Germanys Sign Treaty to Merge : Unification: The historic pact to combine economic, social and monetary systems goes into effect July 2. Still at issue is the new nation’s military status.

East and West Germany signed a historic treaty Friday outlining the terms for reunification, hailing it as “the birth of a free and united Germany” after 45 years of bitter and bloody division.

The pact merging the two countries’ economic, social and monetary systems goes into effect July 2 after its expected ratification in coming weeks by the respective parliaments of the two Germanys.

A date must then be set for an election to choose a common government that will complete the process of making Germany a single nation once more.

With financing basically agreed upon, the toughest issue still looming is that of military status for the new Germany. The Soviet Union opposes membership in the North Atlantic Treaty Organization in favor of neutrality, and has frozen its unilateral withdrawal of troops from East Germany until the question is resolved to Moscow’s satisfaction.

Friday’s decidedly low-key ceremony in the West German capital came 190 days after the Berlin Wall fell on a joyous November night that changed the face of Europe.

The treaty is the first cornerstone in forming a united Germany under Article 23 of the West German constitution, which allows “other parts of Germany” to join the Federal Republic. Covering issues ranging from pensions and health insurance to computer sabotage, it amounts to both a marriage license and a death warrant for the two Germanys that emerged from the defeat of the Nazi state in World War II.

It marks “the actual realization of German unity” and makes the process now “irreversible,” said East German Prime Minister Lothar de Maiziere, who along with West German Chancellor Helmut Kohl witnessed the treaty’s signing by finance ministers from both sides.

Kohl, taking the podium first to address the 50 guests from both governments, at one point used the emotionally charged word, vaterland, or “fatherland,” to describe a united Germany, and spoke of a “new epoch in European history.”

“What we are today witnessing is the hour of birth of a free and united Germany,” he said. “Before the eyes of the world, representatives of the freely elected governments of both sides of Germany testify to their desire, as one people, as one nation, to place their future in one free and democratic country.”

He praised the East Germans for their courage to change, and declared that “the time has come to an end when people in the middle of Germany are tortured and killed in Stalinist camps, in jails and penitentiaries, or when they lose their lives trying to overcome walls and barbed wire.”

Kohl appeared elated but tired after a one-day trip to Washington, where he briefed President Bush on the progress of German unity. Bush issued an emphatic statement after the meeting, saying he and Kohl agreed that once Germany is united, it should be a member of NATO and that the jurisdictional rights of the four victorious World War II powers, such as their authority over Berlin, should be ended.

In exchange for adopting free-market principles and scrapping its Communist, centrally planned economy, East Germany will receive massive financial aid and expert help from West Germany, which enjoys a robust economy and a much higher standard of living.

Broadcast live on both East and West German television, the 25-minute ceremony in the Palais Schaumburg did not trigger any wild celebration reminiscent of those seen Nov. 9, when the Wall was opened.

Both Kohl and De Maiziere, in their prepared statements, instead sought to reassure a public that has grown increasingly anxious about the financial and social impact of German unification.

Although opinion polls still show that a clear majority of West Germany’s estimated 62 million people and East Germany’s 16 million favor the merger, many worry about the massive inflation, unemployment and tax increase that may result from it.

No one has been able to put a firm price tag on the cost of unification, but it is expected to run into hundreds of billions of dollars, since 40 years of Stalinist dictatorship have left East Germany’s economy, environment and industry in virtual ruins.

Two days before signing the treaty, Bonn set up a $70-billion German Unity Fund to help with the reconstruction of East Germany.

Communication, transportation, utility and health care systems are in dire need of modernization. People routinely had to wait a decade or more for a poorly manufactured car or telephone under the oppressive Communist regime ousted during a bloodless revolution last fall.

Former Communist leader Erich Honecker and his top lieutenants have been charged with corruption and misuse of power, but no trials have been scheduled and prosecutors have indicated that the men may be too old or sickly to defend themselves.

When the new treaty goes into effect July 2, East German marks will be replaced with the powerful deutschemark at a rate of 1 to 1 for wages, pensions and small savings, with almost everything else netting one West mark for every two East marks. All monetary affairs will fall under the control of the West German central bank, the Bundesbank.

East Germany promises under the treaty to sell off state-owned property to help cover the reunification costs, a concession that De Maiziere’s government reportedly was reluctant to make out of concern that wealthy Westerners will snap everything up.

East Berlin instead had hoped for an agreement permitting long-term leases in place of outright property sales, but Kohl has stressed the need to give private investors incentive to pour money into East Germany, and sees such private investment playing a key role in reconstruction.

De Maiziere noted that the treaty represents “a compromise,” and admitted that it cannot fulfill all East German dreams.

“But no one will be worse off than before,” he promised.

The East German prime minister drew a burst of hearty applause from the small audience, including a beaming Kohl, when he said: “Us and Them, This Side and That Side, Westies and Easties--these and similar terms will soon vanish from the vernacular.”

Westies and Easties are the slang terms East and West Germans use for one another.

Side by side, the two leaders seemed to almost physically symbolize the difference between their two homelands, with the hulking Kohl dwarfing the diminutive De Maiziere. Kohl grinned broadly throughout much of the ceremony and applauded loudly afterward; De Maiziere smiled nervously and leafed through papers in his lap.

On the wall behind the podium hung a priceless tapestry called “Two Ships in a Storm.” One was safely approaching shore while the other was aflame in the middle of the tempest.

Once West German Finance Minister Theo Waigel and his East German counterpart, Walter Romberg, signed the documents with fountain pens at a Chippendale desk, the group moved outside to clink champagne glasses on the sun-drenched terrace.

Talking to reporters, Kohl nodded toward the river rushing past below him.

“There flows the Rhine,” he said. “It streams along its way, seeking the sea. Naturally you can stem its flow or make it detour, and that would create much trouble on the river banks.

“But the water reaches the sea,” he concluded. “And that’s also how it is with the current of German history.”