important in the future. In addition to its bilateral aid, Bonn also provided the new Russian republic and the other former Soviet states with help through such multilateral organizations such as the EC. Germany provides some 28 percent of all funding for the organization; thus EC aid can be seen in part as German aid.131 Also, Germany has helped Russia and the other former Soviet states to secure closer ties to the EC. As has been noted, the question of relations between the EC and the Soviet Union played a role in German-Soviet relations before the collapse of the USSR. However, this question never loomed as large in German-Soviet ties as it did in relations between Germany and its smaller East European neighbors. While the USSR could hope for some economic benefits by increasing its trade ties with the EC and receiving economic aid from the organization, it could not realistically hope to achieve closer association. The USSR was simply too large to be absorbed by the community, and was also not entirely ‘‘European’’ geographically or ethnically. Additionally, the USSR did not meet the two key criteria which the EC set in 1991 for closer association by any East European state: it was not fully democratic and had not fully embraced market economics. For all these reasons, truly close ties with the EC seemed improbable, and 129. See ‘‘Start of Germanization,’’ Krasnaya Zvezda, March 19, 1991, 4, and ‘‘Kalininburg?’’ Komsomolskaya Pravda, August 11, 1992, 2. 130. In mid-1992, it was estimated that only about 5,000 of the 900,000 inhabitants of the region were members of the German minority. Estimate in ‘‘Du sollst dich erinnern,’’ Der Spiegel, May 25, 1992, 140. By the end of 1992, the estimate had risen to almost 10,000. ‘‘Wie’s Messer in’n Schmand,’’ Der Spiegel, December 28, 1992, 136–43. There has been little change since then. 131. Germany counts 28 percent of EC aid in its own tallies of bilateral aid for the former East bloc. See ‘‘Antwort der Bundesregierung auf die Große Anfrage der Fraktionen der CDU/CSU und F.D.P. (Drucksache 12/5046): Unterstu¨tzung der Reformprozesse in den Staaten Mittel-, Su¨dost- und Osteuropas (einschließlich der baltischen Staaten) sowie in den neuen unabha¨ngigen Staaten auf dem Territorum der ehemaligen Sowjetunion,’’ Deutscher Bundestag, Drucksache 12/6162, November 12, 1993, 61.

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thus Germany’s role as the primary advocate of EC expansion—which was crucial in its bilateral ties with such states as Poland—was of limited importance to the Soviets. After the dissolution of the USSR, however, the prospects of the Soviet Union’s successor states for closer ties to the EC brightened. As it had with the Central European states, Germany quickly installed itself as the main EC advocate of such ties. Typically, Germans discussed the matter as though it were self-evident and not a question of any particular German national interest. For example, soon after the breakup of the USSR one prominent German diplomat simply noted that ‘‘after the collapse of the Soviet Union the question of the EC’s relations with the European republics of the former Soviet Union will be raised.’’132 This impersonal formulation leaves one obvious point unsaid: who will raise the question? Presumably those former Soviet republics themselves and the German government. The chances of achieving better ties with the EC seemed particularly bright for the Baltic States, which are geographically and culturally relatively close to Western Europe—particularly from the viewpoint of Germany—and are also small in terms of population and physical size, thus easing the difficulty of possible absorption into the EC. These states were therefore able to sign Association Agreements with the EC, as in 1992 most other Central and Eastern European states did. Predictably, Germany has led the fight for closer EC ties to these nations. In 1994, for example, it was busily lobbying its EC partners to give the Baltic States the same assurances of eventual full membership in the organization that had been given to the Visegrad countries at the Copenhagen summit of 1993.133 Indeed, since 132. Hans-Dieter Kuschel, ‘‘Die Europa-Abkommen der EG mit Polen, Ungarn, und der CSFR,’’ Wirtschaftsdienst, no. 2 (1992): 93. Hans-Dieter Kuschel was at the time leader of the Referat fu¨r Beitritte dritter La¨nder zur EG (the Department for the Admission of Other Countries to the EC) in the German Foreign Ministry. He led the German delegation in the 1991 Europa-Abkommen talks between the EC and the Visegrad states (Poland, Hungary, and Czechoslovakia). 133. See Gemma Porzgen, ‘‘Die großen Chancen des Aufbruchs nicht verspielen,’’ Das Parlament, May 20, 1994, 4. It is interesting to note how many Germans see the inclusion of the Baltic States—as well as such lands as Slovenia and Croatia—in any definition of ‘‘Europe’’ as selfevident. These newly independent countries have a long history of association with the Germanic cultural, economic, and political region of Mitteleuropa. However, many other West Europeans do not perceive a close historical kinship with the peoples of these countries. They seem to have difficulty imagining the incorporation of states such as Poland and Hungary into the EU; the inclusion of the Baltics and former Yugoslav states seems inconceivable. These differences in what is regarded as ‘‘Europe’’ are often unspoken and unexamined, but they have a large impact on the current debate over expansion within the EU. Germany’s attitude toward these countries could be seen clearly when the EC debated diplomatic recognition of Slovenia and Croatia after the breakup of Yugoslavia and of the Baltic States after the failure of the attempted coup against

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then all the Baltic states have been added to the list of candidates allowed to negotiate with the group over eventual membership. However, it is not only the smaller Soviet successor states which have benefited from the new possibility of improved ties with the EC. Russia, too, has been able to move closer to the organization, although for reasons of size and geography it remains an unlikely candidate for membership.134 Russia is a far better partner for the EC than the Soviet Union could have been. It has come much closer to fulfilling the EC’s association criteria of adherence to democratic principles and market economics. It has a democratically elected government and has instituted market reforms that have gone far beyond those initiated by Gorbachev, although in both areas it has lagged behind some of the Central European states. Thus, in the aftermath of the collapse of the USSR Russia still could not hope for membership in the EC, but at least some kind of cooperation agreement was possible. In negotiating a formal cooperation agreement, Germany once again took the lead. When Foreign Minister Kinkel met with Boris Yeltsin in Bonn in May 1994, Kinkel announced that when Germany assumed the presidency of the EC Council of Ministers on July 1, 1994, one of its primary goals would be the speedy conclusion of an agreement between Russia and the EC.135 In the end, a ‘‘Partnership and Cooperation’’ agreement with Russia was negotiated even more quickly, and was signed at the organization’s Corfu summit in June 1994.136 Germany did its best to push its expansion agenda during its presidency of the Council, for example, hosting an EC summit in December 1994, in Essen, at which it tried to push for more rapid membership for the Central European states, the Baltics, and Slovenia, and for closer ties to Russia.137 At the same time, Kinkel also affirmed Bonn’s commitment to backing full Russian membership in GATT and in the G-7 group—in both cases in the face of strong opposition from other members of the groups. Germany Gorbachev in August 1991. In both cases, the German foreign minister, Hans-Dietrich Genscher, aggressively lobbied his EC colleagues to grant speedy recognition. See ‘‘From the Atlantic to Where?’’ The Economist, August 31, 1991, 42. 134. For a more comprehensive discussion of Russia’s relations with the EC at the time, see Andrei Zagorsky and Michael Lucas, Rossiya Pered Evropeiskim Vizovom [Russia faces European challenges] (Moscow: Izdatelst’vo Mezhdunarodniye Otnosheniya [International Relations Press], 1993). 135. ‘‘As EU Chief, Bonn to Seek Russia Pact,’’ International Herald Tribune, May 14–15, 1994, 2. 136. Stent, Germany and Russia Reborn, 177. 137. See Robert Wielaard, ‘‘EU Considers Eastern Expansion Plans,’’ AP News Service Report, December 11, 1994.

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continued to lobby on Russia’s behalf behind the scenes in all these Western organizations. At the G-7 meetings in Munich in 1992, Tokyo in 1993, and Naples in 1994, Bonn lobbied heavily to upgrade Russia’s role at the meetings and win Russia further Western aid.138 In each case, Boris Yeltsin was invited to participate in some of the discussions—as Gorbachev had been at the London G-7 meeting in 1991—but Russia was not made a full participant in the organization. Bonn continued to try to change this ‘‘7 Ⳮ 1’’ arrangement into a full ‘‘G-8.’’ In the end, Russia finally became a full member of the group at the May 1998 summit in Birmingham.139 Germany also continued to back full Russian membership in the International Monetary Fund, the World Bank, and GATT (later the WTO). Russia’s role in the various international financial bodies and the EC was a major part of the agenda of the Kohl-Yeltsin summit meeting at Bonn in May 1994.140 In all, Germany continued to act as Moscow’s advocate in the West, a role which allowed it to win political points with the new Russian government while avoiding expensive new bilateral aid—except in very limited cases like aid for the German minorities in the former Soviet states. By 1994, though, Germany had assumed an increasingly important role in private investment and trade with Russia and the other Soviet successor states. While new German aid had fallen sharply, this underlying economic structure gave the Germans a strong basis for future economic linkage if their state again needed political concessions from Moscow. As analysts since Hirschman have pointed out, a relationship of what Keohane and Nye called ‘‘asymmetrical interdependence’’ will help to facilitate linkage; since the fall of communism in Russia the economic openness of that state and its economic weakness have deepened its dependency on the West in general, and on Germany in particular—its leading Western partner. Relative growth in economic ties has been greatest in those areas which were closed to German firms throughout most of the Soviet period, such as direct foreign investment. Absolute figures for the size of German invest138. For the results of the Munich meeting, see Hans-Hermann Ho¨hmann, and Christian Meier, ‘‘Rußland als Weltwirtschaftspartner? Perspektiven fu¨r Kooperation und Hilfe nach dem Mu¨nchener G7-Gipfel,’’ Berichte des Bundesinstituts fu¨r ostwissenschaftliche und internationale Studien, no. 30 (1992). On the Tokyo meeting, see Hans-Hermann Ho¨hmann and Christian Meier, ‘‘Hilfsaktivita¨ten auf Sparflamme? Die Unterstu¨tzung fu¨r Rußland auf dem Tokioter G7Gipfel,’’ Berichte des Bundesinstituts fu¨r ostwissenschaftliche und internationale Studien, no. 29 (1993). 139. Stent, Germany and Russia Reborn, 176. 140. See ‘‘Bonn fu¨r Vollmitgliedschaft Rußlands in der G-7 Gruppe,’’ Das Parlament, May 20, 1994, and Ada Brandes, ‘‘Jelzin: Rußland voll in Europa integrieren,’’ Ko¨lner Stadt-Anzeiger, May 12/13, 1994, 1, 3.

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ment in Russia in 1992–94 were contradictory and controversial; for example, in 1993 Otto Wolff von Amerongen, the respected longtime head of the Ostausschuß der deutschen Wirtschaft, claimed that only between DM 8 million and DM 14 million had actually been invested in Russia, a figure German diplomats derided as ‘‘ridiculous.’’141 Definitive figures were not easy to come by, given the myriad of projects in various stages of negotiation and the fact that much of the money had been ‘‘committed,’’ ‘‘partially committed,’’ or ‘‘promised,’’ but not actually formally invested. Yet it was clear that the German business presence in the chaotic Russian market was rising rapidly, with some 500 German firms represented in Moscow in early 1994, up from 380 in 1992.142 In mid-1992, German firms were involved in some 373 joint ventures in Russia alone, narrowly behind the United States, whose investors were involved in 398 such ventures.143 Official figures showed that overall German investment in Eastern Europe and the former Soviet states increased noticeably, from DM 3.71 billion in 1992 to DM 8.96 billion in 1994.144 However, as was the case for German investment in the tsarist period or during the Weimar republic, this investment—while important for the Eastern partners—remained insignificant for Germany, given Germany’s massive presence in other world markets. German holdings in Eastern Europe and the former Soviet Union amounted to only 2.57 percent of overall German overseas investment in 1994, and investment in the Czech Republic and Hungary alone accounted for almost two-thirds of this amount.145 Even foreign trade data have become harder to calculate for the postSoviet states, since each of the successor states uses its own data and none of them manage to measure the flourishing ‘‘gray market’’ of small private traders. However, it was clear that by 1994 Germany was maintaining its position as the leading Western trading partner of the former Soviet states. This was particularly important, since after the collapse of the CMEA in 1990–91, ‘‘Western’’ trade made up by far the largest share of all CIS trade. In 1991 it was estimated that the reunified Germany was clearly the largest partner of these countries, accounting for some 17.2 percent of their imports and 13 percent of their exports. In each case Germany had over double 141. Author’s interview with Georg Boomgaarden, German embassy in Moscow, March 1994. 142. Ibid. 143. Cited in ‘‘Joint Ventures with Foreign Countries Viewed,’’ Interfax wire service report, June 11, 1992; reprinted in FBIS-SOV-92–119, June 19, 1992, 35–36. 144. Statistisches Jahrbuch fu¨r die Bundesrepublik Deutschland, 1996, 681. 145. Ibid., and author’s calculations.

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the share of the next leading state.146 In 1990–92 German trade with the CIS fell noticeably, from a postwar high of some DM 46 billion in 1990 to only DM 27 billion in 1992.147 This decline was not as dramatic as it seems, however. First, the lion’s share of the 1990 trade was between the USSR and the GDR; much of this trade was economically irrational and its value was further exaggerated by its arbitrary conversion from a ruble to a deutsche mark basis in July 1990, as mentioned above. Most of the decline in German-Soviet trade from 1990 through 1992 was caused by the rapid disappearance of this trade after the end of the artificial ruble-mark convertibility of 1990. The trade turnover of the former East German La¨nder with the USSR and its successor states collapsed from DM 32 billion in 1990 to only 8 billion in 1992. Meanwhile, the former West German states were able to maintain their trade with the former Soviet Union; their trade turnover fell from only about DM 19 billion to 18 billion over the 1990–92 period.148 In any case, the apparent decline in trade with the former Soviet states was partly a statistical artifact caused by the failure to fully capture the burgeoning private trade sector. Furthermore, other Western states also saw their trade with the CIS decline from its 1990 peak, because of the economic difficulties faced by these states; thus Germany was able to maintain its position relative to other states. In 1993–94, though, trade rebounded somewhat, with overall turnover rising from DM 29 billion in that year to about 32.5 billion in 1994. In any case, the most important point is this: as has long been the case, this trade remained relatively insignificant for Germany, while it was vital for Russia. In 1994 it amounted to about 2.6 percent of Germany’s imports and 2.4 percent of its exports, while corresponding figures from the Russian side were about ten times higher.149 It is probably safe to say that, particularly given the collapse of the CMEA, Germany now dominated trade with Russia to a degree not seen since the early 1930s, perhaps even since the tsarist period. Overall, it was clear that at the time the pullout of troops from the former GDR was completed in August 1994, Russia remained mired in a position of asymmetrical interdependence with respect to Germany. In fact, there was reason to believe that this dependency was even deeper than that seen 146. Cited in ‘‘1991 CIS Economic Performance Statistics,’’ Ekonomika i Zhizn’, February 1992. In exports to the CIS, the United States ranked second, with 8.3 percent of the market, while in imports from the CIS Italy ranked second, with a share of only 7 percent. 147. See the appendix. 148. Ibid., and author’s calculations. 149. Author’s interview with Georg Boomgaarden, German embassy in Moscow, March 1994. See the appendix.

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at the end of the Soviet period. The Russian state was smaller, its GNP had shrunk significantly, and its foreign debt was mounting steadily. Despite this vulnerability, though, Germany saw little need to begin any major economic linkage initiatives in its bilateral relations with Moscow. Aside from such relatively minor issues as the status of the German minority in Russia, the German government had settled the outstanding political issues which divided it from the Russians. There was, bluntly, no longer very much to use economic linkage for. However, Germany’s strong economic position vis-a`-vis all the former Soviet states, including Russia, gave it a good basis for any linkage initiatives that might be needed in the future.

Conclusion In the period covered by this chapter, from 1990 until the end of the Russian presence in the former GDR in 1994, the balance of power between Germany and the USSR/Russia seemed to shift dramatically. At the 1990 Arkhyz summit Chancellor Kohl had been the supplicant, eagerly courting Gorbachev; by early 1991, it was clear that the USSR was heavily dependent on Germany, and Gorbachev was now the one eager to strike new economic-political deals. This dependence only deepened in the first years of the new Yeltsin regime. Yet regardless of the political situation or the regime it faced, throughout the period German economic linkage seemed to be quite effective. As we have seen, four distinct cases of positive specific aid can be distinguished in this period. First, in the spring and summer of 1990 West Germany conducted a series of difficult negotiations with the USSR over German unification. At several points during this period, bilateral political talks were supported by economic aid, such as the loan of DM 5 billion arranged by Horst Teltschik in May 1990. In the end, the crucial remaining political questions were whether the USSR would agree to withdraw its troops from the GDR after that country was absorbed into the Federal Republic and whether the united Germany would be allowed to remain in NATO. These critical issues were finally resolved in July at the Kohl-Gorbachev summit meeting in the Caucasus, with the help of a major package of specific positive economic linkage. Next, the Germans struggled to preserve the ‘‘deal’’ reached at the Caucasus summit. As we have seen, Germany provided substantial economic concessions to the Soviets in the run-up to the final meeting of the Two Plus

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Four process in Moscow in September 1990. Most notably, Kohl agreed to give Moscow an additional 10 billion deutsche marks to fund the withdrawal of Soviet troops from the GDR. The fact that this economic aid was specifically linked to the crucial Soviet political concession of allowing German reunification to proceed seems to be beyond dispute. After unification, a third wave of German economic concessions occurred, which seemed to be linked to the ratification of the treaties on unification. As we have seen, this aid played a key role in securing ratification, both by building trust and by winning the support of an influential interest group, the army high command. After the spring of 1991, once the reunification deal was ‘‘signed, sealed, and delivered,’’ German willingness to aid Moscow further seemed to fall sharply and suddenly. The last case of specific positive linkage described in this chapter occurred in December 1992, at a summit meeting between Kohl and the new Russian president, Boris Yeltsin. Bonn agreed to give Russia DM 550 million in additional funding for the troop housing project. It also agreed to delay negotiations on Russia’s large debt under the Transfer Ruble arrangement. In return, Yeltsin was willing to drop his demand for compensation for the property left behind by the departing Russian army in the former GDR. He also agreed to speed up the withdrawal by four months, ensuring that it would be completed before Kohl needed to stand for reelection at the end of 1994. In all, Germany played a dominant role in aid to the former Soviet states at this time, as it did in aiding the USSR in its last two years of existence. Some DM 90 billion in various forms of aid and credits were provided between 1989 and 1993, as detailed in Table 5.1 (see pp. 288–89). In fact, German government sources estimate that Germany alone provided some 55 percent of all world aid to the USSR/CIS during this period. Estonia, Latvia, and Lithuania, which were listed separately in German statistics, since they were not part of the CIS, received an additional DM 353 million in various forms of aid from 1989 to late 1993.150 Examining this aid reveals several important facts. The truly massive volume of the aid in itself helps to illustrate two points: first, it was clear by 1994 that Germany had become the most important economic partner of Russia and the other former Soviet states, as it was the most important economic partner of the Soviet Union. Second, the volume of the economic support provided by the Federal Republic was so great that it was absolutely 150. ‘‘Antwort der Bundesregierung,’’ 61, and my own calculations.

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clear that Germany had more than just humanitarian motives for giving the aid. Aid of this scale can only be justified in a democratic state if it serves the overriding political goals of that state. Hence this aid again confirms two principles first discussed in Chapter 1—that economic asymmetries will play an important role in any bilateral relationship, and that the wealthier partner will indeed tend to use economic linkage to meet its political objectives. Also, it is striking to note how Table 5.1 confirms this study’s approach toward examining a broad range of different economic instruments. The Germans clearly used every instrument at their disposal, from state-sponsored investments in the Yamburg oil field to Hermes export credits to multilateral grants and loans. A study that focused only on one type of economic incentives would have greatly underestimated the scope of the aid. Finally, this chapter also again seems to verify a number of the advantages of positive economic linkage outlined at the start of this study. It is striking to observe the growth in trust between Kohl and Gorbachev during the unification process, as the Soviet leader realized that Germany would indeed help his embattled country. This trust had a positive spillover effect to other aspects of the bilateral relationship, as even complex security problems were ultimately resolved amicably. Also, Germany’s use of generous aid distinguished it from other Western states, further deepening Moscow’s trust. As noted in Chapter 1, negative sanctions tend to entice other states to try to evade them, since a great profit can be made in doing so. Positive sanctions, in contrast, do not induce such a response. Indeed, as we saw in this chapter, other states were very reluctant to commit to the expense of helping the reforming USSR (and, later, Russia), which made Germany appear all the more generous.

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Table 5.1 German Aid to the USSR and CIS, 1989–1993 Amount (billion DM)

Type of Aid Category I. Direct Aid, Free Delivery of Goods Troop Withdrawal Measures ¨ berleitungsabkommen’’ (Transitional Agreement) 1. ‘‘U October 9, 1990 Includes: DM 7.8 billion for housing for troops in USSR DM 3 billion for maintenance of troops in the former GDR DM 1 billion for transport costs of withdrawal DM 200 million for retraining of returning soldiers DM 1.4 billion for interest on German DM 3 billion credit to cover Soviet share of troop withdrawal cost 2. Costs of maintaining Soviet troops in GDR, July 1 to December 31, 1990 3. Supplemental help for housing, training of troops (agreed to at Yeltsin-Kohl summit, December 16, 1992) Humanitarian and technical help 4. Immediate aid from Berlin and Army emergency supplies (food, etc.) (December 1990–spring 1991) 5. Subsidy for purchase of 142,000 tons food (1990) 6. Other subsidies for food purchases (1990) 7. Medical aid, 1991 and 1992 8. Private donations from German sources, 1990–92 9. Funds used for advising, training, technical help 10. German share (ca. 28 percent) of EC aid (1 ECU ⳱ 2.05 deutsche mark) Includes: technical assistance: 1991, 400 million ECU; 1992, 450 million ECU food aid: 1990, 250 million ECU; 1991, 200 million ECU Total Category I:

13.4

0.7 0.55

0.7 0.22 1.3 0.31 0.65 0.74 0.75

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Table 5.1 (Continued) Amount (billion DM)

Type of Aid

Category II. Credit Guarantees and Hermes Coverage 1. Guarantees for untied finance credits* a. Balance of payments credit (July 1990): Capital Interest b. Credit to cover Soviet share of troop withdrawal costs (see I.1) 2. Hermes export credit guarantees a. New coverage from January 1, 1990 to January 1, 1992: Capital Interest covered b. Hermes fund for 1992 c. Hermes fund for 1993 3. German share (ca. 28 percent) of EC credits a. EC food credit of 500 million ECU, December 1990 b. EC food credit of 1.25 billion ECU, 1991 Total Category II:

5.0 4.2 3.0

17.2 6.25 5.0 4.0 0.3 0.7 45.65

Category III. Transfer-Ruble Balance (1 TR ⳱ 2.34 deutsche mark) For purchases from the former GDR, July 1, 1990 to December 31, 1990 Balance from trade transactions Interest costs, 1990–92 Total Category III:

6.4 billion TR 15.0 3.4 18.4

Category IV. Costs for Financing Investment Projects Investment projects in the former Soviet Union that the former GDR had promised to support Yamburg gas project Krivoi Rog ore mining/processing project Total Category IV: Grand Total for All Forms of Aid

3.25 0.93 4.18 87.55

Source: ‘‘Antwort der Bundesregierung,’’ pp. 55–56. Data as of July 21, 1993. Hermes plafond for 1994 (DM 2.5 billion) not included. * ⳱ Note to II.1 and 2a: Rescheduling of debts under multilateral accord of April 2, 1993 ⳱ DM 8 billion (1 billion for credits before the end of 1989, 7 billion for credits in 1990/91)

6

Conclusion

The scope of this study has been broad: relations between Germany and Russia and the USSR have been examined across a period stretching from the Middle Ages to the mid-1990s. Yet as we have seen, a clear unifying thread runs through the entire period and the many phases in bilateral relations it contains. That thread is the constant factor of economic asymmetry in Germany’s favor and its application in the political realm in the form of various types of economic linkage strategies. In this chapter, the many cases of economic linkage examined in this study will first be summarized. Next, some overall conclusions will be drawn that will pull together the various cases and place them in the context of the study’s theoretical framework. As we will see, this study concludes that economic linkage is very important in world affairs, and that it can potentially be used even in difficult cases—in high-political issue areas and against powerful, nondemocratic states. It also concludes that the four-part typology of sanctions created in Chapter 1, involving specific, general, negative, and positive sanctions, has worked well to classify the range of linkage attempts. And most important, it concludes that, as predicted at the start of the study, positive sanctions may work bet-

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ter than negative ones. Finally, in the last section of this chapter, some concluding insights into the role of economic linkage in both German foreign policy and in world affairs in general will be offered. Such linkage will remain vital for Germany—and for other economically powerful states, such as the United States—well into the future.

Summary of Cases In order to move beyond vague and general conclusions it is useful to reexamine in detail the various examples of economic linkage discussed in the preceding chapters. The cases of German economic linkage in relations with Russia are summarized in Table 6.1 (pp. 292–95). Before examining these case summaries, however, a few caveats are necessary. First, it will be noted that the table essentially excludes much of the period before the creation of the Wilhelmine Reich in 1870. This decision was taken deliberately, since before the rise of Prussia to leadership in Germany there was no single state to exercise ‘‘German’’ economic power. However, it should still be noted that the earlier period was important in laying the groundwork of ‘‘asymmetrical interdependence’’ for later linkage attempts. Second, it will be readily observed that some of the cases examined represent a distinct, single linkage incident, while others stretch over a longer time period. Because of the complexities of the cases, where economic linkage is sometimes explicit and sometimes only implied, it is not always easy to pinpoint the beginning and end of a particular linkage attempt. In addition to such temporal difficulties, it is sometimes difficult to specify whether the initiating state is employing specific or general linkage, and even if it is using negative or positive linkage. As was noted in Chapter 1, each of these classifications is something of an ideal type, which may not adequately reflect a complex reality. For example, a state may promise an economic reward if a particular political concession is made, and an economic punishment if the concession is not made. Is this a case of positive or negative linkage? Often, the specific/general distinction, though conceptually useful, is also difficult to operationalize. It is quite possible that the initiating state may simultaneously offer specific rewards or punishments to achieve some clearly focused goal, while holding out the possibility of more general sanctions to achieve a broader, more long-term goal.

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Table 6.1 Linkage in German-Russian and German-Soviet Relations Years

Linkage Type

German Goal(s)

Results

Case 1 (ca. 1850–85)

Positive general (loans in Crimean and Turkish wars; bonds for Russian railroads)

Russian support of German unification; alliance with Russia (Three Emperors’ Treaty)

Successful: both goals achieved

Case 2 (1885–94)

Negative general (Russian bonds barred from German market— Lombardverbot; tariff war)

Preserve Russian alliance; protect German settlers in Poland and the Baltics

Unsuccessful: Russia aligns with France; russification of German minority proceeds

Case 3 (1894)

Positive general (trade treaty, lifting of Lombardverbot)

Return to friendship with Russia— possible end to French alliance

Unsuccessful: no change in RussoGerman relations; French alliance formalized; Caprivi dismissed

Case 4 (1905–6)

Negative specific (loan embargo at time of 1905 crisis in Russia)

Russia’s support at Algeciras Conference against France; progress in breaking Franco-Russian alliance

Unsuccessful: Russia supports France after France offers large loan; resentment of Germany increases

Case 5 (ca. 1921–33)

Positive general (1921 trade accord; German renunciation of payment for property seized in 1917; 1925 economic treaty; creation of world’s first government-backed export insurance for German-Russian trade [1926]; German credits despite huge debt to West)

Russian support against the ‘‘Versailles Order’’ and its supporters (Poland and the West)

Successful: Rapallo agreement (1922), military cooperation (1922); military and political cooperation continues to end of Weimar period

Case 6 (1939–41)

Positive specific (economic agreement August 19, 1939)

Hitler-Stalin Pact (August 23, 1939)

Successful: economic cooperation one reason for pact

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Table 6.1 (Continued) Years

Linkage Type

German Goal(s)

Results

Case 7 (1949–55)

Negative general (economic embargo; refusal to enter into any economic talks)

Reunification and other secondary goals

Unsuccessful

Case 8 (1955)

Positive specific (promise of trade and credits at 1955 AdenauerKhrushchev summit)

Release of German POWs; Soviet acceptance of Germany’s ‘‘reservations’’ on diplomatic ties (Germany states it does not recognize GDR or postwar borders of Germany)

Successful: largest Soviet concessions on ‘‘German Question’’ for years

Case 9 (1957–58)

Positive specific (1958 Trade Agreement; trade more than doubles in three years)

Return of German civilians left in USSR after Second World War; German right to speak for Berlin.

Successful: ca. 100,000 civilians are repatriated; treaty valid for ‘‘DM area’’ (i.e., Soviet Union accepts West German rule in West Berlin)

Case 10 (1960)

Positive specific (renewal of trade agreement in December 1960)

Soviet de facto acceptance of the West German right to speak for Berlin

Successful: dramatic German walkout from treaty signing helps force USSR to allow repeat of ‘‘DM area’’ clause during Berlin crisis

Case 11 (1962–63)

Negative general (embargo of pipe for oil/gas pipelines)

No clear objective vis-a`-vis USSR; largely to placate United States

Unsuccessful: hurts German-Soviet ties for rest of decade

Case 12 (1963)

Negative specific (grain embargo)

Dismantling of Berlin Wall

Unsuccessful: other suppliers step in. Helps persuade Germans to turn to positive sanctions

Case 13 (1964–68)

Positive specific (minor incentives in trade and credit—for example, export credit guarantees allowed in 1965)

De jure inclusion of Berlin in GermanSoviet agreements; progress on reunification; autonomy for Eastern Europe

Unsuccessful: other Western countries offer more generous deals with fewer political preconditions. USSR lets trade deal with West Germany lapse

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Table 6.1 (Continued) German Goal(s)

Results

Case 14 (1972)

Years

Positive specific (1972 economic treaty)

Linkage Type

De jure inclusion of Berlin in area of applicability of treaty

Successful: USSR agrees to explicitly mention West Berlin in a treaty with West Germany for the first time. (This clause also appears in the 1973 Technical Cooperation Treaty.)

Case 15 (1969–74)

Positive general; February 1970: first gas pipeline deal, backed by the German government; numerous other tariff and credit concessions; 1972 economic treaty, 1973 Technical Cooperation Treaty

General progress on relations, ‘‘improved atmosphere’’; Soviet acceptance that FRG still seeks reunification. Improved ties to GDR. Improved access to Berlin.

Successful: The August 1970 Moscow Treaty calls German border ‘‘inviolable,’’ not unchangeable. USSR accepts ‘‘letter on German unity.’’ USSR forces the GDR to improve its ties with the FRG. Berlin Four Powers Treaty. Indirect result: better image for the FRG in the East.

Case 16 (1974–82)

Positive general continues under Chancellor Schmidt (1978 twenty-fiveyear cooperative agreement to build interdependence; similar goal for many gas pipeline deals; generous credits)

General progress of relations; ‘‘improved atmosphere’’; keeping Germany out of new U.S.Soviet hostility

Unsuccessful: Cold War revives after 1979, although largely due to nonGerman factors

Case 17 (1988–90)

Positive general (Soviet bond sales in Germany beginning in 1987; the January 1988 renewal of the 1978 treaty; the DM 3 billion loan of October 1988 [the first large loan to the USSR by a Western state]; Joint Ventures; the food aid of January 1990)

General progress of relations; gradually closer link to specific German goals. (‘‘Walk on Rhine’’ talk between Kohl and Gorbachev in July 1989 as the first link between economic aid and German reunification)

Successful: GermanSoviet ties improve dramatically, leading to ‘‘Gorbymania’’ summit in Bonn July 1989; FRG becomes more important to USSR than GDR; Soviets agree ‘‘in principle’’ to unity February 1990.

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Table 6.1 (Continued) Linkage Type

German Goal(s)

Results

Case 18 (1990)

Years

Positive specific (July 1990 deal between Kohl and Gorbachev includes support and housing for Soviet troops in GDR; upholding East German economic links with USSR; DM 5 billion credit set up in secret Moscow visit by top Kohl aide. Total value reaches ca. DM 50 billion)

Soviet consent to German unity; Germany can stay in NATO; Soviet troops are to leave the GDR within four years; USSR agrees to drop Four Power rights.

Successful: USSR agrees in principle to all German demands.

Case 19 (1990)

Positive specific (Kohl offers extra DM 10 billion in aid as a result of direct pressure from Gorbachev)

Final Soviet agreement to actually sign Two Plus Four Treaty

Successful: treaty signed September 12, 1990; Germany reunified October 3, 1990

Case 20 (1991)

Positive specific (German government sets up fund for victims of the Second World War and agrees to export credit terms that violate OECD rules in generosity; new food aid)

Ratification of treaties related to German unity by Supreme Soviet

Successful: treaties ratified in March and April of 1991; German willingness to give more aid falls sharply after the votes

Case 21 (1992)

Positive specific (December 1992 Yeltsin-Kohl summit: grant of DM 550 million; agreement to give ten-year grace period for billions in Soviet debt for trade with the former GDR)

Faster Russian troop pullout from the former GDR— before next German elections; Russian agreement to drop demand for compensation for military bases in the former GDR (could have delayed pullout)

Successful: fourmonth speedup in troop withdrawal (from December to August 1994); demand for military base compensation dropped

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Similarly, it is not always easy to classify the goals pursued by the initiating state in a particular attempt and its success in achieving them. Often, for example, a primary overriding goal is pursued along with a number of other smaller, more immediate goals. For example, in the 1970 talks with the USSR, Brandt and his colleagues were pursuing some ‘‘smaller’’ goals (such as securing guaranteed German access to West Berlin) but were also seeking to make incremental progress on much larger goals—for example, by persuading the USSR to accept a diplomatic letter stating that the Federal Republic still sought German reunification. Considering the variety of possible goals, it is not always easy to classify a linkage attempt as a pure success or failure. This point is made quite clearly by David Baldwin in his critique of such studies as that of Hufbauer and Schott, which in his view err in trying to quickly assess many linkage cases without examining each in detail.1 Baldwin points out that economic linkages usually have multiple goals, and success or failure cannot be accurately assessed by focusing only on a simplified notion of these goals. For example, Baldwin notes that the grain embargo imposed on the USSR after the invasion of Afghanistan should not be classed as a failure merely because it did not force the Soviets to withdraw their troops from that country. The embargo was also intended as a demonstration of U.S. condemnation and outrage, as a punishment that would hurt the USSR even if it did not force a withdrawal, and as a warning that moving beyond Afghanistan would bring greater consequences. In these regards, the action was at least somewhat more successful.2 Finally, of course, we are left with the vexing problem of establishing clear causality. Did the economic sanction employed cause the political response observed? In some of the cases outlined in Table 6.1, such as the 1958 German-Soviet trade treaty negotiations, causality seems clear. In other cases, it must be admitted that other factors played a partial causal role. Such factors may be found in other aspects of the bilateral relations of the two countries concerned (for example, simultaneous application of noneconomic power), in internal developments in one of the countries (for example, a political change within the target state which makes it more willing to fulfill a particular demand), or even in the international environment in which bilateral ties are embedded (for example, a restraint on state behavior caused by membership in an alliance or political bloc). In the late 1970s 1. See Baldwin, Economic Statecraft, esp. 130–34, and Hufbauer and Schott, Economic Sanctions Reconsidered. 2. For a detailed discussion of the grain embargo case, see Baldwin, Economic Statecraft, 262–77.

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and early 1980s, for example, one reason for the failure of Chancellor Schmidt’s policy of positive general linkage was the deterioration in relations between the two superpowers, which was largely out of his control. For all these reasons, the thumbnail descriptions of economic linkage cases noted above may not be fully adequate. The detailed descriptions of the cases in the main body of the study are more faithful to the true complexity of each situation. However, despite such admitted limitations a brief concluding summary of the cases is nonetheless vital if overall conclusions are to be drawn. Hence, Table 6.1 was constructed by combining all the brief case summaries found in the preceding chapters.

Theoretical Conclusions What can we learn from the history of economic linkage in German-Russian relations? This section uses the data detailed above to attempt to draw a number of lessons, answering several questions raised in the first chapter of this study. First, can economic linkage even be an important factor in international relations? Second, can such linkage be used against major world powers, not just weak states? Third, what types of regimes may be best able to use linkage and what regimes are most vulnerable to it? Fourth, what issue areas are amenable to the use of linkage? Fifth, what linkage instruments can be observed in the cases studied? Has the classification of linkage types laid out at the beginning of this study proved useful in practice? And finally, and most important, does the case study data show what was posited in Chapter 1, that positive sanctions can indeed be more effective than negative ones? If so, why are they more effective? First, this study obviously tends to show that economic linkage is indeed an important factor in international relations. It has been clearly established that economic linkage has been a major factor in German-Russian relations throughout the history of these ties. It is striking to observe how economic linkage has been present across a variety of periods, despite the fact that the issues contested between the states, the nature of the states’ regimes, and the nature of the international system itself have all changed dramatically over the years. This in itself is an important conclusion, which tends to contradict both the traditional realist and liberal views, which—as noted in Chapter 1—tend to downplay the importance of economic linkage. Second, another conclusion is also quite plain: economic linkage has been used successfully in the German-Russian cases, despite the fact that

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the target state was itself a major world power. This tends to suggest strongly that economic linkage can be used in a wide variety of circumstances, not only against extremely small and poor countries, such as Third World states. How has it been possible for Germany to use economic linkage against Russia, despite that country’s evident military strength? As the example of the Iraqi invasion of Kuwait has shown, Keohane and Nye were right to point out that economic power alone cannot always deter a military attack. Two key reasons for Germany’s success in this regard can be suggested, both of which were noted initially in Chapter 1. First, Germany was careful to ensure that it generally retained sufficient military power to deter an armed attack. Throughout the Wilhelmine period Germany’s military strength was at least equal to, if not greater than, that of Russia. The same was true during the Nazi period. After 1945 however, West Germany alone was clearly inferior to the Soviet Union in military terms. Yet the presence of Western forces in the country from 1945 onward and the Federal Republic’s membership in the NATO alliance after 1955 bolstered German military deterrence. In all these periods, then, Germany was in a position to deter a Russian or Soviet military attack. The only period in which it might be argued that Germany was unable to counter Soviet military power was in the Weimar era, and during this period the two states were separated by a buffer zone of East European states allied with France. Second, the nature of German economic power—particularly in the years after 1945—helped to ensure that this power would be difficult to counter with military force. Economic power based on diffuse, high technology capabilities is much more difficult to conquer than power based on concrete natural resources. This was one reason why Kuwait was easy prey to the Iraqi army: its economic resources could be quickly conquered and used for the benefit of the invading nation. Until well into the Cold War, it was generally believed that Germany’s economic strength, centered in heavy industry, could also potentially be taken over and turned to the conqueror’s benefit. Thus it is not surprising that a key motivation for the Marshall Plan and the formation of NATO was to prevent West German industrial capacity from falling into Soviet hands. In more recent years, though, the Germany economy has become increasingly difficult to ‘‘conquer.’’ Today Germany’s main economic strength is not in standard heavy industries such as steel but in high technology and the service sector, industries which run more on brain power than on muscle power or even machin-

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ery. In contrast to Kuwait’s ‘‘oil power,’’ ‘‘high technology power’’ is difficult to exploit with military force. Thus, in all, through both deterrence and the nature of its economic power, Germany was able to fulfill one of the crucial preconditions for the exercise of economic linkage noted in Chapter 1. It was protected to a large degree from the military power of the target state. In the end, this factor was surely part of the reason for the USSR’s realization in 1989–90 that military intervention to stop German unification would be ineffective, and that cooperation was a far more beneficial alternative. This is another powerful conclusion: clearly, it is not only small, obviously dependent states which can be targeted by economic linkage strategies, as writers in the dependista school seem to believe. Even large states may be so targeted, despite their power in noneconomic areas, if they show some signs of asymmetrical interdependence in economic relations with the initiating state and if the initiating state is able to deter military attack. The military might possessed by Russia and, later, the USSR did not always protect it from German economic linkage, although military force was sometimes used effectively in a defensive manner to counterbalance German economic power.3 Thus, one would expect to see economic linkage attempts in a wide variety of circumstances in the real world of international relations—between rich and poor states, rich and middle-income states, and perhaps even between relatively rich states. Furthermore, linkages can occur between large and small states and also between one large state and another. As long as some economic dependence is perceived, some form of economic linkage is possible. However, while linkage is possible in a wide range of cases, it still will be more likely to be successful if the overall power of the target state is much less than that of the initiating state. Many theorists, such as Hirschman, have noted that as what Keohane and Nye call asymmetrical interdependence increases so does the influence of the wealthier state. Close examination of the data in Table 6.1 helps to confirm that this fact also holds true for the cases in this study. Germany seems to have had greater success in impacting the Russians with economic leverage during periods when that state was relatively weak. In the 1920s, during the de´tente period of 1969– 74, and again under Gorbachev and Yeltsin, the Soviet/Russian leadership 3. For example, it was noted in Chapter 3 that the USSR’s decision to permit the building of the Berlin Wall and its decision to invade Czechoslovakia in 1968—both examples of the use of military power—were in part a reaction to the danger posed by West Germany’s economic strength, which seemed to threaten to pull the GDR and CSSR out of the Soviet bloc.

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saw that the country faced great economic and political difficulties. It was thus more willing to make fairly large political concessions under the impact of economic linkage, such as Gorbachev’s crucial decision to allow German reunification. In periods when the USSR was more confident of its strength, however—as in the 1930s through 1960s and again in the mid1970s to mid-1980s—the country proved to be more resistant to German economic leverage (although even then it was possible for the Germans to use linkage to win some political concessions). To use the Soviet terminology, the ‘‘correlation of forces’’ did appear to play a role in determining the success of a German linkage attempt. The third question to be considered in this section is the role of regime type in linkage attempts. First, what types of regime will initiate such linkage attempts? Second, if both powerful and weak states can be targeted by linkage—although perhaps with varying rates of success—is the same true for the various different types of regime? Are some regimes especially resistant to linkage and others especially vulnerable? First, it is interesting to note that any type of regime can initiate a linkage attempt. We have seen, for example, that Germany has attempted economic linkage under the democratic regimes of the Weimar government and the Federal Republic, the monarchy of the Wilhelmine Reich, and even the extremely militaristic Nazi regime. Economic linkage is certainly not a weapon used only by states that hesitate to use force; all types of regimes recognize that it is potentially a useful and powerful tool. It is perhaps even more interesting to ask if the regime type of the target state is a relevant factor in determining that state’s susceptibility to economic linkage. Regimes guided by strong ideologies—which could include communism or extreme nationalism—will be more resistant to the logic of economic gain or loss than other regimes. As noted in Chapter 1, this problem was referred to by Richard Rosecrance as one of ‘‘ideals lessening needs,’’ in other words, ideology taking priority over economic demands.4 Here again, the data in Table 6.1. can be helpful. Germany seems to have been able to achieve some success with economic linkage while strong communist regimes were in power in the Soviet Union; however, the issues affected were usually not those relating to central security issues. The reform communist and postcommunist regimes of the post-1985 period proved to be much more susceptible to German influence, in part because they placed a higher priority on economic concerns than on ideology. Tsarist Russia, 4. Rosecrance, ‘‘Reward, Punishment, and Independence.’’

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which was also not overwhelmingly driven by ideology, also seems to have been fairly susceptible to economic linkage—although Russian nationalism did sometimes play a role. While Germany did fail in some attempts to influence the tsarist regime economically, it could be argued that this failure was mainly due to the fact that Germany was ‘‘out-bid’’ by France, not to tsarist Russia’s resistance to economic leverage. It is not only ideology, of course, that accounts for the relative vulnerability of some regimes. A more democratic state not only lacks the armor of inflexible ideology; it also has a relatively open political system. Hence, the state that initiates an economic linkage may be able to target particular groups within that state, knowing that they will then lobby their government to conform with the initiating state’s demands—a phenomenon noted by Long and others.5 For example, in Chapter 5 it was shown that Germany’s aid to the Red Army helped to persuade the army high command to back the ratification of the various treaties that guaranteed German unity. Such open interest-group lobbying would of course have been impossible when the Soviet regime was more totalitarian, as in the Stalin era. Drezner may be right, then, that democratic states are the most vulnerable targets of a sanctions attempt.6 Still, these conclusions about the relative susceptibility of various regime types to linkage are not absolute. Under certain circumstances even the most militant state may bow to economic pressure, since protecting its economic strength may be vital to protecting its military strength and internal cohesion. Thus, for example, in the 1920s during the period of the NEP (New Economic Policy) the infant Bolshevik state, for all its ideological radicalism, seemed to need outside economic links to survive. It was willing to make compromises to create these links, compromises the Soviet state was not willing to continue once it was firmly established. Some preliminary conclusions can also be reached about the fourth question raised at the start of this section. What types of issue areas are most susceptible to economic linkage? It seems that the most success has been achieved in those issues which, while politically important to the initiating state, do not challenge the security of the target state in a direct way. Thus, for example, throughout most of the Cold War Germany was at least able 5. Long discusses the U.S. attempt to dissuade Sweden from creating its own nuclear capability in the 1960s. By offering American nuclear power plants to Swedish energy firms, the U.S. government was able to persuade them to lobby their own government to scuttle plans for a Swedish-designed reactor. See the discussion in Chapter 1. 6. Drezner, ‘‘Trouble,’’ 195.

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to secure some protection and limited emigration rights for the German minority in the USSR. It was also eventually able to secure guaranteed access to West Berlin. In contrast, it was more difficult to induce the USSR to make concessions on such central security issues as permitting German reunification itself. Even more difficult was the attempt to induce the USSR and its ally Poland to allow the question of the Oder-Neisse border to remain open. Despite a variety of German linkage attempts, both states held firm in their determination to keep lands seized from Germany at the end of the Second World War. As was noted at the start of this study, the question of effectiveness across issue areas is also a question of the appropriate matching of means and ends. Policymakers who expect to affect a target state’s central military or security interests must be prepared to provide an appropriately large inducement or punishment. If they are unwilling or unable to provide this, the policy will fail. For example, the magnitude of aid needed to secure Soviet permission for German reunification could be seen in 1990–91, when the Federal Republic ultimately was willing to give the USSR a series of economic packages worth some 50 billion dollars, despite the fact that events on the ground had reduced the Soviets’ bargaining power. This again is a valuable lesson for policymakers, who often promise dramatic results from relatively small economic sanctions or inducements, leading the linkage attempt to fail and feeding the mistaken perception that ‘‘sanctions don’t work.’’ The question of matching means and ends when crafting linkage policies also relates to another interesting point: the large variety of possible means (instruments) available to states that practice economic linkage. In Chapter 1, the importance of examining a broad range of linkage instruments was discussed. The evidence of the various cases examined in this study seems to confirm the value of this approach. In some of the cases more ‘‘traditional’’ forms of linkage, which are often considered in analytical studies of this phenomenon, were the primary means employed. For example, in its economic relations with Russia Germany employed such negative tactics as a general trade embargo (in the late 1940s and 1950s) and restrictive tariff policies (in the late tsarist period). It also used such traditional positive tactics as the offering of economic aid (in the 1920s and again from 1988 to 1992) and the liberalization of trade ties (in both of those periods and before 1885). However, Germany has also successfully used techniques that are not often mentioned in the conventional literature on economic linkage. For example, it has in recent years used its position as a key member of various multilateral organizations, such as the EC (now EU), to establish itself as

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a ‘‘gatekeeper’’ to these institutions. This has proven to be a powerful source of economic linkage in bilateral relations with Russia. Also, Germany has used various techniques to influence private economic actors, ranging from the negative Lombardverbot of the 1880s to the positive inducements of Hermes export credit insurance beginning in the late 1960s. Often these indirect techniques resulted in a reward or penalty to the target state that was far more powerful than any sanction Germany could have imposed by using only the government’s own economic resources. If these more unconventional types of economic instruments had been neglected, this study would have been forced to ignore many clear and important instances of economic linkage in German-Russian relations. Attention to the full range of possible economic linkage instruments would enable future studies of this phenomenon to see more clearly just how pervasive and important economic linkage is in international politics. Finally, we must consider the question of the various types of linkage outlined in Chapter 1. Was the schema of linkage types presented then effective in classifying the linkage attempts seen in this study? Which type or types proved to be the most effective? And what accounts for their success? The cases summarized in Table 6.1 show clearly that the entire range of possible linkage types—negative specific, negative general, positive specific, and positive general—has been employed at some time by Germany in its relations with Russia. This in itself tends to show the value of the categories in capturing the range of possible linkage behaviors. While the positive/ negative distinction has appeared in the existing literature before, the specific/general distinction is new and thus deserves special scrutiny. Intuitively, the distinction seems to have some analytical value. For example, the difference between a general embargo policy (negative general linkage) and an embargo targeted at one political issue area seems clear. The two forms have greatly differing scope and objectives, and success in each case is measured differently. The general embargo aims to weaken a possible opponent across the board, while the specific embargo aims to change the opponent’s behavior in some immediately measurable way. If this distinction were kept in mind by analysts, they would be less quick to pronounce any embargo policy which does not produce immediate progress on a certain specific issue to be a failure. If an embargo aims, in whole or in part, at achieving more general goals, its success should be measured in those terms. The general/specific distinction is particularly valuable, however, in studying positive linkage. It enables the analyst to explain a whole class of

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linkage—positive general—which has not previously been considered linkage at all by most authors, although it meets any common definition of linkage.7 The utility of this new category was seen quite clearly in its ability to clarify the nature of the ‘‘new Ostpolitik’’ of the regimes of Willy Brandt and Helmut Schmidt, as was noted in the conclusion of Chapter 3. Brandt and Schmidt often proclaimed that they were ‘‘depoliticizing’’ economic ties with the USSR by decoupling them from short-term political goals; yet they clearly believed that these ties could be used more indirectly—to win political concessions from the Soviets in the longer term. Hence their actions were still a form of economic linkage. The most important question, though, remains: what conclusions can be reached about the relative effectiveness of the different types of economic linkage? To answer this question, the overall outcome of the twenty-one cases of linkage examined in this study is shown in Table 6.2, with the results broken down by the type of linkage used. The evidence presented in the main body of this study, as summarized in Table 6.2, seems to offer strong support for the notion that positive linkage may be more effective than negative linkage. Almost all the positive linkage attempts cited in the table appear to have been successful; all the negative linkage attempts have been unsuccessful. It is clearly more difficult to decide whether positive specific or positive general linkage is more effective. The results given above seem to show that these two types of linkage are both quite successful. This certainly does not mean, however, that the general/specific distinction is irrelevant. As we have seen, the general form is a distinct variant, often mistakenly considered to not be linkage at all. The specific and general forms also are often applied Table 6.2 Effectiveness of Types of Linkage as seen in Table 6.1 Negative sanctions

Positive sanctions

Specific sanctions

General sanctions

Negative specific sanctions successful cases: 0 unsuccessful cases: 2 Ineffective Positive specific sanctions successful cases: 9 unsuccessful cases: 1 Effective

Negative general sanctions successful cases: 0 unsuccessful cases: 3 Ineffective Positive general sanctions successful cases: 4 unsuccessful cases: 2 Effective

7. Economic linkage is generally defined as the use of economic instruments to achieve political gains. Politicians who encourage trade and other economic links with a particular state in the hopes of eventually being able to induce that state to cooperate in solving outstanding political problems are thus clearly using economic linkage.

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to different types of issues. Specific linkage is commonly used in the short term to influence a target state on a single smaller issue, one which the target is willing to bargain away relatively easily. In contrast, general linkage is often used to impact complex, larger issue areas over a longer period. Still, this size/duration distinction is not inherent in the definitions of specific and general linkage. It is certainly possible to attempt to make a specific linkage involving a single very large and difficult issue. For example, for most of the 1950s West Germany refused to consider signing a trade pact with the USSR until concrete progress was made toward German reunification. However, more typically specific linkage is made with respect to smaller issues. A good example would be the repeated German use of specific positive linkage to ransom (freikaufen) political prisoners and members of the German minority in Eastern Europe. In contrast, general linkage is often used as a longer-term strategy to impact larger issues that are difficult for the target state to concede quickly and cleanly. The point is clear: if specific and general linkages typically are applied to different issue areas, then it is difficult to assert that one of the two methods is inherently ‘‘better’’ than the other. For example, specific positive linkage was able to persuade even the harsh Khrushchev and Brezhnev regimes to allow some targeted groups to emigrate. However, specific linkage could not persuade them to tear down the Berlin Wall. For this larger, more difficult goal to be achieved the patient diplomacy of general positive linkage was needed, with specific linkage being brought in only in 1990 to close the final deal on German reunification. Nonetheless, the greater success of both forms of positive linkage in almost all the cases studied is clear. It is interesting to note that in several cases when a decision was made to switch from positive to negative linkage the policy suddenly failed, whereas when a switch from negative to positive linkage was made results rapidly improved. For example, in the 1880s Chancellor Bismarck attempted to shock Russia into staying in the Triple Alliance by instituting a progressively more negative economic policy. Most observers agree that this new policy merely drove Russia further away from the Reich and into the arms of France. Although the Reinsurance Treaty of 1887, a second-best substitute for the Triple Alliance, succeeded in staving off disaster for a time, it was soon clear that the treaty would not be renewed in 1890 and that bilateral German-Russian relations were in a state of collapse. In a very different context, in 1962 the Adenauer government apparently concluded that the successes of its cautious positive linkage program were too small and suddenly decided to try negative linkage. The pipe em-

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bargo and grain embargo that followed both apparently failed. In contrast, when Willy Brandt moved to end the policy of negative linkage employed by his Christian Democratic predecessors against the USSR, his new positive approach seemingly helped to improve bilateral ties rapidly. Notably, Brandt was able to conclude a number of agreements with the Soviets on political issues that had eluded the CDU for years, such as an agreement guaranteeing transit rights to West Berlin. Similarly, when the negative economic policy toward Russia pursued in the Wilhelmine period was replaced by a positive policy under the Weimar Republic political relations warmed considerably, as epitomized by the Rapallo accords. Naturally, the next question that arises is the reason for the relatively greater success of positive sanctions. Several such reasons were detailed in Chapter 1. Positive sanctions are psychologically easier for the target state to accept. They also tend to have positive spillover effects to other aspects of the relationship between the two states. They may have a positive impact on groups within the target state, winning allies for the initiating state. And finally, they offer no economic incentive for outsiders to work to break the sanctions. As this section will make clear, the findings of this study confirm the role of all these phenomena; each can be observed repeatedly in the German-Russian cases detailed in this book. The helpful psychological and spillover effects that were expected to strengthen positive economic linkage seem to have played a role in a number of the cases. For example, Germany’s success in achieving reunification was due not only to the economic and political negotiations which took place in 1990, but also to the new image of Germany in the East, which was partly formed by the patient positive general linkage begun under Willy Brandt and resumed under Chancellor Kohl. Often, the Germans would carefully single out some issue—even a small one—and coax a positive gesture out of the other side that could then be rewarded, even if the bilateral relationship as a whole remained chilly. For example, the USSR was carefully rewarded for its small concessions in the area of German minority rights and emigration, even at the height of the Cold War. Similarly, Germany was able to win the trust of Joseph Stalin in 1939–41 in part through economic concessions, as it had wooed the USSR in the 1920s and the tsarist government in the period before 1885. In each case Russia had some reason to question Germany’s motives—yet the Germans’ willingness to offer up economic sacrifices as a gesture of good faith bore fruit. This study’s findings confirm that, as noted in Chapter 1, commitments that are clearly costly to the sender will tend to be credible. Such efforts to build trust often

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were quite effective, as could be seen in the friendship that developed between Kohl and Gorbachev. It was posited in Chapter 1 that positive sanctions do not offer an economic incentive for other states to violate them, and that this is also an important reason for their success. Again, this phenomenon is confirmed by the findings of this study. For example, when Germany was building a close relationship with the USSR in the 1920s, France and Britain did not have an economic incentive to match the generous trade terms and subsidized credits which the Germans were offering the Soviet Union. Similarly, in 1988–92 other states had little incentive to match Germany’s large package of economic aid. Thus Germany stood out as Moscow’s best friend in the West, which helped the Bonn government to achieve reunification and its other political goals. Still, the study’s findings confirm that positive sanctions are not a panacea. Like any kind of sanctions they can be rendered toothless if their goals are unclear or if the means employed are too weak to achieve the ends sought. A fatal lack of clarity was seen in the 1962–63 case of negative sanctions. The West German embargo of large-diameter pipe (used in Soviet oil and gas pipelines) never had a hope of success, since the government never defined a clear goal for the policy. The Soviet side never knew what concessions on its part—if any—would lead to the lifting of the embargo. Similarly, in 1964–68 Germany sought to use specific positive linkage to persuade the USSR to make concessions on important issues such as German reunification. While positive linkage generally proved to be effective in other circumstances, in this case the rewards offered were simply too meager to induce the Soviets to make such large political concessions. This study has also shown that, as predicted, positive sanctions can potentially be ‘‘outbid’’ by rival states that have a strong political motivation to thwart the initiating state. This was another reason for the failure of the 1964–68 positive general sanctions. They were so weak that other Western states easily outbid them by offering the USSR generous trade deals without major political preconditions. Similarly, the weak positive sanctions of 1894 failed in part because of France’s determination to offer more generous aid to the tsarist state. Thus, in all, selecting the proper type of economic linkage does not in and of itself guarantee success. Unlike positive sanctions, negative sanctions suffer from some key problems, which were also noted in Chapter 1. Since such sanctions are more coercive, they are psychologically harder for the target state to accept. They tend to cause negative spillover effects into other aspects of bilateral ties.

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Finally, they create economic incentives for other states—even states sympathetic with the initiating state’s political goals—to violate the sanctions. Here again, the findings of this study confirm these ideas. All these phenomena were visible in the various negative sanction cases examined, and they help to account for Germany’s failure to achieve its goals in these cases. The fall in trust and negative spillover effect caused by negative sanctions could be seen repeatedly in the cases studied in this book. During the late tsarist period, Germany’s financial and trade pressure on Russia caused great resentment, both in government and in business circles. This led not only to economic retaliation, since a tariff war soon erupted, but also to political retaliation. The Russians moved closer to Germany’s archenemy, France, and also limited the rights of Russia’s German minority. In the early 1960s Germany suddenly attempted to impose negative sanctions on the USSR, in both the grain embargo and pipeline embargo cases. The Soviets felt quite betrayed, and froze bilateral political relations. In both cases a phenomenon noted in Chapter 1 could clearly be seen: the negative sanctions themselves caused great resentment in the target state, on top of the resentment that state already felt at being asked to change its political behavior. Finally, several cases examined in this study confirm the idea that negative sanctions create economic incentives that can undermine the sanctions. This could be seen in Adenauer’s 1963 attempt to impose a grain embargo on the Soviets. Like President Carter’s 1980 grain embargo, this effort was undermined by the fact that other suppliers were only too willing to meet the USSR’s needs. Similarly, in the entire period from 1885 to 1914, Germany’s attempts to impose negative financial sanctions on tsarist Russia (as for example with the infamous Lombardverbot) failed miserably, since the French and other European lenders discovered that they could make a tidy profit by lending to Russia. However, despite the seemingly strong vindication of positive sanctions provided by this study, the findings of this study also confirm another point raised in Chapter 1: the weapon of negative sanctions probably can never be completely discarded. There are several reasons for this. First, if the target state suddenly engages in a major negative act, even a state dedicated to the use of positive leverage may feel that it must punish the act with at least a modest negative sanction. Using a positive sanction to reward bad behavior would damage its effectiveness in inducing good behavior. Thus, for example, even Chancellor Helmut Schmidt, an enthusiastic supporter of positive economic Ostpolitik, felt compelled to impose negative sanctions

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on Poland after the imposition of martial law in 1981, despite the fact that he saw little chance that the sanctions would be effective. To have made no response at all or offered positive sanctions seemed unthinkable. As was noted in Chapter 1, negative sanctions also serve the useful purpose of lowering a target state’s expectations, so that even a restoration of the status quo can seem to be a powerful positive sanction.8 It is interesting to note, for example, the eagerness with which the Soviets pursued a simple trade agreement with West Germany in the late 1950s. Ten years of virtual trade suspension had made even a return to normal trade seem like a major positive sanction, which the Adenauer government could use to extract political concessions from the Soviets. Similarly, after forty years of COCOM sanctions, the Soviets saw any loosening of these restrictions as a major positive act. However, any country that had enjoyed free trade with the West would surely have seen the imposition of even a modest technology embargo as a grave negative sanction. Negative sanctions also serve the useful purpose of reducing the target state’s economic potential and thus its military potential—a paramount consideration if the target is truly considered to be an imminent military threat. Thus, Germany’s participation in the Western trade embargo against Stalin from 1949 to 1953 was probably inevitable. At that time, the Soviet regime posed such an immediate threat to West Germany that any positive economic gestures seemed foolish. Bonn at this point felt that the most realistic goal was not to improve relations with Moscow, but simply to survive. Finally, although domestic affairs are not a central part of this study, it must be admitted that leaders may choose to impose negative sanctions to meet their own internal goals—even if the policy offers little hope of external success. Spaulding, for example, shows that the role played by economic interest groups in Germany (particularly farmers) was important in explaining Germany’s decision to impose sanctions on Russia during the Wilhelmine period.9 In sum, the cases examined in this study seem to confirm several of the important points mentioned in the initial theoretical outline. First, the 8. Baldwin, for example, notes this phenomenon in explaining the end of the Iranian hostage crisis of 1979–81. The United States froze Iran’s assets at the beginning of the dispute; after over a year of being deprived of these crucial funds, Iran began to see the possibility of obtaining those assets as an important positive sanction. Thus America’s promise to release the assets—a simple return to the status quo ante—became a major bargaining chip. Baldwin, Economic Statecraft, 251–61. 9. Spaulding, Osthandel und Ostpolitik, chaps. 1 and 2.

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overall importance of economic linkage in international relations seems to have been clearly established. Next, it has been shown that such linkage can potentially be used against even powerful states, and against those with nondemocratic governments. Third, we have seen that a surprisingly broad range of issue areas can be susceptible to linkage attempts. Finally, some progress has been made in specifying the various types of economic linkage and their efficacy in various situations. In particular, the importance of positive economic sanctions seems to have been firmly established by the results of this study. This is a particularly important conclusion, since a comparative study of positive and negative sanctions has rarely been attempted before. As Mastanduno stated in his recent review of research on sanctions, ‘‘The time is right for more systematic comparisons of positive and negative means of influence.’’10 Despite the conclusions reached in this analysis, it seems clear that many interesting questions remain to be answered in the study of economic linkage. For example, a vast range of possible comparative case studies could be examined. Is economic linkage as important to other economic powers as it is to Germany? Comparisons with Japan are particularly interesting, since that country, like Germany, finds military power very difficult to use for historical reasons and is thus forced to rely primarily on economic instruments.11 Also, comparisons with powers that possess both economic and political power—such as the United States—would be interesting. Here a comparison could be made to Wilhelmine Germany, which also possessed clout in the realms of both ‘‘high power’’ and ‘‘low power.’’ Also, much work remains to be done in further specifying the theoretical conclusions reached in this study. For example, if one accepts that some types of regimes are more resistant to linkage than others, it would be interesting to conduct a focused comparison of such states—perhaps by studying a series of failed linkage attempts—in order to better specify the source of their resistance. Many other interesting questions can be raised that have not been explicitly examined in this study. One such question is the extent to which linkage strategies may benefit from or be hurt by secrecy. Is it better to merely hint publicly at an economic/political linkage, to avoid seeing the initiative scuttled by a nationalistic backlash in the target state? Or is it better to state the linkage openly, to avoid any lack of clarity or miscommu10. Mastanduno, ‘‘Economic Statecraft,’’ 310. 11. See Newnham, ‘‘How to Win Friends,’’ and David Arase, Buying Power: The Political Economy of Japan’s Foreign Aid (Boulder, Colo.: Lynne Rienner, 1995).

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nication?12 Germany seems to have favored the former approach, especially in recent years, and to have achieved fairly high success with various types of partially ‘‘hidden’’ linkage. In all, it seems clear that economic linkage is an important phenomenon in world affairs, and the study of such linkage should take its place, alongside the study of various other forms of cross-issue linkages, at the center of the agenda of the field of International Relations. The traditional practice of studying various facets of international ties in isolation, separating the study of economics, security issues, and other political issues, appears to be of steadily decreasing benefit in a world of ever increasing complexity and interdependence. As this study has shown, even a single bilateral relationship—GermanRussian relations—cannot be understood without examining the complex linkage between economics and high politics. And, as the next section will make clear, understanding this particular bilateral relationship has more than just theoretical significance. This relationship has long been vital in the real world of international affairs—vital to Europe, the United States, and all the globe’s major powers. For years to come, economic linkage will remain central to explaining both German-Russian ties and the two countries’ broader role in the world.

The German Role: Past, Present, and Future As the previous section has shown, the German-Russian cases in this book provide confirmation of the theories of economic linkage upon which this study is based. However, in addition to their theoretical value, the cases are also important in and of themselves. They are vital in explaining the foreign policy of both states. Over and over again, as we have seen, these relations have been marked by economic linkage, which has shaped virtually all the major events in the countries’ bilateral ties. In turn, this fact is of great significance to world affairs, since German-Russian relations are of such importance to the world. For example, economic linkage seems to have played a clear role in the most important recent event examined in this study: the reunification of Germany. And, as Stephen Szabo puts it, ‘‘German unification was the most important single event in the European ‘year of miracles’ . . . which marked the close not only of the Cold War but also of the 12. This question is touched upon to some extent in Long, ‘‘Trade and Technology Incentives.’’

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twentieth century itself.’’13 In addition to the theoretical conclusions cited in the previous section, then, it is worthwhile to summarize what this study has told us about the real-world role of Germany and its implications for international affairs. At present, there is good reason for the Germans to remain cautious in contemplating their largest eastern partner. Yet this should not obscure the fact that Germany has achieved great political gains in relations with Moscow. Also, the new Berlin republic still enjoys a substantial economic advantage over Russia and the other former Soviet states, which seems to suggest that linkage diplomacy could be just as effective in the future as it has been in the past. When the whole range of German aid to the USSR and its successor states is examined in detail, one can better understand why Russian gratitude for this help is sometimes less whole-hearted than the German government would like. First, much of the aid was given in the form of loans; second, much of it was clearly connected to German political goals; and third, most of it was given to the Gorbachev regime, which could not use it effectively. Some Russians thus view Germany today in the same way a reforming alcoholic would view a friend who bankrolled his earlier drinking binges.14 Gratitude for the ‘‘friend’s’’ help is tempered by the thought that he should have known better than to give money that would only be wasted. That gratitude is further reduced when the friend demands repayment. As this attitude shows, in relations with Russia and the other former Soviet states Germany now faces the same danger that it does in its ties with many of its neighbors: it must be sensitive to the bruised feelings of countries that know that they are, by most measures of power, clearly now weaker than Germany. The Germans must also guard against their historic ¨ berheblichkeit (superiority) toward weaker tendency to feel a sense of U neighbors. The unstable state of Russia today makes it obvious that the danger of a political backlash cannot be discounted. The Germans would do well to recall the lessons of the past, as seen in the fall of Empress Anna’s German advisers, the anti-German backlash in late tsarist Russia, the Shakhty trial under Stalin, and the ouster of Beria (and perhaps even of Khrushchev) after flirtations with Germany. Russia has long had a deep love-hate relationship with the West in general and with Germany in particular, and 13. Szabo, Diplomacy of German Unification, 1. 14. This picturesque metaphor was provided by Vladislav Belov of the Institute of Europe, Russian Academy of Science. Author’s interview, Moscow, March 1994.

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care must be taken to avoid sparking another cycle of Russian nativist resentment against Germanization. In a way, this danger is presently greater in Russia than in most of Germany’s neighbors. States such as Poland and the Czech Republic know that simple geography dictates that their nations will be smaller and weaker than Germany; the Russians, by contrast, are accustomed to being either stronger than Germany or at least equal to it, and thus are particularly sensitive to their current weakness. Because of this sensitivity, Germany must be careful in its efforts to win Russian support for German political goals, particularly if economic linkage is used—since such linkages remind Russia that, in the economic area at least, it is clearly inferior to the German state. Still, there is much reason for optimism. With the withdrawal of the last Russian troops from German soil in 1994, Germany had achieved virtually all its important political goals vis-a`-vis Russia. It had achieved full sovereignty, national unity, and a great deal of influence in Eastern Europe— indeed, a great deal of influence in all of Europe and in the world as a whole. Just as important, it had been able to do this without alienating its neighbors, a fact which stands in marked contrast to past periods of German power.15 The improvement in Germany’s political position since the late 1980s has been remarkable. As one author put it, ‘‘The Federal Republic of Germany, once a divided, front-line state exposed to massive Soviet power, has been transformed into one of the strongest players on the European stage—surrounded by friendly, democratic, and weaker countries.’’16 This change has been due, in no small measure, to Germany’s economic strength—strength which has in recent years been used, for perhaps the first time in German history, to advance German national goals without harming the interests of the country’s Eastern neighbors. Meanwhile, the structural strengths that have given Germany the power to engage in what James Sperling called ‘‘check-book diplomacy’’ in relations with Russia—indeed, with all the former East bloc states—are still in place.17 If anything, these strengths have increased in the years since German unification. Germany’s economy is now larger than it was in 1990 and 15. It can be argued that Germany’s influence in Eastern Europe throughout the entire period of 1870–1945 seemed threatening because it was based on military power and on a cultural Drang nach Osten. Today, in contrast, German influence is based more on economics—and this influence is seen as much less threatening. See Newnham, ‘‘Germany and Its Eastern Neighbors.’’ 16. Ronald Asmus, ‘‘German Unification and Its Ramifications,’’ RAND Report R-4021-A, 1991, v. 17. Sperling, ‘‘German Foreign Policy After Unification.’’

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is recovering from the shock of absorbing the former GDR. The breakup of the Soviet Union means that Germany’s relative economic advantage over each former Soviet republic, even the large Russian republic, is greater than it ever was over the USSR. Meanwhile, the economies of many of the former Soviet states have continued to stagnate and even decline, further magnifying the German advantage. Germany has been able to greatly increase its role in the trade and investment links of the former Soviet states. Recent trade statistics, for example, show that Germany is maintaining its role as Russia’s leading trading partner. In 1997 German exports to Russia and the other former Soviet states rose to the unprecedented level of almost DM 26 billion, with Germany enjoying a healthy surplus of over DM 4 billion. The collapse of the ruble in 1998 and the increase in the price of oil, Russia’s main export, have since tilted the trade balance back in Russia’s favor, at least temporarily. Yet, as in the past, the basic fact remains: while this trade is vital to Russia and the other post-Soviet states, it is insignificant to Germany. It still accounts for less than two percent of German trade worldwide.18 All the former Soviet states have also continued to be deeply in debt to overseas creditors. Given Germany’s historically large role in lending to the region, this fact again increases Germany’s leverage. For example, when President George W. Bush held his first meeting with Chancellor Gerhard Schro¨der, in Washington on March 29, 2001, a major focus was Germany’s role as Russia’s leading creditor. The leaders noted that Germany still held half of the debt that Russia owed to the Paris Club of creditor states, and agreed that no further credits would be given to Moscow at present.19 Finally, Germany’s role as the ‘‘gatekeeper’’ regulating relations between the former Soviet states and Western institutions such as the EU remains important. In July 1986, during his first visit to Moscow to meet with Mikhail Gorbachev, Foreign Minister Genscher reportedly told the Soviet leader that ‘‘there is no other door to Europe than Germany.’’20 This statement is even more true today than it was then. In all, Germany’s position of structural strength in relations with Russia is as important for Chancellor Schro¨der and President Putin as it was for Kohl and Yeltsin. This position is summed up well in Angela Stent’s recent work. After German unity was achieved, ‘‘Germany did not need Russia in order to complete 18. Figures from the appendix. The 1997 level of exports was reached only once before, in 1990, when much of the trade was accounted for by the last year of Soviet–East German transactions, valued arbitrarily in deutsche marks by the Transfer Ruble procedure. 19. ‘‘Reported U.S.-German Memo Irks Putin,’’ New York Times, May 23, 2001. 20. Quoted in Kvitsinsky, Vor dem Sturm, 409.

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its postunification transition in the same way as Russia needed Germany in order to complete its postcommunist transition. The asymmetrical interdependence of the Cold War years . . . had been replaced by an even less symmetrical interdependence, with the balance now favoring Germany.’’21 What, in the end, does the entire sweep of this study tell us about the role of economic linkage in present-day world affairs? The sentiment of Gerd Leptin, cited at the start of this book, still provides an apt summary— one that applies not only to Germany’s place in the world today, but to a wide variety of situations in international relations: ‘‘When a country is an economic giant it will inevitably be a political giant as well.’’22

21. Stent, Germany and Russia Reborn, 159. 22. Author’s interview, Professor Gerd Leptin, Freie Universita¨t Berlin, Osteuropa Institut, April 1994.

Appendix

German Trade with the Soviet Union, CIS, and Russia GX ⳱ German exports GM ⳱ German imports Amounts are in DM millions. Year 1936a 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973

Amount of Percentage Amount of Percentage Balance to Cumulative GX of total GX GM of total GM Germany balance 182.2 0.0 0.1 0.6 7.0 52.8 112.0 288.9 250.1 303.2 382.5 778.1 822.8 826.4 614.1 774.3 586.2 541.3 792.1 1093.7 1582.2 1546.5 1607.9 2295.4 3114.1

3.82 0 0 0 .04 .24 .44 .94 .70 .82 .93 1.62 1.61 1.56 1.05 1.19 .82 .67 .91 1.10 1.39 1.23 1.18 1.54 1.75

149.2 0.7 1.9 16.6 65.7 93.1 150.9 223.5 409.1 386.4 442.6 672.5 795.7 861.4 834.7 937.1 1100.6 1153.0 1099.8 1175.3 1305.7 1253.5 1277.2 1386.3 1993.1

317

3.54 .01 .01 .10 .41 .48 .62 .80 1.29 1.24 1.24 1.57 1.79 1.74 1.60 1.59 1.56 1.59 1.57 1.45 1.33 1.14 1.06 1.08 1.37

Ⳮ33.0 ⳮ0.7 ⳮ1.8 ⳮ16.0 ⳮ58.7 ⳮ40.3 ⳮ38.9 Ⳮ65.4 ⳮ159.0 ⳮ83.2 ⳮ60.1 Ⳮ105.6 Ⳮ27.1 ⳮ35.0 ⳮ220.6 ⳮ162.8 ⳮ514.4 ⳮ611.7 ⳮ307.7 ⳮ81.6 Ⳮ276.5 Ⳮ293.0 Ⳮ330.7 Ⳮ909.1 Ⳮ1121.0

— ⳮ0.7 ⳮ2.5 ⳮ18.5 ⳮ77.2 ⳮ117.5 ⳮ156.4 ⳮ91.0 ⳮ250.0 ⳮ333.2 ⳮ393.3 ⳮ287.7 ⳮ260.6 ⳮ295.6 ⳮ516.2 ⳮ679.0 –1193.4 ⳮ1805.1 –2112.8 ⳮ2194.4 ⳮ1917.9 ⳮ1624.9 ⳮ1294.2 ⳮ385.1 Ⳮ735.9

318

Year 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989

DEUTSCHE MARK DIPLOMACY

Amount of Percentage Amount of Percentage Balance to Cumulative GX of total GX GM of total GM Germany balance 4773.7 6948.2 6755.0 6450.8 6301.4 6623.7 7943.2 7621.4 9395.0 11244.8 10766.8 10527.2 9373.5 7845.6 9423.8 11525.9

2.07 3.14 2.63 2.36 2.21 2.11 2.27 1.92 2.20 2.60 2.21 1.96 1.78 1.49 1.66 1.80

3269.2 3240.2 4357.1 4560.8 5438.4 7381.2 7517.4 9224.8 11357.7 11788.4 14391.6 13628.5 9298.5 7260.6 6876.9 8556.1

1.82 1.76 1.96 1.94 2.23 2.53 2.20 2.50 3.02 3.02 3.31 2.94 2.25 1.77 1.56 1.69

Ⳮ1504.5 Ⳮ3708.0 Ⳮ2397.9 Ⳮ1890.0 Ⳮ863.0 ⳮ757.5 Ⳮ425.8 ⳮ1603.4 ⳮ1962.7 ⳮ543.6 ⳮ3624.8 ⳮ3101.3 Ⳮ75.0 Ⳮ585.0 Ⳮ2546.9 Ⳮ2969.8

Ⳮ2240.4 Ⳮ5948.4 Ⳮ8346.3 Ⳮ10236.3 Ⳮ11099.3 Ⳮ10341.8 Ⳮ10767.6 Ⳮ9164.2 Ⳮ7201.5 Ⳮ6657.9 Ⳮ3033.1 ⳮ68.2 Ⳮ6.8 Ⳮ591.8 Ⳮ3138.7 Ⳮ6108.5

Figures for the ‘‘old states’’ of Germany (i.e., former West Germany) 1990 1991 1992b

10360.9 8634.9 8360.2

1.61 1.33 1.27

9116.9 9898.8 10051.0

1.66 1.56 1.60

Figures for the ‘‘new states’’ of Germany (i.e., former East Germany) 1989c 1990 1991 1992

16576.3 17760.7 9049.0 5542.3

40.33 46.65 51.86 40.18

15392.3 9107.0 4253.6 2881.5

37.41 39.85 39.17 30.03

Figures for the united Germany 1990 1991 1992 1993 1994 1995 1996 1997

28121.6 17683.9 13902.6 15962.9 16557.7 16298.1 18359.8 25886.9

4.13 2.66 2.07 2.59 2.40 2.17 2.33 2.92

18223.9 14152.4 12932.5 13042.4 16027.6 16953.4 18643.8 21688.6

3.18 2.20 2.03 2.34 2.60 2.55 2.70 2.87

Ⳮ9897.7 Ⳮ3531.5 Ⳮ1970.1 Ⳮ2920.5 Ⳮ530.1 ⳮ655.3 ⳮ283.0 Ⳮ4198.3

Figures for Russia only 1998 1999 2000d

14512.1 9893.8 13000.0

1.52 1.01

15061.5 16342.4 28500.0

1.82 1.92

ⳮ549.4 ⳮ6448.6 ⳮ15500.0

Ⳮ16006.2 Ⳮ19537.7 Ⳮ20507.8 Ⳮ23428.3 Ⳮ23958.4 Ⳮ23303.1 Ⳮ23019.1 Ⳮ27217.4

APPENDIX: TRADE STATISTICS

319

Source: Statistisches Jahrbuch der Bundesrepublik Deutschland, and author’s calculations. 1936 figures are for the Third Reich and are expressed in reichsmarks (RM). Thus absolute amounts are not comparable to later figures, although percentage amounts can be compared.

a

b From 1992 figures include trade with all states of the CIS (the Baltic states are not included). These figures largely reflect German-Russian trade, since Russia accounted for about eighty percent of all German-CIS trade. For example, Russia accounted for 82.1 percent of German imports from the CIS in 1993, 82.2 percent in 1994, and 80.1 percent in 1995. Statistisches Jahrbuch der Bundesrepublik Deutschland, 1996, pp. 297 and 302, and author’s calculations.

Figures for the GDR in 1989 and for the GDR/New La¨nder in 1990 are problematic. They are expressed in deutsche marks, not East German marks, but the conversion is necessarily inexact.

c

Preliminary.

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List of Interviews

Germany Berlin: Freie Universita¨t, Osteuropa Institute Professor Messengiesser Professor Gerd Leptin Freie Universita¨t, Political Science Department Ingo Peters Dr. Michael Staack Außenstelle der Polnische Botschaft Stanislaw Kramerz Deutsche Institut fu¨r Wirtschaftsforschung (DIW) Dr. Weißenburger Bonn: Deutsche Gesellschaft fu¨r Auswa¨rtige Politik (DGAP) Jacek Rulkowski Roland Freudenstein Dr. Karl Kaiser Konrad Adenauer Stiftung Dr. Burkhard Dobiey Dr. Gerhard Wahlers Friedrich Ebert Stiftung Henrik Bischof German Foreign Ministry (Auswa¨rtiges Amt) Referat for Hermes credits Herr Kahl, Herr Volter Russia Abteilung Herr Mullmenstedt East-West Economics desk Dr. Go¨ckel, Guido Kemmerling

333

334

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Eastern Europe, Soviet troop withdrawal commission Herr Lambach Eastern Europe, relations with Poland Herr von Studnitz German Ministry of Economics Referat for Foreign Trade Herr Vaubel Referat for Hermes Credits Dr. Ruprecht Brandis Office of the Chancellor (Kanzleramt) Herr Scha¨fer (Russia) Bundestag Deputies Harmut Koschyk (CSU) Markus Meckel (SPD) FDP Bundestagfraktion (Referat for Foreign Policy) Dr. Alexander Mu¨hlen CDU/CSU Bundestagfraktion Klaus Hermann Ebenhausen: Stiftung Wissenschaft und Politik (SWP) Dr. Christoph Royen Bernard von Plate Ko¨ln: Bundesinstitut fu¨r ostwissenschaftliche und internationale Studien (BIOST) Dr. Dieter Bingen Christian Meier Fred S. Oldenburg Dr. Heinz Timmerman Dr. Vogel, Director University of Cologne, Political Science Department Dr. Werner Link University of Cologne, Economics Department Dr. Werner Klein Federation of German Industry (BDI) Andreas Lu¨cke Polish Embassy Dr. Marek Prawda Dr. Barbara Mikulska-Goralska Munich: University of the Federal Armed Forces Dr. Swantje Kraake Radio Free Europe/Radio Liberty Research Institute James Brown (E. Europe) Jan de Weydenthal (E. Europe) Louisa Vinton (Poland) Suzanne Crow (Russia)

BIBLIOGRAPHY AND LIST OF INTERVIEWS

Russia Moscow: Bogomolov Institute, German Department Stella Burova and staff Professor Vyacheslav Dashichev Institute for International Relations Professor Andrei Zagorsky Gorbachev Foundation Nikolai Kolikov Professor Aleksandr Galkin Institute for Europe, Russian Academy of Sciences Vladislav Belov International Relations Department of CPSU (Retired) Nikolai Portugalov German Embassy Georg Boomgaarden Dr. von Voss Herr Berndt Technical Assistance Coordination Center Claudia Radeke

335

Index

Abraham, Richard, 48 Adenauer, Konrad, 34, 39, 110, 140, 308 German elections and, 128 German reunification goal and, 181 grain embargo and, 136–38 at Moscow summit, 122, 123, 145 Ostpolitik of, 117, 132–33 pipeline embargo and, 134, 136 visit to United States, 118 Adzhubei, Aleksei, 140 Afghanistan, 9, 19, 27, 31, 174, 296 Agreement on Questions of Trade and Navigation, 128 Agreement on the Development of Economic, Investment, and Technological Cooperation, 166 agriculture, 109 n. 1, 111, 137 Alaska, purchase of (1867), 33 Albania, 115 Alexander III, Tsar, 62 Algeciras conference, 71, 72, 73, 104 Alksnis, Col. Viktor, 266 Allardt, Helmut, 155 alliances, 68, 69, 296 Allied High Commissioners, 118 altruism, 22 Andropov, Yuri, 175 Anna, Empress, 52, 312 Anti-Comintern Pact, 97 appeasement, 22 Argentina, 27 Arkhangel’sk, 47, 50 Arkhyz summit meeting (1990), 246–47, 248, 250, 251, 252

balance of power and, 285 ‘‘big treaty’’ and, 253 Soviet troop withdrawals and, 256 Ash, Timothy Garton, 116 n. 7, 153, 209–11, 220 Australia, 8, 27, 67, 137 Austria, 205, 211 Austria-Hungary, 20 n. 46, 68 Balkan region and, 59, 61, 62, 63, 85 Dreikaiserbund and, 58, 59 automobile industry, 149–50 Bahr, Egon, 151, 155, 156 Baker, James, 222 Baku oil fields, 172 Baldwin, David, 3 n. 6, 11, 12, 18, 296 on effectiveness of sanctions, 39 on negative sanctions, 20–21 on positive-negative sanctions distinction, 23 on power of positive sanctions, 22 on scope of power, 28 Balkan region, 59, 61, 62, 63, 85 Baltic region, 46, 48, 50, 64 after First World War, 79 emigration of Germans from, 128 Hitler-Stalin Pact and, 99, 127 independence from USSR, 238, 270, 280–81 Kaliningrad issue, 278–79 russification campaign in (1885), 62 Bangemann, Martin, 202 banks, German, 58–59, 60, 65, 71, 264. See also specific banks Cold War trade with Eastern Europe and, 120

337

338

Czech reformers and, 147 Nazi-era consortiums, 96–97 pipeline deal and, 157 in Weimar era, 86, 88 Wirtschaftswunder (Economic Miracle) and, 113 banks, Russian/Soviet, 60, 168 Barzel, Rainer, 149 BASF firm, 60 Basic Treaty (1972), 160 Becker, Abraham, 32, 192 Beitel, Werner, 78, 92 n. 135 Belarus/Byelorussians, 77, 271, 276 Beria, Lavrenty, 121, 141 n. 66, 312 Berlin, 53, 58, 66 Berlin, Congress of (1878), 59 Berlin Wall, 38, 39, 139, 151, 305. See also West Berlin building of, 30, 47, 133, 299 n. 3 ‘‘Common European Home’’ concept and, 206 emigration from East Germany and, 130 n. 39 fall of, 163, 185, 211–23 West German grain embargo and, 136, 138 Bernauer, Thomas, 13 Bern union, 142 Bessmertnykh, Aleksandr, 265, 268 Bezrukov, Mikhail, 231 ‘‘big treaty,’’ 233, 236, 253, 254–55, 258–59 bilateral relationships, 127, 138, 143, 149, 165 alliance systems and, 69 asymmetries in, 287, 290 breakthrough in (1989–90), 106 case studies and, 39 end of Ostpolitik and, 180 frozen after Second World War, 110, 308 German minorities in Soviet successor states, 277–78 Gorbachev reforms and, 200 Hitler-Stalin Pact and, 93 legacy of Second World War and, 111 linkage and, 43 in Nazi period, 95, 100 positive sanctions and, 21, 22, 23 spillover effects and, 182 Two Plus Four Treaty and, 251 Bironovshchina, 52 Bismarck, Otto von, 5, 36, 82 Crimean War and, 59 diplomacy of, 85 dismissal of, 67 German unification and, 43, 57, 58 linkage policies and, 44

INDEX

Lombardverbot and, 64, 65, 73, 74, 105, 136 negative sanctions and, 305 positive sanctions and, 104 tariff war and, 62 Bjo¨rko¨ agreement, 71, 105 Bleichro¨der, Gerson, 59, 60 Blessing, Karl, 147 Bolsheviks. See USSR Borisov (Soviet trade minister), 120 Bovin, Alexander, 231 Brandt, Willy, 40, 74 n. 88, 127, 135, 181 Berlin issue and, 161 German reunification and, 160, 195 Germany’s image and, 306 New Ostpolitik and, 139, 146, 149, 151–52, 163, 304 pipeline deal and, 157 positive linkage and, 110 resignation of, 167, 168 n. 130 small and large goals of, 296 Soviet ‘‘New Thinking’’ and, 194 Treaty of Moscow and, 158–59 Brentano, Clemens von, 126 Brest-Litovsk, Treaty of, 76 Brezhnev, Leonid, 52, 66, 141, 152, 178, 201 death of, 175 meetings with Schmidt, 167–68, 174 meeting with Brandt, 161 positive linkage and, 305 Soviet decline and, 188 Treaty of Moscow and, 159 visits to West Germany, 165, 169 Brezhnev Doctrine, 212 Britain, 15, 21, 84, 102, 307 Bolsheviks and, 78 Crimean War, 60, 61 industrial revolution in, 55 Munich accords and, 97 as occupying power, 114 oil pipeline embargo and, 134 Second World War and, 20 n. 46 trade with United States, 68 as trading partner of tsarist Russia, 47, 48, 53–54, 75 as trading partner of USSR, 87, 96, 142, 143 as victor of First World War, 77 Weimar-Bolshevik relations and, 90 Bronson, Rachel, 12 Brothers of the Sword, 46 Bu¨hren, Ernst Johann, 52 Bulgaria, 27, 115 Bundesbank, 34, 147, 168 Burlakov, Gen. Matvei, 267 Bush, George H. W., 237 Bush, George W., 314

INDEX

Campbell, Robert, 191 Camp David accords, 9 Canada, 8, 137, 222, 226 capital, 45, 59, 70, 84, 87 German banks and, 60 German capital markets, 64, 65, 68, 196 Stalin and German capital, 94 capitalism, 7, 15, 16, 31, 77, 254 Caprivi, Chancellor Leo von, 82, 93, 104, 110 comparison to West German policies, 139 failure of policy, 106 interval of positive linkage and, 44, 67–69 trade treaty and, 106 Carr, E. H., 80, 90 Carstens, Karl, 145 Carter, Jimmy, 28, 67, 137, 175, 308 Carter administration, 21, 174 case studies, 33–42, 291–97 German reunification, 225, 248, 259, 266, 275 Nazi-Soviet relationship, 102 Weimar-Bolshevik relations, 93 West German–Soviet relations (Adenauer administration), 122, 125, 130, 132, 136, 138 West German–Soviet relations (Erhard/ Kiesinger administrations), 148 West German–Soviet relations (New Ostpolitik), 164, 167 West German–Soviet relations (Schmidt administration), 177 Wilhelmine German–tsarist Russian relations, 62, 67, 69, 72 Catherine the Great, Tsaritsa, 53–54, 107, 271 Chan, Steve, 13 ‘‘check-book diplomacy,’’ 313 chemical industry, 60, 171 Chernenko, Konstantin, 175 Chernyaev, Anatoly, 198, 210, 212, 216 China, People’s Republic of, 19, 129 n. 37, 140, 154, 213, 216 Christian Democratic Union (CDU), 132, 134, 135–36, 137, 146, 149 ‘‘Alliance for Germany’’ and, 230 election victory (1982), 177 negative sanctions and, 306 Ostpolitik and, 152 Christianity, 45 Christians, F. Wilhelm, 202, 239 Cingranelli, David, 13 COCOM (Coordinating Committee), 16, 27, 117, 135, 174–75, 309 positive sanctions and, 204 removal of export controls, 208 Cold War, 6, 10–11, 92, 108, 298 Adenauer administration and, 116–39

339

Berlin issue, 163 East-West economic ties and, 16 end of, 311 Erhard/Kiesinger administrations and, 139–49 German-Russian trade during, 36 ‘‘high-political’’ issues of, 18 negative sanctions during, 19, 21, 27 positive sanctions during, 12 Soviet defeat in, 199 colonies, German, 78, 90 COMECON, 119 Comintern, 77 ‘‘Common European Home’’ concept, 180, 194, 195, 196 communism, 5, 26, 31, 151, 277, 300 abandonment of, 187, 193–94 Bolshevik revolution, 76–77 Cold War struggle and, 6 East German army and, 250 East German elections and, 220 influence in Third World, 9 in post-Soviet Russia, 52–53 suppressed by Hitler, 94 ‘‘technocracy’’ and, 91 in Weimar Germany, 77, 80, 83 concessions, German/Western, 24–25, 249– 50, 258–60, 306 concessions, Russian/Soviet, 28, 32, 40, 41, 168, 223 Bolsheviks and, 82–83 economic/political difficulties and, 300 economic rewards and, 40 emigration issues, 177 German minorities, 271 ‘‘German Question’’ and, 244 Ostpolitik and, 181 ‘‘package deal’’ on German reunification and, 234 pipeline deal and, 158 status of West Berlin, 163 Treaty of Moscow and, 160 Two Plus Four talks and, 231, 252 to United States, 24 to West Germany, 110, 128–29, 133, 140, 150, 156 Confederation of Independent States (CIS), 272, 276, 278, 283–84, 286. See also Russia, post-Soviet Cooperative Threat Reduction plan, 26 corporations, 14, 15–16, 75 Cortright, David, 3, 13, 27 Council for Mutual Economic Assistance (CMEA), 119, 232, 283

340

credits, 88, 90, 118, 142, 183. See also Hermes credit program Cold War era, 123, 124, 125, 129, 133, 145 hard currency and, 103 Italian, 149 long-term, 169 in Nazi period, 96, 98, 100 ‘‘package deal’’ on German reunification and, 234, 235 pipeline deals and, 173 Soviet bankruptcy and, 239 Soviet oil/gas pipeline and, 157 in Weimar period, 88 Crimean War, 37, 52, 56 Prussia and, 57, 58, 59 Russian ‘‘westernization’’ and, 153, 193 trading partnerships and, 60–61 CSCE (Conference on Security and Cooperation in Europe) (‘‘Helsinki Accords’’), 165, 195, 249 Cuba, 24, 238 currency, German. See also deutsche mark (DM); hard currency East German marks, 247 reichsmarks (RM), 58, 96, 97, 100 currency, Russian lack of convertibility, 103 Russo-Turkish War and, 62 Transfer Ruble, 242, 243, 247, 254, 263, 274 Czechoslovakia, Communist (CSSR), 115, 146–48, 153, 154, 155, 299 n. 3 Czechoslovakia, pre-WWII republic, 38, 47, 95–96, 97 Czech Republic (post-Communist), 250, 283, 313 Danzig, 47 Dashichev, Vyacheslav, 193, 197, 212, 224, 231 Davidson, Jason, 21, 23 Davis, James, 23 debts. See foreign debt democratic states, 5, 66, 275 democracy in Weimar Germany, 76, 92 economic prosperity and, 9 economic welfare and, 31 European balance of power and, 313 European Community (EC) and, 279 foreign aid and, 13 political goals of aid and, 287 as target states, 301 vulnerability to sanctions, 37 Denmark, 58 dependence, 21, 22, 23, 33 eroded by negative sanctions, 64

INDEX

indicators of, 29 of post-Soviet Russia, 282 of tsarist Russia, 48, 70, 103 of USSR, 83, 103, 137, 285 de´tente era, 19, 32, 52, 155, 174, 299 end of, 174 Russian ‘‘westernization’’ and, 193 trust in, 182 Deutsch, Karl, 7 n. 15 Deutsche Bank, 158, 202, 203 in Nazi era, 96 ‘‘package deal’’ on German reunification and, 234 Soviet bankruptcy and, 239 in Weimar era, 86, 87, 88 in Wilhelmine era, 72 deutsche mark (DM). See also currency, German creation of, 109 monetary union of German states, 221, 235, 242–43 paid to Red Army soldiers, 247 West Berlin status and, 131, 132 Deutscher Zollverein, 55 Deutschlandpolitik, 197, 210 Deutsch-sowjetische Wirtschaftsbeziehungen (Beitel & No¨tzold), 87, 92 n. 135 dictatorial states, 30–31, 42 Dixon, William, 16 Dreikaiserbund (Three Emperors’ League), 56, 58, 59, 61, 63 expiration of, 65 negative sanctions and, 105 Dresdner Bank, 234 Drezner, Daniel, 13, 25, 26, 32, 37, 275 Drury, A. Cooper, 13 Dubcek, Alexander, 146–47 Dulles, John Foster, 118 Eastern Europe, 1, 9, 21, 31, 43 end of communist rule in, 211, 227, 262 German minorities in, 305 Hitler-Stalin Pact and, 99 NATO expansion into, 250 Nazi Germany and, 23, 150 Soviet economic organization of, 119, 143, 192 Soviet fear of West Germany and, 146 Soviet ‘‘New Thinking’’ and, 194, 205–6 West German trade with, 115, 156 East Prussia, 50, 112, 124 Eckstein, Harry, 37 Economic Sanctions Reconsidered (Hufbauer & Schott), 12

INDEX

Economic Statecraft (Baldwin), 11 Egypt, 8, 27 Elizabeth, Empress, 52, 53 Elliot, Kimberly, 12 El Salvador, 8 embargoes, 166, 302, 303. See also negative sanctions grain, 27, 39, 296, 306, 308 pipeline, 133–34, 135–36, 138 technology, 10–11, 19, 174–75 England. See Britain Entente alliance, 77, 78, 80, 85, 90, 92 Erhard, Ludwig, 113, 123, 181 on basis for trade with USSR, 128 grain embargo and, 137–38 summit with Khrushchev, 140 Erhard administration, 110, 145 Ericson, Edward, 101 Estonia (Estland), 51, 99, 270, 286 Ethiopia, 6 European Central Bank, 34 European Coal and Steel Community, 113 European Community/Union (EC/EU), 14, 34, 113, 156 n. 104 aid to USSR and, 238 German role as ‘‘gatekeeper’’ in, 302–3, 314 initiation of Common Market, 197 Russian/Soviet ties to, 202, 276 Soviet successor states and, 279–80 summit meetings of, 245, 255 exports, German, 64, 94, 163 in Nazi period, 96, 98 post-reunification, 314 Rapallo treaty and, 84 share to USSR, 150 state guarantees for credits, 87 structure of, 171–72 United States and, 117–18 exports, Soviet, 94, 124 agricultural, 68, 90 during Cold War, 124 increases in, 171 oil and gas, 190 Treaty of Moscow and, 163–64 to ‘‘Trizonia,’’ 115 factories, 55, 60, 78, 150, 157, 172 Falin, Valentin, 160, 169, 212, 213 fall of Berlin Wall and, 216 German reunification and, 219, 230 n. 4 on Soviet ties to East Germany, 262 Ten Points Speech and, 217 on Two Plus Four talks, 222 famine, 95

341

fascism, 5, 95 Federal Republic of Germany (FRG). See Germany, West (Federal Republic of Germany) Finland, 79 Finnemore, Martha, 24 First World War, 36, 38, 75. See also Versailles, Treaty of (1919) consequences of, 78–80 end of, 76 origins of, 63, 76 victors of, 77 Five-Year Plans, 87, 88, 89, 94, 119 food aid, 258, 260, 262–63, 267 foreign aid, 2, 3 n. 5, 8, 12, 24 foreign debt, 37, 58, 70, 74 collapse of USSR and, 270–71 in Gorbachev years, 190 Paris Club and, 314 repudiation of, 78, 81 Soviet Five-Year Plans and, 94–95 state versus private corporations and, 75 Foundation for Soviet-German Understanding, 265 Four Power Agreement, 113, 114, 130, 155, 161, 166 dissolution of, 229, 245, 251, 252, 259, 267 German reunification and, 240 Germany’s legal status and, 214 Schmidt on, 168 n. 130 Soviet troops in Germany and, 227 Two Plus Four Treaty and, 260 France, 15, 58, 95, 102 alliance with tsarist Russia, 63–64, 65, 66– 74, 104, 106, 307 Bolsheviks and, 78 in Crimean War, 60 Eastern European allies of, 298 French revolution, 56 industrial revolution in, 55 Locarno agreement and, 85 Munich accords and, 97 as occupying power, 114 as trading partner of Russia/USSR, 48, 96, 142, 143 as victor of First World War, 77 Frederick the Great (Prussian king), 53 Free Democratic Party (FDP), 126, 135, 149, 152, 176, 178 Friendship and Neutrality Treaty, 86, 87 Friendship Pipeline, 134 gas. See oil/gas GATT (General Agreement on Tariffs and Trade), 112, 281, 282

342

GDP (Gross Domestic Product), 35 G-8, 282 general sanctions, 2, 4, 14, 290. See also specific sanctions in Gorbachev period, 199–211 negative and positive, 19, 20 Genscher, Hans-Dietrich, 176, 178, 180, 200 ‘‘big treaty’’ and, 253, 256 at Caucacus meeting (1990), 244 on COCOM export controls, 204 on European role of Germany, 314 German reunification and, 221, 241 German Customs Union, 55 German Democratic Republic (GDR). See Germany, East (GDR) ‘‘Germanists’’ (Soviet policymakers), 218 n. 81, 222, 262 Germanization, Russian fear of, 51–52, 313 German language, 51 German principalities (before 1870), 41, 44, 45–57 ‘‘German Question,’’ 139, 197, 201, 206, 211 credits and, 241 final resolution of, 250, 260 Four Power Agreement and, 214 Soviet concessions concerning, 244 turmoil in East Germany and, 212 German reunification, 2, 35, 107, 185–87, 227– 28, 285–89 Berlin republic (post-1989), 311–15 collapse of East Germany, 211–23, 212–23 collapse of USSR and, 270–73 end of linkage (1992–1994), 275–85 Kohl-Gorbachev summit meetings and, 202, 203, 206–9, 224, 244–50, 269 ‘‘package deal’’ and, 228–43 package deal signed and delivered (1990– 1992), 251–75 possible end of linkage, 275–85 post-Soviet Russia and, 281–85 Soviet ‘‘New Thinking’’ and, 187–99 Soviet Red Army and, 26 German-Russian/Soviet relations, 4–5, 25, 28. See also German reunification before 1870, 45–57 under Adenauer (West German) administration, 117–39, 305–6 bilateral ties, 23 case studies in, 33–42 collapse of East Germany and, 211–23 economic asymmetry in, 35 under Erhard/Kiesinger (West German) administrations, 139–49 failure of Ostpolitik (1974–1987), 167–81

INDEX

Hitler-Stalin era, 93–102, 306 New Ostpolitik (1969–1974), 149–67 ‘‘New Thinking’’ policy and, 187–99 Prussia (Wilhelmine Reich) and tsarist Russia, 57–76, 308 resumption after Second World War, 108–11 resumption of positive linkage (1987–1989), 199–211 reunited Germany and post-Soviet Russia, 311–15 Second World War and aftermath, 111–15 trade treaties, 32 Weimar Germany and Bolshevik Russia, 76– 93, 306 Germans in Baltic region, 45, 50–51, 99, 278–79 crossing of inner-German border, 212, 221 in Eastern Europe, 115, 305 emigration from USSR, 177, 202, 207, 302 medieval merchants, 46–47 nobility, 52, 53 personal contacts between German states, 177 in Polish territory, 77 in post-Soviet republics, 270, 271, 276, 282 as prisoners of war, 115, 124 repatriated from USSR, 126, 127, 130 in tsarist Russia, 54, 62, 67, 115 in USSR, 207–8, 255, 276, 285 views of Russia, 45 in Volga (Saratov) region, 54, 140, 271, 278 Germany, East (GDR), 36, 40, 121 n. 19, 151, 242. See also Red Army withdrawal Basic Treaty and, 160 Berlin Wall and, 130 collapse of, 211–23, 226 in Council for Mutual Economic Assistance (CMEA), 119 as economic liability to Soviets, 109, 119 elections in, 230 origin as Soviet occupation zone, 108, 112 Ostpolitik and, 168 n. 130, 173 property confiscations in, 259, 260 rights of citizens of, 123 Soviet relations with, 194, 206, 222, 259, 284 uprising in (1953), 120, 121 n. 19 Western credits to, 201 Western political recognition of, 125, 144, 155 West German offers to ‘‘purchase,’’ 123, 140–41 Germany, Nazi, 1, 43, 93–102, 104, 300. See also Hitler, Adolf; Hitler-Stalin Pact Germans in USSR and, 127, 128 trade policy of, 21

INDEX

Germany, Weimar, 34, 43, 44, 76–93 Germany, West (Federal Republic of Germany), 5, 25, 30, 32, 228 absorption of East Germany, 261 in Adenauer years, 117–39 aid packages to USSR, 231–43 borders of Germany and, 160 elections in, 128, 151–52, 155, 177, 178 goal of reunification, 109, 117, 127, 133, 148, 184 integration into Western alliance, 108, 109, 117, 119, 168–69 linkage and, 18 as ‘‘new Germany,’’ 24–25 origin as Western occupation zones, 112, 113 Ostpolitik and, 20, 34–35 ‘‘package deal’’ for reunification and, 228–29 postwar German borders and, 124 relations with Eastern Europe, 146–47 relations with East Germany, 197 strong position of, 109, 139 subsidy of Red Army, 242, 244, 246, 256–57 Germany, Wilhelmine, 34, 36, 43, 291, 305. See also Prussia economic linkage and, 57–76 ‘‘high’’ and ‘‘low’’ power of, 310 Gerschenkron, Alexander, 15 Geyer, Dietrich, 103 Gibbons, Robert, 100 n. 157, 101 Gilpin, Robert, 7 glasnost (openness), 198 GNP (Gross National Product), 7, 14, 30, 89 n. 128, 191, 285 Goebbels, Josef, 180, 200 Goncharov, Ivan, 45 Gorbachev, Mikhail, 5, 31, 38, 167, 183, 314 collapse of USSR and, 270 demands for further aid, 268, 269–70 ‘‘democratic socialism’’ and, 199 democratization and, 275 end of Cold War and, 6–7 fall of Berlin Wall and, 214 foreign policy initiatives of, 180 friendship with Kohl, 206, 307 German linkage policies and, 110, 263, 277 German reunification prospects and, 186, 217–22, 224–27, 232, 288–89, 300 on global interdependence, 194 on history and the ‘‘German Question,’’ 201 meetings with Reagan, 179 meeting with Bush, 237 ‘‘package deal’’ for German reunification and, 229, 235, 239–41

343

perestroika and, 189 resumption of positive linkage and, 199–211 rise to power, 175, 179, 187 signing of ‘‘big treaty,’’ 261 Soviet conservative opposition to, 267 Soviet troop withdrawal and, 257 summit meetings with Kohl, 202, 203, 206–9, 224, 244–50, 269 Two Plus Four Treaty and, 41 ‘‘Walk along the Rhine’’ talk and, 208–9, 223–24, 225, 234, 235, 245 Western support for, 185, 238 Western trade/technology and, 52 Go¨ring, Hermann, 98 Goslar (town), 47 Gosplan, 124 governments, role of, 15–16 Gowa, Joanne, 12, 17 Grand Coalition, 153 grants, 41 ‘‘gray market,’’ 283 Great Depression, 31, 88, 103 n. 161 Gromyko, Andrei, 154, 158, 160, 209 G-7 meetings, 244, 245, 255, 269, 272, 281–82 guilds, 46 Gwinner, Arthur, 72 Haas, Ernst, 7 n. 15 Hallstein Doctrine, 125, 144 Hanseatic League, 46–47, 51 hard currency, 129, 156, 171, 189, 215, 264. See also deutsche mark (DM) Haussmann (Economics Minister), 254 Helsinki Accords, 165, 195, 229 Hermes credit program, 157, 158, 172, 248, 288, 303. See also credits ‘‘big treaty’’ and, 254 in final months of USSR, 268 long-term trade agreement (1972) and, 162 Ostpolitik and, 92 pipeline deal and, 173 political nature of, 263–64 n. 84 private loans and, 145 restrictions on, 276 Soviet bankruptcy and, 239, 244 Soviet successor states and, 272 Transfer Ruble arrangement and, 263 Two Plus Four Treaty and, 260 high politics, 4, 6, 17, 30, 112, 311 Berlin crisis and, 130 Crimean War and, 59 Dreikaiserbund and, 59 Nazi-Soviet relations, 98 size of united German army and, 250

344

U.S. foreign aid and, 9 Weimar-Bolshevik relations, 79, 81, 92 Hildesheim (town), 47 Hille and Dietrich factory, 60 Hirschman, Albert, 1, 5, 18, 94 n. 137, 282 on creation of economic links, 115 on economic advantage, 29 influence of, 34 maxims of linkage, 74 on Nazi economic tactics, 21, 150 Hitler, Adolf, 21, 34, 36, 106, 229 invasion of USSR and, 104 Munich accords and, 97 positive linkage with USSR, 44–45 rise to power, 93–94, 95, 96 Hitler-Stalin Pact, 44, 93, 98–102, 106 Baltic Germans and, 127 Nazi invasion of USSR and, 111 positive sanctions and, 104 Hoeschst firm, 60 Holland, 48, 157 n. 108 Holstein, 51 Holy Alliance, 56, 57 Honecker, Erich, 213, 214, 215 n. 74 Hook, Steven, 12 Hufbauer, Gary, 12, 40, 296 human rights, 13 Hungary, 56, 115, 205, 211, 250, 283 Hussein, Saddam, 30, 42 ideology, 300 imports, German, 68, 83 imports, Russian/Soviet, 64, 89, 94 cutbacks in, 170 Gorbachev’s reforms and, 189–90 Rapallo treaty and, 83 from ‘‘Trizonia,’’ 115 incentives, 14 indifference curves, 22 industrialization, 49–50, 55, 56 in Bolshevik era, 78, 87 conquest in war and, 298 under Stalin, 95 Industrial Party affair, 91, 94 infrastructure, 58 INF treaty, 199, 201 initiating states, 29, 194, 300 clear political goals and, 32 dependence and, 32–33 food embargoes and, 137 international ties and, 37 rewards/punishments used by, 291 interdependence, asymmetrical, 8, 9, 16, 102, 109

INDEX

depoliticization of trade and, 20 German relationship with post-Soviet Russia and, 282–85 before German unification (1870), 44 historical groundwork of, 291 influence of wealthier state, 299 Western exports to Eastern Bloc and, 164 interest groups, 25–26 international affairs, 2, 35 International Monetary Fund (IMF), 269, 282 International Political Economy, 9, 17, 35 International Relations theory, 3, 5, 11, 35, 311 ‘‘high-political’’ power and, 17 liberal school of, 7 ‘‘low’’ politics and, 6 realist school of, 6 International Security (journal), 12 investment, 2, 14–15, 57 dependence and, 23 embargoes and, 27 by German firms, 44 in post-Soviet Russia, 282 private corporations and, 14 Iran, 21, 28 Iraq, 27, 30, 31, 298 Iron Curtain, 194 Israel, 8, 21, 27 Italy, 6, 20 n. 46, 68 in Anti-Comintern Pact, 97 oil pipeline embargo and, 134 as trading partner of Russia/USSR, 48, 142, 143, 149–50 Ivan III, Grand Prince of Muscovy, 47 Ivan the Terrible (Ivan IV), 54 Jackson-Vanik amendment (U.S.), 174, 177 n. 156 Jaksch Plan, 140–41 n. 64, 212 Japan, 7, 15, 188, 237 in Anti-Comintern Pact, 97 Kurile Islands issue and, 15, 238, 269 military power and, 30, 310 oil pipeline embargo and, 134 Russo-Japanese War, 52, 70 as trading partner of Russia/USSR, 143 as ‘‘trading state,’’ 10 Jentleson, Bruce, 133, 176 Jews, in USSR, 174 Joint Declaration (Gorbachev-Kohl), 205, 206–7, 208, 219, 233 Joint Export-Import Agency (JEIA), 114–15, 129 n. 37 joint ventures, 196, 283

INDEX

Jordan, 27 Junker class, 62, 68 Kaliningrad, 173, 278–79 Katkov, M. N., 66 Kazakhstan, 271, 272, 276 Kedaberg copper mine, 60 Kegley, Charles, 12 Kennan, George, 63, 65, 67 Keohane, Robert, 8, 9–10, 29, 30, 102, 282 Khrushchev, Nikita, 110, 122, 140 Berlin crisis and, 130–31, 132 changes in economic policy, 152 fall from power, 139, 141, 312 ‘‘German Question’’ and, 201 memoirs of, 123, 124, 125 positive linkage and, 305 Soviet economic weaknesses and, 188 Soviet grain imports and, 136, 137 Kiechle, Ignaz, 258 Kiesinger, Georg, 146, 147, 181 Kiesinger administration, 110 Kinkel, Klaus, 277, 281 Knights of the Cross, 45 Knorr, Klaus, 11, 22, 23 Kochan, Lionel, 48 Kohl, Helmut, 5, 35, 36, 39, 178, 182 collapse of East Germany and, 214, 215, 216, 221 criticism of Gorbachev, 180, 200 on economic linkage, 232 friendship with Gorbachev, 307 German reunification and, 230, 261 Germany’s image and, 306 meetings with Gorbachev, 208–9, 221, 223– 24, 234, 244–50, 269. See also ‘‘Walk along the Rhine’’ talk meetings with Yeltsin, 271, 273, 276, 282, 286 Ostpolitik and, 185–86 Soviet troop withdrawal and, 257 Ten Points Speech, 217 trip to Moscow, 203, 204 Two Plus Four Treaty and, 41, 236 Ko¨nigsberg, 112, 173, 278–79 Kopper, Hilmar, 234 Korean War, 6 Kortunov, Andrei, 231 Kosygin, Aleksei, 152, 153, 159, 188 Kozyrev, Andrei, 272, 277 Kravchuk, Leonid, 269 Kreditanstalt fu¨r Wiederaufbau, 176 Kreile, Martin, 102 Krenz, Egon, 215–16 Krivoi Rog facility, 254

345

Kurile Islands, 16, 238, 269 Kurland, 52 Kuwait, 30, 42, 298 Kvitsinksy, Yuli, 196, 204, 219, 233, 255, 264 Larson, Deborah, 24 Latvia, 51, 52, 99, 270, 286 League of Nations, 6, 90, 95 ‘‘least-likely’’ methodology, 37 Lebensraum, 94 Lenin, Vladimir I., 77, 80–81, 107 Leptin, Gerd, 315 Leussink, Hans, 159 leverage, 14, 23, 25, 32 liberalism, 3–4, 6, 7–9, 22–23, 297 Liberman reforms, 152 Libya, 24 Limburg-Stirum, Count, 69 Linger, Marianne, 12 linkage, economic, 2, 4, 102, 132 n. 44. See also case studies; negative sanctions; positive sanctions asymmetrical interdependence and, 9–10 beginnings of, 57–76 Cold War and, 108–11, 114, 115, 129, 132 democratic states and, 275 ‘‘depoliticization’’ of, 168, 169 n. 135, 182, 304 effectiveness of, 33 gradualism and, 151 ‘‘hidden,’’ 311 ‘‘high-political’’ issues and, 37 Hitler-Stalin Pact and, 101 manipulation of private firms and, 15 ‘‘package deal’’ on German reunification and, 248–50 political goals and, 32 political power and, 315 possible end of (1992–1994), 275–85 post-Soviet Russia and, 285 reemerging theories of, 5–21 theoretical conclusions drawn from, 297–315 types of, 13, 14 typologies of, 17–19, 20 Lithuania, 99, 270, 286 Litvinov, Maxim, 95 Livland. See Latvia Lloyd George, David, 77 loans, 41, 57, 63, 92, 223 embargo on, 71, 72 French, 73 in Gorbachev years, 202, 203 Kreditanstalt fu¨r Wiederaufbau and, 176 Kuwaiti loans to Iraq, 42

346

limits on access to, 65 in Nazi period, 96–97 ‘‘package deal’’ on German reunification and, 234, 237 railroad, 58–59, 59–60 Soviet troop withdrawal and, 257 Weimar-Bolshevik relations and, 86 West German–Soviet relations and, 145, 158 Locarno agreement, 85, 86 Lombardverbot, 65, 67, 72, 303 failure of German policy and, 73, 308 lifting of, 68, 104, 106 spillover effects and, 136 Long, William, 12, 26, 40, 301 Long-Term Agreement on Trade and Economic Cooperation (1972), 161–62 ‘‘long-term engagement,’’ 2 n. 4, 19 Lopez, George, 3, 27 Louisiana Purchase (1803), 33 Lo¨wenholde, Karl Gustaf, 52 ‘‘low’’ politics, 6, 81 Lutheran Church, 51 Macedonia, 27 machinery, 84, 87, 95, 164–65, 171, 203 Magnettheorie, 148 n. 83 Majonica, Ernst, 185 Malenkov, Georgy, 121 Mannesmann firm, 158 Mansfield, Edward, 12, 17 Marshall Plan, 6, 9, 114, 148 n. 83, 298 Mastanduno, Michael, 118, 310 Mazie´re, Lothar de, 231 Mecklenburg, 51 Mendelssohn banking house, 58, 158 n. 109 Middle Ages, 5, 34, 43, 45, 57, 102 German minority in Russia during, 44 Hanseatic League, 46 military power, 4–5, 9, 114. See also nuclear weapons; power; Red Army withdrawal of dictatorial regimes, 42 difficulty of using, 310 Drang nach Osten and, 313 n. 15 effectiveness of, 31–32 end of de´tente era and, 175 in German-Russian relations, 47, 101, 111–12 NATO alliance, 168–69 negative sanctions and, 28 of post-Soviet republics, 270 Reichswehr maneuvers in USSR, 82–83 relative strength of Germany and Russia, 298 of sanctioning countries, 30, 33 size of united German army, 250

INDEX

Soviet demilitarization, 208 Soviet economic reform and, 191–92 Soviet oil pipeline and, 134 territorial states and, 10 zero-sum nature of, 22 Mitterand, Franc¸ois, 239 modernization, 102, 103, 179, 210 Modrow, Hans, 215 n. 75, 216, 220–21, 230 Moiseyev, Gen. Mikhail, 266 Mo¨lleman, Ju¨rgen, 264, 268, 272 Molotov, Vyacheslav, 99 monetary union, 221, 231, 232, 243, 260 Moon, Bruce, 16 Morocco, 71 Moscow, ‘‘German settlement’’ of, 45 Moscow, Treaty of, 158–59, 160, 161 Bundestag ratification of, 161 n. 118, 162, 165 ‘‘package deal’’ on German reunification and, 233 pipeline deals and, 173 Moscow World Trade Conference, 120 Most Favored Nation (MFN) trade status, 32, 42, 80, 82, 112, 174 Mu¨ller-Armack, Professor, 122–23 Munich accords, 97 Mu¨nnich, Gen. Burkhard, 50, 52 Muscovy. See Russia, tsarist Mutual Land Credit Association, 58 Napoleon I, Emperor, 56 nationalism, Russian, 52–53, 62, 70, 301 anti-German backlash and, 66 Wilhelmine Germany and, 72, 105 National Power and the Structure of Foreign Trade (Hirschman), 1 national security issues. See security issues NATO (North Atlantic Treaty Organization), 37, 113, 117, 133, 135, 168–69 balance of military power and, 298 ‘‘Euromissiles’’ and, 175, 176, 178 expansion into Eastern Europe, 250 German neutrality proposal, 217, 226, 227, 230 relations with Russia/USSR, 249–50 restrictions on, 251, 252 reunited Germany in, 229, 230, 231, 239, 241, 248 natural resources. See raw materials negative sanctions, 2–3, 4, 11, 12, 290. See also embargoes; linkage, economic backlash against, 66 bilateral hostility and, 111 ‘‘cheating’’ and, 27 collateral damage and, 22, 27

INDEX

conditions for success, 73 counterproductive effects of, 23 fear of future conflict and, 25 justifications for, 28 military/security issues and, 105, 118, 121, 183, 309 removal of as reward, 20–21 as reversal of positive sanctions, 14 Soviet-Afghan war and, 174–75 spillover effects from, 182 studies of, 13 United States and, 176 West Germany and, 110, 133, 138 Wilhelmine Germany and, 44, 63–65, 72, 74, 104 nemtsy (Germans), 45 neorealism, 7 Neue La¨nder, 273 Nevsky, Aleksandr, 46 New Economic Policy (NEP), 84, 90, 301 ‘‘New Thinking’’ (Soviet policy), 5, 180, 186, 187–99, 199, 205 Nicholas II, Tsar, 71 Niederlassungsabkommen, 86 norms, international, 24, 28 Northern War, 50 North Korea, 20, 31 No¨tzold, Ju¨rgen, 87, 92 n. 135 Novgorod, 45, 46–47, 48 nuclear weapons, 6, 26, 179, 181, 199, 249–50. See also military power Nunn-Lugar plan, 26, 33 Nye, Joseph, 8, 9–10, 29, 30, 282 Nystad, Treaty of (1721), 50 Oder-Neisse (Polish-German) border, 144, 151, 159, 226, 231, 233 Soviet/Polish determination to uphold, 302 Two Plus Four talks and, 251 OECD, 263, 266 Ofer, Guy, 188 oil/gas, 35–36 n. 79, 60, 134, 156, 171. See also pipeline deals Baku oil fields, 172 Eastern Bloc and, 192 Kuwait and, 299 prices of, 189, 196 trade balance and, 314 Yamburg gas field (Siberia), 232, 254, 286 Oldenburg, Fred, 236 openness, cycles of, 52–53 Organization of European Economic Cooperation (OEEC), 112 Ostausschuß der deutschen Wirtschaft (East-

347

ern Committee of German Business), 92, 120, 121, 126, 129 n. 37, 283 Ostermann, Heinrich Johann Friedrich, 49, 52 Osthandel (Eastern trade), 102, 109, 172 Ostpolitik, 20, 34–35, 74 n. 88, 132, 135, 201 continuity of, 115 n. 7 failure of, 167–81 Nazi, 94 negative sanctions and, 136 ‘‘New Ostpolitik,’’ 139, 143, 149–67, 304 relative economic strength and, 103 Soviet ‘‘New Thinking’’ and, 187–88 Weimar origins of, 92 paganism, 45 Pakistan, 8, 9 Papayoanou, Paul, 12 Pape, Robert, 12 Paris, Treaty of, 122 Paris Club, 314 Pasquarello, Thomas, 13 Patkul, Johann, 51 Patolitshev, Nikolai, 157, 158 peasants, 55 Perestroika (Gorbachev), 180 perestroika (restructuring), 189, 197 Peter III, Tsar, 53 Peter the Great, Tsar, 49–51, 52, 54, 107, 171 comparison with Soviet policy, 119, 210 Russian ‘‘westernization’’ and, 153, 193 Petrushenko, Col. Nikolai, 265 pipeline deals, 96, 156–58, 165. See also oil/gas Moscow Treaty and, 173 pipeline embargo, 133–34, 135–36, 138, 305–6, 308 Soviet export structure and, 171 Urengoi/Yamal project, 176 Pipeline Politics (Jentleson), 133 Poland, 40, 63, 79, 115, 263 EC/EU expansion and, 14, 280 end of communist rule, 211 foreign debt of, 170, 190 geographical situation of, 313 German investors/settlers in, 62, 64, 65, 67 Hitler-Stalin Pact and, 99 in NATO, 250 Nazi policies toward, 94 Oder-Neisse border with Germany, 144, 151, 159, 231, 233 partitions of, 44, 54–55 Polish-Lithuanian state, 46 postwar annexation of German territory, 112, 127, 181 n. 162, 302 revolts against Russia (19th century), 56, 57

348

in Second World War, 44, 93 Solidarity union movement in, 175, 205–6 status of Danzig and, 47 Two Plus Four talks and, 231, 251 Versailles Treaty and, 93 war with Bolshevik Russia, 77 West German relations with, 117, 155, 160, 237 n. 23, 308–9 ‘‘Polish question,’’ 44 political prisoners, 305 politics. See high politics Politik der Bewegung (Policy of Movement), 143–44, 146, 148, 154 Portugalov, Nikolai, 199 n. 33, 206, 209, 213, 214 German reunification plan and, 216–17, 220 on NATO, 230 n. 4 positive sanctions, 2, 3, 223, 290. See also linkage, economic case studies and, 39 conditions for success, 4, 5, 22, 69, 148 in Crimean War, 59 dependence and, 111 East-West economic ties, 19 effectiveness of, 22–33, 41 French, 63 general/specific distinction and, 303–5 German food aid to USSR, 220 in Gorbachev years, 199–211 Hermes credits and, 172 ‘‘outbidding’’ of, 307 pipeline deal, 167 restoration of status quo and, 309 reunited Germany and, 261, 262–64, 267 studies of, 13 trust and, 195, 211 United States and, 174 Weimar Germany and, 76, 82, 104 West Germany and, 125, 129, 139, 161, 167 Wilhelmine Germany and, 44, 75 Potsdam accords, 131 power, 8, 9, 22. See also military power limitations on, 30–31 quantity and quality of, 113–14 scope of, 28 sources of, 11 world balance of, 114 Power and Interdependence (Keohane & Nye), 7–8, 10 Power of Nations, The (Knorr), 11 Prague Spring (1968), 30, 146–47 process-tracing, 40 Prussia, 44, 51, 53, 104. See also Germany, Wilhelmine

INDEX

economic linkage and, 57–61 Napoleon and, 56 partitions of Poland and, 54–55 rise of, 291 Pskov, 48 psychology, 306, 307 Pushkin, Aleksandr, 45 Pushkonev, Sergei, 56, 74 Putin, Vladimir, 52, 314 Pyatakov agreements, 88 Radek, Karl, 78 railroad bonds, 58 Rapallo agreement, 79, 80, 81–85, 93, 306 Cold War and, 108 German reunification echoes of, 233 Second World War legacy and, 117, 141 n. 64 raw materials, 36 n. 79, 48, 98, 100, 102 Nazi invasion of USSR and, 111 as percentage of Soviet exports, 171 Soviet exports to West Germany, 109 Reagan, Ronald, 175, 176, 178, 179 realism, 3, 22, 30, 297 military power and, 7, 9 Second World War and, 6 Red Army withdrawal, 26, 239–40, 267, 270– 71. See also military power property confiscation issue, 260 ‘‘selling’’ of military strength and, 33 Soviet successor states and, 272–74 timetable for, 251, 253–54, 275, 277, 313 treaty covering, 253, 256, 267–68 West German funding of, 235, 242, 244, 246, 256–57, 286 Reformation, 46 Regan, Patrick, 13 Reiber, Alfred, 70, 91 Reichsbank, 59, 65 n. 64 reichsmarks (RM), 58, 96, 97, 100 Reichswehr (German army), 82–83, 90, 106 Reinsurance Treaty (1887–90), 63, 65, 67, 68, 105, 305 comparison with Ostpolitik, 170 lapsing of, 106 reparations, for Second World War, 108–9, 114, 119 Reval, 46, 48 ‘‘revanchism,’’ Soviet charge of, 180–81, 187, 195 reverse linkage, 18 Richardson, Neil, 12 Riga, 45, 48, 51 Ro¨ller, Wolfgang, 234 Romania, 27, 115, 117 n. 8, 146

INDEX

Rosecrance, Richard, 10, 18, 29, 31, 300 Ruhr (region of western Germany), 114 Ruloff, Dieter, 13 Russia, post-Soviet, 16, 35, 271. See also Confederation of Independent States (CIS) German economic advantage over, 314 German minority in, 276, 277–79 Red Army withdrawal and, 272–75, 277 Western economic organizations and, 281–82 Russia, Provisional Government (1917), 38 Russia, tsarist, 37, 41, 43, 300–301 alliance with France, 63–74, 105, 106, 307, 308 anti-German backlash in, 312 economic backwardness of, 44, 48 n. 11, 52, 55–56 German minority in, 308 relations with German states before 1870, 45–57 relations with Wilhelmine Germany, 57–76 Russian-German Economic Agreement, 75 Russian-German relations. See German– Russian/Soviet relations Russian language, 62 n. 54 Russians nobility, 52, 53 stereotypes of Germans, 45, 51 russification campaigns, 62 Rußlandausschuß der deutschen Wirtschaft (Russia Committee of German Business), 92, 120 Russo-Japanese War, 52, 70 Russo-Turkish War, 37, 59, 61, 62 Ryzhkov (Soviet prime minister), 202, 234, 235, 247 Saburov, Alexander, 124 St. Petersburg, 46, 50, 60 sanctions. See negative sanctions; positive sanctions Sanctions Paradox, The (Drezner), 13 Saxony, 51 Schacht, Hjalmar, 97, 98 Schaukelpolitik (See-saw Policy), 80, 92, 117 Scheel, Walter, 149 Scherpenberg, Hilgar von, 124 Schiller, Karl, 157, 158, 159 Schmidt, Helmut, 110, 153 n. 92, 174, 181 economic linkage and, 167–70 failure of positive linkage policy, 297 German reunification and, 195 negative sanctions used by, 308–9 Ostpolitik and, 304

349

pipeline deal and, 175–76 Soviet ‘‘New Thinking’’ and, 194 U.S. presidents and, 175, 176 Schott, Jeffrey, 12, 40, 296 Schrader, Peter, 12 Schro¨der, Gerhard (Chancellor), 35, 36, 314 Schro¨der, Gerhard (Foreign Minister), 144, 146 Schulenberg, Werner Graf von der, 99 Schwendemann, Heinrich, 101 Second World War, 1, 5, 7, 24, 43, 171 absence of formal peace treaty, 229 end of, 111 fortieth anniversary of (1985), 180–81 German actions in, 111–12 German reparations for, 108–9, 114, 119 International Relations theory and, 6 memory of, 210 political consequences of, 302 Soviet debate on German reunification and, 266 Soviet sacrifices in, 246, 260, 265, 266–67 territorial changes following, 47 Volga Germans and, 140, 271 security issues, 4, 9, 15, 30, 112 negative sanctions and, 105 West German ‘‘buyout’’ of Red Army, 242 Seeckt, Gen. Hans von, 82 Seehandlung bank, 60 Seiffert, Wolfgang, 212–13, 219 Serbia, 27, 31 serfdom, 50, 55, 56 Seton-Watson, Hugh, 72 Shakhty affair, 91, 94, 312 Shambaugh, George, 15, 21, 23, 29 Shevardnadze, Eduard, 201, 202, 219, 226 ‘‘big treaty’’ and, 253, 256 on Germany in NATO, 234, 239 ‘‘package deal’’ for German reunification and, 229, 235, 240, 241 resignation of, 262 on self-determination, 221 n. 88 Two Plus Four talks and, 222–23 Siemens firm, 44, 60 Sigal, Leon, 13 Sikkink, Kathryn, 24 Silayev, Ivan, 264 Sitaryan (Soviet deputy premier), 254 Ska˚lnes, Lars, 12, 17, 20 n. 46, 68 Slavic languages, 45 Social Democratic Party (SPD), 126, 146, 152, 156, 195 coalition with Free Democrats, 176 in Wilhelmine era, 68

350

South Korea, 20 sovereignty, 33 Soviet-German Mixed Commission, 162 Soviet-German relations. See German–Russian/Soviet relations Soviet Union. See USSR Spanish Civil War, 97 Spa¨th, Lothar, 201 Spaulding, Robert, 57–58 n. 40, 76, 82, 96, 309 specialist workers, 88–89, 119 specific sanctions, 2, 4, 14, 290. See also general sanctions German reunification and, 211 negative and positive, 19, 20 Sperling, James, 313 spillover effects, 23–24, 105, 106, 136, 182, 306 of Adenauer trade sanctions, 141 food aid and, 220, 226 in Gorbachev years, 187 negative, 307–8 ‘‘package deal’’ on German reunification and, 233 trust and, 228 Stalin, Joseph, 52, 91, 98, 107, 183, 309 death of, 118, 121 n. 19 economic consolidation and, 95 linkage and, 31 Marshall Plan and, 148 n. 83 pact with Hitler, 44, 93, 99, 100, 101–2, 106 Russian xenophobia and, 171 Shakhty affair and, 312 Soviet exports under, 90 totalitarianism and, 301 trust in Germany, 306 view of Western ties, 94 Western fear of, 182 West Germany and, 115 Stalinism, 88 statecraft, economic, 2, 6, 8, 9, 14 as linkage, 18 power of positive sanctions and, 22 Stent, Angela, 17–18, 103 n. 162, 120, 195 on asymmetry in bilateral relations, 148, 314–15 on limits of economic linkage, 132 n. 44 stereotypes, 45, 187 Strauss, Franz-Josef, 201 Streseman, Gustav, 36, 79 Suslov, Mikhail, 141 Sutton, A. C., 91 Sweden, 26, 46, 52 Szabo, Stephen, 311 Taiwan, 19

INDEX

Tallinn, 46, 48 target states, 29, 30 dependence and, 106 effects of negative sanctions on, 133 major powers as, 297, 298, 300 political change in, 296 psychology of negative sanctions and, 307 resentment by, 66, 308 vulnerability to sanctions, 37–38, 40, 225 tariffs, 14, 64–65, 106, 302 Bismarck and, 62–63 end of tariff war, 68 Franco-Russian alliance and, 67, 70 technology, 1, 57, 156, 196, 223 embargoes of, 10–11, 19, 174–75 German exports of, 172 German states and, 45 as incentive, 12, 14 military power and, 298–99 nuclear, 173 Soviet lag in, 109, 119, 152, 188–89 in tsarist Russia, 48–49 Western sanctions against East bloc, 16, 19 Teltschik, Horst, 207, 215 n. 75, 216, 219 food aid program and, 263 on German unity deal, 220, 222 Gorbachev-Kohl meetings and, 245, 246 ‘‘package deal’’ on German reunification and, 229, 232, 234, 235, 241, 285 Ten Points Speech, 217, 218, 219 territorial states, 10, 16 Teutonic Order, 45, 51 Third Reich. See Germany, Nazi Third World, 9, 14, 15, 19, 174, 176 Thirty Years’ War, 51 n. 23 trade, 2, 5–6, 26, 41 after German reunification, 314 in Cold War occupied Germany, 112–13 depoliticization of, 20, 138 Hitler-Stalin Pact and, 100 in Middle Ages, 46–48 Most Favored Nation status, 32, 42 in Nazi period, 94–102 private corporations and, 14 Prussian-Russian, 60–61 Russian/Soviet government monopolies, 50, 80, 86 Soviet trade deficits, 154, 164, 168, 170 trading states, 10, 16 treaties, 3 of tsarist Russia, 53, 55–56 Weimar-Bolshevik era, 83–85 West German–Soviet relations and, 118, 121, 126, 128–29, 149, 170

INDEX

trading states, 18, 29 Transfer Ruble, 243, 247, 254, 263, 274, 286 Triple Alliance, 305 ‘‘Trizonia,’’ 115 trust, 105, 106, 111, 141, 166, 211 Berlin blockade and, 112 collapse of East Germany and, 218, 219 food aid and, 220, 225, 266–67 generosity of German aid and, 289 German reunification and, 228 Ostpolitik and, 169, 182 Tula (Russia), 49 Turkey, 27, 59 Two Plus Four Treaty, 39–40, 41, 222–23, 224, 228, 285–86 East German election and, 231 German NATO membership issue, 239 ratification of, 260, 261, 267 signing of final agreement, 253, 258–60 ¨ berleitungsvertrag, 247, 257–58, 261. See also U Red Army withdrawal Ukraine/Ukrainians, 77, 269, 271, 276 Ulbricht, Walter, 160 United Nations (UN), 12, 27, 154 United States, 15, 68, 102, 137, 269, 291 Bolshevik concessions program and, 84 Cold War and, 6–7 Eastern European policy of, 144 embargoes against USSR, 67, 133–34, 135, 174–75, 296 foreign aid policy of, 8–9, 14, 24 German reunification and, 226 high politics and, 311 international economic organizations and, 112 Iranian hostage crisis, 21, 28 joint ventures with post-Soviet Russia, 283 linkage and, 21, 26, 138, 237–38 military spending and GNP, 191 nuclear technology and, 173 as occupying power, 114 relations with USSR, 110, 153, 154, 167, 237–38 Second World War and, 7, 20 n. 46 Soviet-Afghan war and, 19, 27, 174 Soviet image of bad faith and, 24 territorial acquisitions of, 33 as trading partner of Russia/USSR, 20, 87, 96, 98 as victor of First World War, 77 Vietnam War and, 31 Weimar-Bolshevik relations and, 90

351

West German–Soviet relations and, 117–18, 175–76 Upper Silesia, 77 Urengoi/Yamal pipeline project, 176 USSR. See also German–Russian/Soviet relations Afghanistan war of, 27, 31, 174, 296 aftermath of Second World War and, 112–15, 119 collapse of, 7, 31, 264, 268, 270–72, 277, 280 debate over treaty ratification, 265–67 democratization in, 205 de´tente with West Germany, 154–55 economic autarky of (1950s), 118 economic backwardness of, 79, 152–53, 171 elections in, 262 gas pipeline to Western Europe, 29 German borders and, 144, 159, 160, 226, 302 German minorities in, 207–8, 255, 276, 285 influence in Third World, 9, 174 League of Nations and, 95 loss of Eastern Europe, 227 military reactions to West German prosperity, 30, 38, 47, 147–48, 299 NATO and, 230 need for German capital, 108, 129 ‘‘package deal’’ for German reunification and, 228–29, 231–43, 251–75 perceived bad faith of, 24 relations with Nazi Germany, 93–102 relations with United States, 20, 110, 153, 154, 167, 174–75 in Second World War, 94, 102, 111–12 Supreme Soviet, 261–62, 264, 265–66 trade/treaties with East Germany, 262, 284 trade with West Germany, 32, 145 Western trading partners of, 48, 141–42 West German security and, 25 value-added products, 35, 109 Versailles, Treaty of (1919), 47, 77, 79, 82, 90. See also First World War German demilitarization and, 113 reparations payments under, 87 Vienna, Congress of, 56 Vietnam War, 6, 31, 154 Visegrad countries, 280 Volga Germans, 54, 140, 271, 278 von der Goltz, General, 76 Wagner, R. Harrison, 25 Waigel, Theo, 244, 269 ‘‘Walk along the Rhine’’ talk, 208–9, 223–24, 225, 234, 235, 245

352

Waltz, Kenneth, 7 Wandel durch Anna¨herung (change through rapprochement), 151, 154 Warsaw, Treaty of, 160, 161, 162 Warsaw Pact, 140, 155, 203 German reunification and, 227, 230, 240, 242 invasion of Czechoslovakia (1968), 147 Weisza¨cker, Richard von, 200–201, 261 West Berlin, 109, 128, 173. See also Berlin Wall economic agreements and, 169 Four Power Agreement and, 161 Soviet blockade of, 38, 112 status of, 18, 130–31, 145 Western access/transit rights to, 296, 306 Western Europe, 10, 27 ‘‘Europe’’ defined, 280–81 n. 133 Germany’s role in, 34 Russian comparisons to, 49 in Second World War, 45 Soviet gas pipeline and, 29, 134 trade routes to, 47 ‘‘westernization,’’ 153, 192 Wilhelm II, Kaiser, 67, 71, 74 Wirtschaftswunder (Economic Miracle), 113

INDEX

Witte, Sergei, 70–71, 72 Wittkopf, E. R., 12 Wolf, Charles, 9 n. 18, 179 n. 159 Wolfe, Thomas, 139 Wolff von Amerongen, Otto, 120, 121, 283 working class, 55, 68, 111 World Bank, 269, 282 xenophobia, Russian, 53, 91, 119, 171 Yazov, Gen. Dmitry, 265 Yeltsin, Boris, 31, 38, 262, 269, 277, 314 collapse of USSR and, 270 in Congress of People’s Deputies, 205 cycle of openness and, 52 German minorities issue and, 278 G-7 meetings and, 282 meetings with Kohl, 273, 276, 282, 286 as president of Russian Republic, 264, 271 Russian dependence and, 285 Soviet troop withdrawal and, 267 Yugoslavia, 146, 280 n. 133 Zagladin, Vadim, 206 Zero Solution, 274 Zimmerman, Robert, 8–9