East and West Germany OK Pact on Monetary Union : Reunification: It represents the first milestone in their march to one nation. A favorable 1-to-1 exchange rate will apply in some cases.

BONN —  After only 10 days of negotiations, the two Germanys agreed Wednesday on terms of a currency union that will bring the much-valued West German deutschemark to East German wage earners, pensioners and small savers at a highly favorable 1-to-1 exchange rate.

In most other areas, little-wanted East German ostmarks will be exchanged for deutschemarks at a rate of 2 to 1.

The accord, announced in both Bonn and East Berlin, concluded the first significant step toward German unification and increased expectations that the two Germanys will be able to keep to their fast-paced timetable for unity, which requires agreement on a formal state treaty on economic, currency and social union before mid-May.

“We announced in the parliamentary debate last Friday we wanted to reach agreement on the essential points of the currency conversion by the beginning of May, (and) we have kept to this,” Rudolf Seiters, West German Chancellor Helmut Kohl’s chief of staff, told a news conference.

The accord also constituted an important compromise, overcoming the first major disagreement between Bonn and East Berlin on the terms of unity.

East Germans took to the streets last month calling for a general 1-to-1 exchange rate, a demand the country’s newly elected prime minister, Lothar De Maiziere, took into the negotiations.

West Germany’s financially conservative central bank, the Bundesbank, had advocated a 2-to-1 exchange rate, while Kohl, whose campaign rhetoric had awakened East German expectations, struggled to find a compromise.

With minor adjustments, Wednesday’s agreement largely reflects Kohl’s April 23 proposal to exchange East German wages, salaries and pensions at the 1-to-1 rate, an offer Bonn government officials had described as “the outer limits” of what was possible without endangering the stability of the deutschemark, one of the world’s benchmark currencies.

Credits, loans and other transactions, including those of travelers, will be subject to the 2-to-1 rate.

In one of the few significant changes, East German pensioners will be allowed to change savings of up to $3,750, instead of just $2,500, at the 1-to-1 rate, while the limit for children under 14 was reduced to $1,250 from $2,500. Those aged 15 to 59 may change up to $2,500 at the 1-to-1 rate.

Like most East European currencies, the ostmark has never been freely convertible. Since shortly after the Berlin Wall crumbled last November, tourists and business people have exchanged it at an arbitrary rate of 3 to 1.

Guenter Krause, a state secretary in De Maiziere’s office who served as East Germany’s chief negotiator, called the agreement a good solution that goes well beyond campaign promises.

“We didn’t have to cave in,” he said. “We have negotiated to find a solution satisfactory to both East and West Germans.”

The terms of that initial proposal were sharply criticized by the Bundesbank as generous to the point of being potentially dangerous for the deutschemark.

A Bundesbank spokesman in Frankfurt on Wednesday declined to elaborate on the agreement, stating only that the bank’s vice president, Helmut Schlesinger, had been present during the negotiations and that the bank had approved the final accord.

West Germany’s chief negotiator, Hans Tietmeyer, a Bundesbank director temporarily assigned to the federal chancellery, said the agreement was based on the need to ensure social and economic development in both Germanys and to protect the deutschemark’s stability.

The real cost of the currency union is virtually impossible to estimate, in part because there is

no accurate assessment of East Germany’s wealth.

Tietmeyer said, for example, that estimates of East German state-owned property varied between 30 billion and 800 billion ostmarks. He said proceeds from the sale of these assets would be used to restructure the East German economy and balance the state budget.

The currency agreement is a key element of a proposed state treaty governing the broad range of economic and social affairs in addition to monetary union. Both Germanys want to implement the treaty by July 1, ostensibly to prevent another flood of East German refugees to West Germany during the summer holiday period.

However, other considerations also drive the pace of events.

Kohl and De Maiziere, both members of the moderate-right Christian Democratic Party, are believed to be pushing to reach a basic agreement on the treaty by Friday, in advance of Sunday’s local elections in East Germany. Such an achievement would provide their party an important boost in the second free elections in two months in East Germany.

But West German government sources have indicated they also want to push the pace of unity as a means of nudging the Soviet Union to move forward in talks involving the two Germanys and the four victorious World War II powers on the external security considerations of unity.

Moscow, obviously unsettled by the prospect of German unification, seems uncertain how to approach the talks.

In an apparent attempt to dampen Soviet concerns, Tietmeyer said Wednesday that East Germany’s foreign trade commitments would be guaranteed under terms of German unity. East Germany is one of Moscow’s most important suppliers of high technology.

NEXT STEP

The agreement on monetary union concluded the first major step in the reunification of East and West Germany. But a number of issues must be resolved before full unity, expected sometime next year. On Saturday, the four victorious wartime Allies--the United States, the Soviet Union, Britain and France--and East and West Germany will meet in Bonn for the so-called two-plus-four talks to discuss the international ramifications of German unity. A major dispute involves a united Germany’s status in NATO. The Western powers want Germany to remain in the North Atlantic Treaty Organization, but the Soviet Union prefers a neutral nation.

Times staff writer Tamara Jones, in East Berlin, contributed to this story.

TERMS OF THE UNION

Here are some main points of the agreement Wednesday between East and West Germany on monetary union: DATE: Monetary union will become effective July 2. Until then and effective at once, the official exchange rate for West Germans and foreigners going to East Germany will be 2 ostmarks for 1 deutschemark, replacing the 3-to-1 rate. SAVINGS: East Germans aged 14 and under will be able to convert up to $1,250 at 1-1. Those aged 15 to 59 will be able to convert $2,500 at 1-1, and people over 60 up to $3,750. All other savings will be converted at 2-to-1 rate. SALARIES: Converted at 1-to-1 rate. PENSIONS: East German pensions will be brought to West German levels, meaning most will be raised. RENTS: Converted at 1-to-1 rate. DEBTS: Converted at 2-to-1 rate, more favorable to ailing East German firms.