The West, via Germany, is being sucked willy-nilly into a massive program of aid to the bankrupt Soviet economy.
One more piece of evidence fell into place in late November when Bonn's economic minister, Helmut Haussman, turned his back on earlier promises that German exports to the Soviets would not be subsidized. Haussman announced that former East German exporters would get generous treatment from the Bank Hermes, Bonn's always generous government export-financing and guarantee agency.In a sense, Bonn had no choice. As the bill for the resuscitation of the former five East German states has skyrocketed, the German government has had to do all it could to keep the bankrupt former communist industrial complex going. That assures the drive for modernization and privatization can move forward. And, perhaps even more important, it helps keep former East German workers from drifting westward, further crippling the former communist economy, adding new woes for the German social welfare net, and aggravating social tensions.
Exports to the Soviet Union were about 40 percent of all the former East German exports, but disproportionately in so-called high-tech goods. Not high enough tech, however, to be sold in Germany or in the West. Now to keep selling them in the East, the former communist-run economic units face an additional threat: All former Soviet bloc trade went to dollars on Jan. 1 instead of the phony convertible (in fact nonconvertible) ruble.
With Soviet oil exports dropping radically in the face of falling production, the former East German area's imports from Moscow have declined by almost half since July. Furthermore, West German companies have been asking since mid-summer for government relief because of Moscow's failure to pay its bills on time.
Now the German government is going to pick up much of this check through more hard currency loans and subsidies to Moscow.
The total of apparently open-ended German commitments to Moscow is now well past $20 billion - including payments for the Soviet forces remaining (for at least three years) in the former East Germany, the cost of their repatriation, and commercial and non-commercial lending to the USSR. Bonn has launched direct food shipments to help President Mikhail Gorbachev through the worst Russian winter since World War II, and is urging others, particularly the United States, to join in. The European Community is starting food aid too.
All this will not be just a German problem, however. The growing German 1991 budget deficit and an anticipated sharp decline in what will still be a German trade surplus, will be met, in part, by borrowing on the Eurocurrency markets. That will add to the pressure on interest rates around the world.
This crunch on German capital has already been felt by those who in the past had dipped into German savings. Sweden, for example, with its heavy dependence on German markets, faces drastic adjustments as the price of German capital rises. And in faraway Brazil, once a heavy recipient of Frankfurt financing, economic managers have been shocked by the prospect of German capital repatriation.
Ironically, Margaret Thatcher's warnings about a rush toward a unified European currency based heavily on the deutschemark, which brought her down, may yet get a more receptive ear on the continent as the effect of these trends begin to sink in.