Calculated Risks

WESTERN EUROPE

Western Europeans long ago settled the issue of whether to trade with Eastern Europe and the Soviet Union. Last year their transactions through the Iron Curtain amounted to $3 billion--and they are scrambling for more. The new argument, which divides governments and stirs the competitive instincts of businessmen, is what credits should be granted to cover all this trade. Pressure is mounting for Western European governments to trust Communist countries with easy, long-term credit instead of demanding, as in the past, repayment in five years or less. Despite U.S. and West German protests, Britain and Italy have already given in to long-term credits, and the French government last week appeared ready to back a seven-year loan to Russia. Of all the major European trading nations, West Germany alone is still holding out.

One reason that the West has held off this long is the Berne Union, a gentleman's agreement among trade insurers of 20 industrial nations not to extend export credit on terms longer than five years. Over the years, countless exceptions were made, but never to Communist countries. Then, in June, the British government agreed to guarantee a twelve-year credit of $10 million to Czechoslovakia for a fertilizer plant--and that set the precedent. Since then, Britain has opened negotiations for a $112 million, 15-year credit so that Russia can buy a prefabricated chemical plant. Italy granted a ten-year credit to the Czechs for a metal-galvanizing plant. Not to be outdone, a powerful consortium of French banks recently arranged to grant the Soviets $380 million worth of seven-year credits, pending almost certain approval by the French government.

Considering the danger of a turn for the worse in East-West relations, such long-term credits are a definite gamble. Yet Western businessmen are eager to take the risk to get a firm toe hold in the potentially enormous market in Russia and its European satellites. So far, one of the main attractions has been Nikita Khrushchev's seven-year program to spend $42 billion developing Russia's lagging chemical industry. Even the West German government is under considerable pressure from businessmen to yield to such commercial temptations. Says Berthold Beitz, Krupp's general manager: "We are excluding ourselves from this big market in the future unless we offer the same terms as our Western competitors do." And Russian trade commissars, knowing a good ploy when they see it, are hopping from capital to capital with a not-so-subtle threat: either extend long-term credit or no deal.

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