East Germany disputes its status as the most polluted country in Europe

East Germany finally admits it is choking in pollution. But it is too poor to clean up. This is the dilemma facing the (East) German Democratic Republic as it celebrates the gala 35th anniversary of its founding this week.

A UN report six months ago identified East Germany as the most polluted country in Europe. East Germany is the third largest source of sulfur dioxide in Europe (after the Soviet Union and Britain); the German Economic Institute in West Berlin calculates that East German sulfur dioxide emissions have reached at least 46 tons annually per square kilometer, or triple West German levels.

A good half of this foul air is concentrated in the industrialized flatlands around Leipzig and Halle. Forests are dying in East Germany at an alarming rate, as they are in West Germany, Czechoslovakia, and elsewhere in Central Europe.

Clean water is also a major problem for East Germany. Geological conditions make for poor supply and storage, and East Germany uses its water more intensively than any other country in the world. It recycles substantial amounts nine or ten times for industrial use; in the end the water is just too filthy to process again.

The government disputes the UN ranking but has begun to take pollution seriously. In the 1980s it has stopped arguing that since socialism has solved all social relations through worker ownership of the means of production, pollution is exclusively a capitalist problem.

Now it says instead, in the words of Frank Herrmann, chemical engineer and head of environmental protection in the Environment Ministry, that wherever you have production you have pollution. But a sense of ecological urgency has not yet progressed beyond the stage of good intentions to the stage of winning scarce investment funds to counter pollution.

Environmental protection was enshrined in the Constitution in 1968; a separate Ministry of Environmental Protection and Water Management was set up in 1971; fines were levied for excess industrial water, smoke, and gas emissions in the 1970s; and 7 million marks (about $3 million) were set aside for an ecological program in the 1971-75 five-year plan. In the 1980s further exemplary laws have been enacted curtailing waste disposal.

But the environment has not had a funded program of its own in the last two five-year plans. And the drive to fill production plans all too often leads factory managers to ignore pollution regulations and just pay the fine.

Nonetheless, the environment is acquiring greater priority. The GDR pledged at the Munich environmental conference last spring to reduce its sulfur dioxide emissions by 30 percent in the next decade. Sulfur dioxide discharge from industry and nitric oxides in car exhaust have been identified in various studies as prime contributors to the epidemic dying of forests in Central Europe.

Sulfur dioxide is indeed the crucial issue, Mr. Herrmann agrees. The resources-poor GDR depends on native brown coal for 82 percent of its electricity generation, and it has a high sulfur content. Some 4 million tons of sulfur dioxide belched out of East German smokestacks in 1970 and will probably do so again in 1985, the German Economic Institute says. Herrmann disputes this projection and anticipates a slight reduction in sulfur dioxide levels next year.

Then how can East Germany hope to cut sulfur dioxide by 30 percent by 1993?

First, by putting a limestone additive in brown coal furnaces, Herrmann says. Such an apparatus is to be required in all new power plants.

Skeptical West German experts say the new limestone scrubbers to be installed in the new Buschhaus power plant in West Germany will screen out sulfur byproducts more effectively. They hope East Berlin will purchase this technology during the next five-year plan.

A second East German measure entails some decrease in the share of brown coal power generation, primarily by increasing nuclear production, which now accounts for some 12 percent of electricity generation here. The use of brown coal, which has progressively replaced oil in the 1980s, has peaked, according to Herrmann.

Western economists say, however, that East German extraction of brown coal will rise from last year's 278 million tons to 300 million tons by 1990. They expect a continued increase in East German sulfur dioxide pollution.

A third means of reducing pollution involves conservation and recycling efforts. Here East Germany got a head start on West Germany. Recent planning guidelines for factories try to reward efficient use of resources more than in the past; these kept energy consumption growth below GNP growth last year and procured 11.5 percent of industrial raw materials from secondary recovery.

In trying to minimize emissions of nitric oxides the GDR relies primarily on speed limits. It has no plans to introduce compulsory use of catalyzers.

In a Europe where borders are so close, defense against air pollution must be a supranational venture. The GDR has stepped up multilateral and bilateral environmental cooperation, especially with West Germany. West German specialists estimate that East and West Germany pollute each other in about equal amounts.

The two countries have never signed a comprehensive environment treaty, since East Germany protests the 1974 establishment by West Germany of its Federal Environmental Office in West Berlin. But concrete practical agreements have been signed, such as last fall's arrangement for West German funding (at 18 million marks or about $6 million) of an East German sewage plant on the Roden River. In the case of other rivers that flow from East into West Germany, East Berlin would be happy to implement any further cleanups for which Bonn would pay.

Bonn is reluctant to commit large sums to such projects, however, since domestically it holds to the principle of ''the polluter pays.''