1. Telegram From the Mission at Berlin to the Department of State 1

395. Paris for Embassy, USRO, CINCEUR Thurston and Finn. Following is our assessment current East German situation and Sov/East German policy re Berlin at year’s end—with particular reference to recently concluded IZT and FedRep-Sov trade negotiations. It appears clear that Sov/East Germans did not expect from West such strong reaction to East German harassments as IZT cancellation. Presumably when Ulbricht sold Khrushchev on his Berlin program at Sochi last Aug they counted on no such Western reaction. It now evident that FedRep cancellation of IZT raised spectre of such serious economic difficulties for USSR/GDR that they felt obliged defer program for time being. Alternative was undoubtedly new Berlin crisis which most inopportune from Kremlin’s point of view at this time.

Cessation of IZT would have seriously endangered GDR production plans, slowed rate of economic growth, and forced revision of East German contribution to CEMA plans. GDR would have had to forego long heralded goal of overtaking FedRep in per capita consumption of certain consumer goods by end of 1961. These economic costs were avoidable only if Sov Union could assure adequate substitutes for products normally obtained in West Germany.

Despite Khrushchev’s announced willingness fill gaps if IZT agreement not renewed, all circumstances and available evidence suggest Sovs unable to assume economic burdens resulting from rupture IZT and unwilling to assume political burdens resulting from creation new Berlin crisis. Detailed Sov-East German examination of requirements must have revealed impracticability at this time for Sov bloc to fill them in event of breakdown FedRep-GDR trade because of continued East German utilization of 1) West German engineering standards (DIN, Deutsche Ingenieur Normen) and 2) certain Western raw materials not [Page 2] obtainable from bloc sources. Recent statements by Ulbricht and other East German leaders have stressed need to adjust East German production machinery to bloc standards and raw materials in order reduce dependence on West. Intelligence reports confirm planning activities in GDR economic apparatus directed toward this end.

Sov and East German IZT policies and propaganda since Sept 30 and Behrendt’s conduct of negotiations have been consistent with over-all Kremlin policy to avoid precipitating Berlin crisis until another effort made to negotiate Berlin settlement with new U.S. administration. Timing IZT abrogation of course was not of Sov-GDR choosing. Acceptance of challenge which abrogation represented, particularly in form of interference with West Berlin traffic allegedly based on IZT Annexes, would have precipitated major Berlin crisis.

Main trends SED policies are following lines noted ourtel 277 Dept, 257 to Department.2 Here is increasing evidence that creation of Staatsrat in Sept after Pieck’s death has given Ulbricht further instrument for increasing his direct personal power. Under Stoph, who is emerging quietly as Ulbricht’s chief deputy, GDR ministries are being transformed into unified administrative structure directly controlled from a single party-government office. We take for granted that in final top-level SED discussions on IZT negotiations, Ulbricht and Stoph threw their support to GDR Trade Minister Rau against those who were opposing any GDR “concessions”.

We continue be impressed by fact that SED, while carrying out major administrative changes, is avoiding policies against own population which would dissipate SED energies. Reasons for this are both economic and political. Absence overt farmer resistance to collectivization has not resolved regime’s agricultural problems, particularly in light of growing shortages of milk and pork. Possibility also exists that during late winter and early spring agricultural situation will further deteriorate due to inadequate fodder supplies. Industrial production below expectations during last half of 1960 and SED now carrying on major propaganda campaign calling for increased industrial production, perhaps as prelude to introduction higher work norms.

Refugee flow, which currently has reached proportions surpassed only in “crisis years” of 1953 and 1956, poses perhaps most important socio-economic problem. Regime has sought ineffectively to reduce flow primarily by concessions to professional groups where loss [Page 3] particularly damaging. Consideration of drastic control measures is presumably being held in abeyance, pending negotiations on Berlin.

Soviet/East Berlin decision reach “compromises” with FedRep on IZT and FedRep/Soviet trade agreement does not, of course, indicate any change in basic Soviet/East German policy regarding Berlin. Both “compromises” were worked out with relatively little loss face from Communist standpoint. Gain from Western standpoint, however, has been demonstration to Soviets/East Germans that West can and will react strongly even to minor encroachments on Berlin status.

Next following message sets forth views West Berlin leadership on current situation in light of conclusion IZT agreement.3

  1. Source: Department of State, Central Files, 662A.62B41/1-961. Confidential. Repeated to Paris, London, Moscow, and POLAD USAREUR.
  2. Telegram 277 from Berlin, October 10, 1960, reported that the German Democratic Republic was willing to discuss a new interzonal trade agreement. Telegram 257 from Berlin, October 18, 1960, assessed GDR intentions and capabilities. (Ibid., 662A.62B41/10-1060 and 762.00/10-1860)
  3. Telegram 396 from Berlin, January 9, reported that West Berlin leaders were convinced that the cancellation of the old interzonal trade agreement on September 30, 1960, in reaction to continued Soviet harassment of Berlin, had been a correct decision. Not only had it led to easing travel restrictions on West Germans, but also to the negotiation of a new trade arrangement. (Ibid., 662.62B41/1-961)