Foreign Relations of the United States, 1955–1957, Central and Southeastern Europe, Volume XXVI

134. National Intelligence Estimate¹

NIE 23–57

Washington, November 5, 1957.

THE OUTLOOK FOR GERMANY²

The Problem

To estimate the outlook for Germany, including the Federal Republic of West Germany, East Germany, and Berlin, but with special reference to political developments in the Federal Republic and to the foreign and defense policies of its government.

Summary

1. As a result of the decisive victory of the Adenauer government in recent elections, the prospects are good for the continuance in West Germany of a moderate stable government allied with the West. Its current economic health as well as political stability could be threatened both by crises generated by internal circumstances and by developments outside West Germany’s control, e.g. a major recession in the West, or a major decline in the strength and cohesion of NATO. We believe that, barring such external developments, serious internal divisions and extremism are highly unlikely.

2. The rate of economic expansion will probably slow down primarily as the result of an increasingly tight labor situation. Some price rises also appear likely. However, serious economic strains appear very improbable unless caused by a major recession in the West.

3. The Soviet leaders have again slammed the door on reunification. They have no intention of permitting the anti-Soviet population of East Germany to be added to that of West Germany on terms which would enable a unified Germany to join with the West. Moreover, they want to continue their occupation of East Germany in order to protect their position in Eastern Europe, to apply a vise on Poland, and to retain the advantages of the advanced deployment of powerful military forces.

4. Similarly the USSR is not likely to weaken its hold on Berlin and, in conjunction with the East German regime, will probably apply increased pressures on the Allied position. A widespread East German revolt seems unlikely in the next few years, although spontaneous outbreaks are always possible, particularly if there were uprisings elsewhere in the Satellite area.

5. So long as this situation continues, the West Germans seem likely to remain in NATO. They also believe that they must rearm in order to assure their national security, either as a part of NATO or, if need be, independently. Nevertheless, rearmament progress will probably continue to be hampered by doubts concerning the basic strategic concepts upon which forces and weapons systems should be built, and by a lack of popular enthusiasm to accept the costs and sacrifices involved. We believe the West Germans are unlikely to consider withdrawing from NATO and assuming a posture of armed neutrality unless the alliance became greatly weakened or unless the USSR made an acceptable reunification offer. In the event the USSR reassessed its position and offered new terms for reunification, the West Germans would not accept them if there were clearly a risk of their becoming a Soviet satellite; on the other hand, they probably would accept something less than they or their Western allies now consider essential.

Discussion

Domestic Situation in West Germany

[Here follow numbered paragraphs 6–16 concerning the recent elections in West Germany.]

Economic Situation and Trends

17. One very important factor underlying the high degree of current political stability in West Germany has been its remarkable progress in economic development and international trade. Starting with a heavily damaged industrial base and a very low standard of living, West Germany is now enjoying considerable prosperity and has a sound financial position. This economic progress has absorbed the major energies of the West Germans, has contributed to the weakening of formerly rigid class distinctions, and has greatly enhanced the acceptance of the policies of the Adenauer government. The CDU’s overwhelming victory in the recent election was probably more an endorsement of German prosperity than a measured approval of the specific policies which accompanied it.

18. Both domestically and in foreign trade the West German economic situation in 1956 and early 1957 was exceedingly favorable. The West German gross national product, in terms of purchasing power equivalents, is now about as large as that of the UK, $74.4 billion compared with the UK’s $75.6 billion, and considerably larger that France’s almost $60 billion.³ By 1960, when the Saar is scheduled to return to the German economic area, West Germany’s total GNP will probably exceed that of the UK. West Germany’s per capita consumption in 1956 was slightly lower than that of France and about 10 percent below that of the UK, but it was substantially improved over earlier years. The rapid recovery of West Germany is due to the fact that it invested a significantly higher proportion of its national product than did other West European states. Moreover, while France and the UK struggled with internal inflation and foreign payments problems, West German prices increased only slightly and an export boom was piling up large foreign exchange reserves, which had reached $5.5 billion by August 1957, about 70 percent of it in gold and dollars. However, West Germany’s relative position in Western Europe still falls short of the position of pre-war Germany, both in over-all production and in per capita production and consumption.

19. The recently accelerating trend in the West German surplus to an annual rate of almost $1 billion in the first half of 1957, has been due primarily to expanding demand and inflation in the rest of Western Europe.⁴ The resulting strains on the foreign exchange reserves of other Western European countries, intensified in recent months by capital flights to the Deutsche Mark, may now be brought under control by the French devaluation and more stringent credit restrictions in the UK. In any case the West German government will almost certainly maintain its refusal to appreciate the Deutsche Mark. Its approach rather is to liberalize import duties, to advance the schedule for payment of foreign debt obligations and arms purchases, to make increased restitution payments, and to provide for some export of capital. If these measures plus some anticipated inflation in West Germany fail to correct the imbalance, the Federal Republic hopes that other countries will make the necessary adjustments. If they do not, West Germany will be under increasing pressure to appreciate the Deutsche Mark, relax credit restrictions, and lend more extensively abroad, or suffer trade discrimination.

20. Long-term private capital investment abroad by West Germans is developing slowly. In the year ending June 30, 1957, it amounted to $118 million, mostly in the Western Hemisphere. Private lending in the Middle East and South Asia has consisted mainly of medium-term credits to facilitate the sale of capital equipment and construction goods. West German exports to these latter areas have been expanding steadily for a total of $650 million in 1956, or about 9 percent of all West German exports. The Federal Republic has made two recent loans to the IBRD for a total of $175 million, and this may indicate that further government loans abroad will be made. West Germany is committed to provide $200 million during 1958–62 for the development of the overseas territories of its Common Market partners and may undertake loans to the European Payments Union and to France.

21. There are indications that the rate of economic expansion in West Germany may be slowing down. Some decline was to be expected as the backlog of reconstruction needs was met and the labor situation became tighter. In 1956 real GNP and industrial production increased 6.4 and 8 percent respectively, as compared with gains of 11.2 and 14 percent in 1955. However, in early 1957 West German economic growth accelerated somewhat, as it did in the rest of Western Europe. In large measure, the level of West German economic activity is dependent on conditions in other Western countries, since West German exports total over 30 percent of its industrial production. The continuing growth of the West German economy even at somewhat reduced rates has been due largely to the rising level of its exports.

22. In part the declining rate of growth has been in response to the West German policy of maintaining a tight monetary and financial brake on the economy in order to control inflationary pressures resulting from an already tight labor market. Gross fixed capital investment reached a peak of 23 percent of GNP in 1956, but fell off significantly in the first half of 1957. Authorizations for both industrial and residential construction have declined. The recent reduction in the bank rate was an attempt partially to offset this trend.

Economic Outlook

23. Under the best of circumstances West Germany will encounter greater obstacles to future economic growth. Fully 50 percent of the total population is now employed or self-employed—a higher proportion than in any other Western industrial country. The labor force will grow more slowly during the next five years. Due mainly to low wartime birth rates, annual net accretion to the labor force will decline from the current rate of 700,000 to about 400,000 by 1962. Moreover, the average number of hours worked in manufacturing and building has fallen from 47.7 in early 1955 to 46.7 hours per week in early 1957. Further reductions are likely as the result of already negotiated and pending trade union contracts.

24. West Germany will increasingly encounter some of the inflationary pressures which have bedeviled its Western neighbors. The tight labor market and somewhat more limited opportunities for productivity increases raised West Germany wage costs by 5 percent in 1956; greater restlessness on the part of trade unions indicates that this trend is likely to continue. Recently several large trade unions, including those of the metal workers, have announced their intention to seek higher wages, shorter hours, and greater fringe benefits. Coal prices have been raised by 8 percent since the election and other basic industries may seek to follow suit. In contrast to substantial surpluses in recent years, the federal budget is expected to be in deficit by over $1 billion in the year ending March 31, 1958, as a result of growing defense and social security expenditures. These and other factors point to the likelihood of rising wage costs and an accelerated rise in consumer prices.

25. Because of West Germany’s strong foreign exchange and trade position, it will be able to absorb a considerable amount of inflation without economic strain. However, industrial disputes, pressures on profits, and public sensitivity to inflation may thus come to disturb an otherwise favorable economic and political situation.

[Here follow numbered paragraphs 26–29 concerning “Current Attitudes.”]

East Germany and the Reunification Problem

Soviet Policy Toward Germany

30. Whatever may be the long-term Soviet objective in Germany, it is obvious that during the past year, the Soviet leaders have again slammed the door on reunification and locked and bolted it. If for no other reason than to protect its position in Eastern Europe, the USSR believes that it cannot now afford to give up its control and occupation of East Germany. Over the longer term, perhaps the Soviet leaders have some hope that events will so progress as to give them an opportunity to bring about West Germany’s withdrawal from NATO and heighten responsiveness to Soviet pressures. They will probably continue to show interest in negotiating with the Federal government on matters of common concern, particularly trade, and at the same time probe for weaknesses on larger issues. At the moment the Soviet leaders almost certainly are not giving any thought to permitting the deeply anti-Soviet population of East Germany to be added to that of West Germany on any terms acceptable to the West Germans.

31. Retention of control over East Germany has practical advantages for the USSR, aside from that of denying it to the West, including (a) the application of a vise on Poland through the powerful Soviet military forces stationed in East Germany, (b) the advance positioning of Soviet forces against NATO, and (c) the possibility of exerting continuous political pressure on the Federal Republic through holding 18,000,000 Germans hostage. While the USSR is taking a smaller percentage of East German GNP, it still derives a considerable economic advantage from its position. In addition, the importance of East German uranium must be considered. We believe these advantages outweigh in Soviet eyes the adverse effect of holding down a deeply anti-Communist, anti-Soviet population through a regime devoid of popular support.

32. We believe that the USSR will continue to oppose any scheme for German unification which does not create conditions in central Europe at least as favorable to the Soviet position as those which now obtain through the occupation of Eastern Germany. It seems unlikely, in particular, that the USSR will be genuinely interested in proposals for reunification on the basis of a neutralization of Germany alone. The USSR is probably convinced that the prospect of a neutralized Germany is illusory, that a formally neutral Germany would sooner or later side with the West. The USSR will almost certainly continue to insist on direct negotiations between East Germany and the Federal Republic as a pretext for avoiding serious discussion. The USSR will seize every opportunity to enhance the position and prestige of the East German regime. At the same time the USSR will take all measures, including the suppression by force of popular movements, to maintain the security of its position in East Germany.

33. Similarly the USSR will probably not weaken its present hold on Berlin, although it will probably continue to turn over additional responsibilities to the East German regime. Pressures on West Berlin are almost certain to continue in order to test Western vigilance and resolution, to maintain a security check on allied movements, and to erode the Western position. As more authority is transferred to the GDR, the harassments of Western communications are likely to be stepped up in an attempt to force West Germany and the Western powers to deal with the East German regime. The ousting of the Western Allies will remain a major Soviet objective. To achieve this objective the Kremlin might take harsh action against Berlin if: (a) Western political, psychological, and military strengths eroded sufficiently to encourage Moscow to believe that Western responses would lack unanimity and decisiveness, or (b) the Soviets became convinced that more vigorous actions against West Berlin would divert Western strengths from other areas of critical importance to the Bloc.

The Situation in East Germany

34. The overwhelming majority of East Germans regard the regime of the zonal Communist Party (SED) as alien in its subservience to Soviet interests and have not accepted the “German Democratic Republic” as a separate national entity. Their overriding political aspiration is for reunification and the elimination of Soviet control. Faced with almost universal hatred and contempt, the SED regime has been forced to resort to many techniques for repressing and diverting open hostility, and it has had to forego any change which might be interpreted as a confession of weakness. Hence, the processes of de-Stalinization in other areas of the Bloc have not led to any changes in the SED leadership. Walter Ulbricht, the leader of the party, has remained fanatically loyal to Moscow and his position and repressive policies have been strengthened by Khrushchev’s unqualified public endorsement. Stability in East Germany rests heavily on the presence of Soviet troops and the belief of the populace that these troops would be decisively employed against any attempt to change the political situation by force.

35. Contributing to the basic political discontent is the low standard of living, which we estimate to be less than 75 percent that of West Germany. The people are aware that these conditions are due both to Soviet exploitation and indigenous Communist mismanagement. The Communists have attempted to alleviate economic grievances as one means of avoiding a popular revolt in this highly sensitive area. In order to assist the East German government to maintain economic growth and to provide some concessions to German consumers, the USSR has reduced its exploitation considerably and is providing goods and foreign exchange to the zone on a loan basis. The result has been some improvement in living standards and a reduction in the population’s irritability. However, the economic situation of the zone is likely to remain depressed in spite of a possible increase in Soviet assistance. The USSR is not willing to undertake assistance on a sufficient scale markedly to improve the situation in the next few years and the SED regime lacks the flexibility and resources to do so on its own. A factor contributing to the depressed situation has been the continuous loss of manpower due to the flight of almost 300,000 refugees annually to the Federal Republic since 1953.

36. Although the East Germans have little or no loyalty to their own regime, a majority appear to be socialist in orientation. In any reunification they would probably attempt to salvage some of the social changes—land reform, nationalization of large-scale industry, and the enhanced status of the workers relative to other East German groups—which they believe have been the only accomplishments of the occupation regime. Although these attitudes have lent some plausibility to the Soviet proposal for the reunification of the “two Germanys” on a “confederative basis,” the East Germans by and large recognize that the Soviets are using this formula as a device for perpetuating their control of East Germany.

37. A widespread East German revolt seems unlikely in the next few years, although there is always the possibility of spontaneous outbreaks, particularly if there were uprisings elsewhere in the Satellite area. The population is aware, both through their own experience and by viewing the example of Hungary, that resort to force would prove abortive, if not disastrous. Moreover, it seems clear that the SED leaders, whose personal and political survival would be at stake, would assist in repressing disorders without mercy. They would probably consider the East German forces unreliable and would therefore depend almost entirely upon Soviet forces.

38. While the present Soviet position on East Germany appears frozen, it is possible that the Kremlin will make changes in the leadership of the East German regime in an attempt to give it an appearance of respectability. Such alterations would be made only with due regard to the Soviet security position in Poland. Such a move would be designed to increase the chances for broadened international recognition of the East German regime and its acceptability within East Germany. Although the Soviets probably regard the present West German government as unlikely to make substantial concessions on reunification, such changes in East German leadership would have the effect of placing Bonn in a less advantageous position.

[Here follow numbered paragraphs 39–66 concerning “Lines of Development in West German Foreign Policy.”]

1. Source: Department of State, INR–NIE Files. Secret. A note on the cover sheet reads:

   “Submitted by the Director of Central Intelligence.

   “The following intelligence organizations participated in the preparation of this estimate: The Central Intelligence Agency and the intelligence organizations of the Departments of State, the Army, the Navy, the Air Force, and The Joint Staff.

   “Concurred in by the Intelligence Advisory Committee on 5 November 1957. Concurring were the Director of Intelligence and Research, Department of State; the Assistant Chief of Staff, Intelligence, Department of the Army; the Director of Naval Intelligence; the Assistant Chief of Staff, Intelligence, USAF; and the Deputy Director for Intelligence, The Joint Staff. The Atomic Energy Commission Representative to the IAC and the Assistant Director, Federal Bureau of Investigation, abstained, the subject being outside of their jurisdiction.”

2. A notation on the source text indicates that NIE 23–57 superseded NIE 23–56, Document 48.
3. Estimate for 1956 on the basis of 1955 US prices. Figure for West Germany adjusted to include West Berlin. [Footnote in the source text.]
4. A footnote in the source text containing a table entitled “West Germany’s Foreign Trade” is not printed.