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Market Focus : Germany Certain to Emerge as Colossus of a Realigned Eastern Europe : It is better positioned to participate in the revival of former Communist Bloc countries than any other power.

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TIMES STAFF WRITER

Conventional wisdom has it that the Germans may become so preoccupied reconstructing the eastern half of their soon-to-be-unified country that the powerful economic sway they have exercised in the rest of the old East Bloc could suffer.

There are strong signs, however, that indicate otherwise.

“We’re beginning a time when it couldn’t be better for us Germans,” declared Heinrich Machowski, an Eastern Europe specialist at the German Institute for Economic Research here.

Indeed, Germany’s continued powerful influence may be all that’s really certain about East Europe’s near-term economic future.

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Among the reasons why:

* Of all the Western economies, none are in a better postion than Germany to participate in the revival of Eastern Europe. As command economies fall, German business contacts extending back to czarist times in the Soviet Union--and a shared Middle European outlook with the Czechoslovaks, Poles and Hungarians--give them an enormous marketing advantage.

Delivery distances are short and German is, de facto, the lingua franca of business in many parts of the region.

* With American banks still smarting from their Latin American experience, West German financial institutions, led by the powerful Deutsche Bank, already dominate the region. Their influence in directing investment will be considerable.

Advisers from the federal Bundesbank now assist East European central banks, further extending German influence in these countries as they move toward convertable currencies and market economies.

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* While West German industry, already working at nearly full capacity, is certain to channel much of its energy into reviving East Germany over the next year or so, defense-related capacity is likely to free up and could be reshaped to meet the future demands of Eastern Europe.

* With East Germany, a united Germany inherits a wealth of knowledge, experience and existing markets in Eastern Europe, especially with the Soviet Union.

Specific enterprises such as the Carl-Zeiss Jena optics works of the Robtron electronics combine are key suppliers of high technology to the Soviet Union, while about 40% of all agricultural machinery, a third of all pharmaceuticals and a fifth of all machine tools imported by Moscow today come from East Germany.

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This is unlikely to change in the short term.

West German Chancellor Helmut Kohl and his East German counterpart, Lothar de Maiziere, have both assured anxious Soviet leaders that a united Germany plans to honor East Germany’s existing trade commitments--even if it means extending production of obsolete goods that cannot be marketed elsewhere.

Such a pledge is a double plus for the Germans. It eases relations with Moscow yet ensures the jobs of hundreds of thousands of East German industrial workers at a time when millions of others may become jobless in the face of competition from the West.

* Moscow is pressing Bonn for money and technical help--lots of it--as the price for a quick Soviet endorsement of German unity and relinquishment of its rights in Berlin and Germany that still linger as the result of victory in World War II.

While Soviet pride makes any official, direct quid pro quo unlikely, such help is likely to come in the form of economic assistance or credits, either of which would add further impetus to a German-Soviet economic relationship already rich in potential.

Even before last fall’s collapse of communism, West Germany was well entrenched in the East, responsible for 20% of all Moscow’s trade with the West and more than half of Poland’s joint ventures with Western companies.

Last summer, as Hungarian Foreign Minister Gyula Horn ordered the first hole cut in the Iron Curtain, Hungarian enterprises had 200 joint ventures with West German firms, compared to 20 with American, six with French and about 10 with Japanese firms.

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Since the autumn of 1988, the West German government has also extended large deutschemark credit lines to Poland, Hungary and the Soviet Union.

(For West Germany, a country that vies with the United States as the world’s largest exporter, Eastern Europe remains small beer. Total West German trade with the region may have jumped 16% last year to $843 million, but this still amounted to less than half the country’s trade with Italy.

(Two-thirds of East Germany’s $55 billion foreign trade, however, is with members of the crumbling, Soviet-led Comecon trading bloc.)

While strong cultural, historic and geographic advantages all pull the likes of Krupp, Daimler-Benz and machine tool builder Liebherr East, other elements also play a role.

The Germans are particularly well-suited to East European conditions, tending to accept even marginal profits in order to gain a sales foothold. Unlike most American companies, West Germans are frequently content to wait five to eight years for decent returns.

Such patience is important, because few of those familiar with present conditions in Eastern Europe predict any quick killings.

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In recent months, the Eastern European market, long renowned as tough, has become only more hazardous.

One warning sign: The Soviet Union and its Comecon allies already labor under a collective hard currency debt of $130 billion before the serious business of restructuring antique, inefficient industries has even begun.

Bulgaria has suspended foreign debt payment, Poland struggles under the weight of large Western loans and for the first time the Soviets have also fallen about $6 billion behind in payments to the West.

During a recent visit to Moscow, one of German industry’s leading figures in dealing with eastern business, Otto Wolff von Amerognen, with West German Economics Minister Helmut Haussmann at his side, had to prod Moscow to pay overdue bills.

“There’s no easy money from Eastern economies,” said Machowski.

West German bankers, businessmen and economists predict an extremely difficult, possibly unstable, transition period in which old state-owned economies are forced to adjust to Western competition, shed manpower and scrap obsolete plants and build new ones.

“We’re looking at five hard years,” predicted Karsten Oschmann, an East Europe trade expert at the Cologne-based German Industry Assn. “This is a medium- to long-term market.”

Current uncertainty makes even vague estimates of future market size virtually meaningless.

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Says Machowski, “No one knows how expensive the transition is going to be or how long it’s going to take, but if you look into the 21st Century, it’s easier to predict.”

His scenario: A European Community, with Germany as the economic locomotive, will develop extremely close relations with the East, probably forging a free trade agreement, such as the United States now has with Canada, rather than full community membership.

A slightly more distant, yet important, economic relationship will also develop between the Soviet Union and the EC as limits on technology transfers from West to East begin to melt in the new spirit of international cooperation and a radical overhaul of the Soviet economy begins.

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