THE PRESIDENT'S DAILY BRIEF 3 OCTOBER 1975

• Document Type: FOIA
• Collection: President's Daily Brief 1969-1977
• Document Number (FOIA) /ESDN (CREST): 0006014918
• Release Decision: RIPPUB
• Original Classification: T
• Document Page Count: 13
• Document Creation Date: August 14, 2016
• Document Release Date: August 24, 2016
• Publication Date: October 3, 1975

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The President's Daily Brief
October 3, 1975
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Exempt from general
declassification schedule of E.O. 11652
exemption category, 5/1( 11,(2),(3)
deelassified onto', on approval of
the Director of Central Intelligence
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October 3, 1975
Table of ' Contents
Lebanon: The security situation in Beirut improved
yesterday after a night of clashes between
Christian and Muslim militiamen. (Page 1)
Egypt-USSR: Our embassy in Cairo has provided an
assessment of President Sadat's motives in at-
tacking the Soviets. (Page 3)
Notes: EC-Portugal; Morocco - Spanish Sahara
(Page 5)
At Annex we present a discussion of West German
Chancellor Schmidt's economic and political
policies
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LEBANON
The security situation in Beirut
improved yesterday after a night of
clashes and sniper fire between Chris-
tian and Muslim militiamen in the south-
ern suburbs. Lebanese security forces
took over positions of the Christian
Phalanges Party in those areas and were
attempting to work out a similar agree-
ment with Muslim and leftist elements.
Palestine Liberation Organization officials re-
portedly blame the fedayeen "rejectionist" organiza-
tion, the Popular Front for the Liberation of Pales-
tine-General Command, for the incident that began the
most recent fighting and wave of kidnapings. The
"rejectionists" and the Lebanese leftists apparently
believe that continued violence will result in the
establishment of a regime more sympathetic to their
interests.
The future of the national reconciliation com-
mittee continues to be in doubt. Moderate Muslim
leader Saeb Salam has joined Christian moderate
Raymond Edde in announcing that he is reconsidering
his membership in the group. Their move is appar-
ently part of an effort to force the resignation of
President Franjiyah--a step both have publicly called
for. Salam indicated that the move was not aimed at
either Prime Minister Karami or Interior Minister
Shamun.
Edde and Salam are members, along with Karami,
of a centrist alliance of Lebanese parliamentary
deputies. Edde, as a Christian Maronite, considers
himself a candidate to succeed Franjiyah should the
latter resign before his term expires next August.
(continued)
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Because of Franjiyah's close identification with
the hard-line Phalangist position, Lebanese moder-
ates, both Christians and Muslims, see the resigna-
tion of the President as a necessary step in the
achievement of a compromise whereby the Christians
would cede some political and economic power to the
Muslims.
Without fanfare, Prime Minister Karami has
given the army a larger role in preventing further
flare-ups. He is moving cautiously, however, to
avoid the political controversy that abrupt military
intervention would excite. Lebanese Muslims believe
that the army, whose senior officers are mostly
Christian, would inevitably side with the Phalan-
gists if it became directly involved in any further
fighting. The army's new mission is restricted to
protection of main lines of communication and re-
lief of civilian security forces stationed in out-
lying areas to free them for service in enforcing
the cease-fire in Beirut and Tripoli.
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EGYPT-USSR
Our embassy in Cairo has provided
an assessment of President Sadat's
motives in so harshly attacking the So-
viets, as well as a review of the rela-
tive strengths and weaknesses of the
Egyptians and the Soviets in their deal-
ings with each other.
Sadat's distrust of Moscow has clearly reached
the scale of a personal phobia. He has concluded--
and said as much publicly--that the Soviets not
only want to replace him as president, but also
that their policy of pressure on Egypt during the
past ten years has been a contrived strategy to
prevent Egypt from becoming strong and therefore
immune to Soviet pressure. As long as Sadat is in
power, Egypt is unlikely to enter into new under-
takings with the USSR if these require acceptance
of Moscow's good faith. The exception would be if
the US should let him down. In that case, Sadat
might have to eat crow.
The question that intrigues diplomatic observ-
ers is what Sadat expects to gain--other than en-
hanced popularity--from constant public irritation
of the Soviets.
Without adequate spare parts for Egyptian
military equipment supplied by the Soviets, the
armed forces would soon be, or may already be, in
a bad way. Egypt's military imbalance with Israel
is already unfavorable, and reports of massive US
arms aid to Israel have created major problems
for Sadat.
As Egypt's military inferiority becomes more
obvious, Sadat's protestations that he has not made
a separate peace will lose any semblance of credi-
bility. Potentially more dangerous is the probable
adverse reaction within the Egyptian military to
a continuing shortage of new arms and spare parts
in the face of Israel's growing power.
/the USSR imports large
quantities of Egyptian agricultural and industrial
products and that a great many poor Egyptians would
be hurt if the Soviets were to stop these imports.
(continued)
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the Soviet market
is important for Egyptian cotton\ if bi-
lateral trade were to cease, Cairo would have to
seek essential raw materials, now obtained from the
USSR and Eastern Europe, in hard currency markets.
This would be a severe blow to Egypt's already dis-
mal foreign currency situation.
The Soviets pose an internal threat through
their influence with both underground communists
and the labor and student movements. This is,
however, a threat that Egyptian security authorities
monitor carefully. Party members and communist-
influenced organizations are not believed to be
sufficiently influential to threaten Sadat on their
own, but they could play a crucial role in exploit-
ing social and economic grievances.
In the face of this very substantial Soviet
capability to damage Egypt, what weight can Sadat
bring to bear on the USSR to prevent further Soviet
action and still obtain what he needs from Moscow?
There is first Egypt's pivotal role in Arab
affairs and in the Arab-Israeli conflict. Sadat
probably reasons that, unless the Soviets decide to
opt out of the Middle East, they cannot risk a com-
plete rupture with Egypt.
Sadat has also been careful not to eliminate
the most important remaining Soviet interest--con-
tinued use of naval facilities at Alexandria. The
Soviets enjoy no other port facilities in the Med-
iterranean comparable to those in Alexandria and
are presumably willing to put up with verbal abuse
in order to keep them.
Finally, the Soviets would appear to have a
strong interest in maintaining the most extensive
presence they can inside Egypt in the hope that,
by design or by accident, they will soon see Sadat
replaced.
On balance, both parties have a considerable
interest in avoiding a further deterioration of
relations.
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NOTES
EC foreign ministers are expected to approve
on Monday a program of economic assistance for Por-
tugal.
The ministers have invited Portuguese Foreign
Minister Antunes to Luxembourg on Tuesday to discuss
an initial aid package that will probably total
about $200 million in loans from the European Invest-
ment Bank over a two-year period. The loans will be
tied to specific project proposals. EC recognition
of Lisbon's moves toward "pluralist democracy" is
likely to pave the way for assistance from West Ger-
many and the Netherlands.
Morocco
ish Sahara
Span-
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WEST GERMANY
During his first 18 months in
office, Chancellor Schmidt estab-
lished himself as the most active
European leader in international
diplomacy. Today, however, economic
problems are causing some anxiety,
and Schmidt has had to pay attention
to domestic concerns. German voters,
accustomed to sustained economic
growth and low unemployment, are in-
creasingly disturbed that Schmidt has
not yet reversed the recession. Un-
employment remains at 1.1 million,
the highest in 20 years, and could
reach 1.5 million this winter. De-
spite the economic problems, Schmidt's
Social Democrats and their coalition
partners, the Free Democrats, have a
solid majority in parliament. Con-
sumer prices in August were only 5.9
percent higher than a year ago, the
lowest in the industrialized world,
and there are few signs of social
unrest.
Schmidt's program to get the country's stagnant
economy on the upswing is a mixed bag. In August,
he proposed anti-recession measures by ticketing
$2 billion for housing and construction. At the
same time, he began to look for ways to cut the
federal deficit which will reach about $16 billion
this year--equal to three percent of the GNP--and
threatens to increase again next year. He is seek-
ing parliamentary approval for selective tax in-
creases and limiting spending increases to cut the
deficit to $4 billion by 1979.
The opposition Christian Democrats argue that
this belt-tightening is not enough but, so far, have
been unwilling to specify what further cuts they
favor. Their reluctance stems partly from their
fear that additional cuts might have to come out of
the defense budget and social welfare programs--
areas that could cost them votes. The Christian
Democrats reject Schmidt's proposal to increase
taxes on wages next year and a 2-percent increase
in the value added tax to 13 percent in 1977. They
want tax breaks for industry to stimulate invest-
ment and employment.
(continued)
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Political Side-Effects
Conflicting pressures for austerity and pump-
priming complicate Schmidt's standing within his
party and with the trade unions. The party's left
wing is disturbed that the government's tight budg-
etary policy continues to postpone implementing the
social reforms, promised by Schmidt's predecessor,
Willy Brandt. Trade union leaders at present sup-
port Schmidt's austerity program, largely because
the government also opposes wage and price controls,
but if tax breaks are granted to industry this could
unleash demands for wage increases from union rank
and file.
The Chancellor may face some criticism from
the left wing at the annual party congress in Mann-
heim next month. But with the support of Brandt,
who now seems content with his role as party chair-
man, Schmidt should encounter no serious challenge
to his leadership. His popularity with voters is
higher than that of the party, which lost seats in
all six state elections this past year, including
Bremen last Sunday. The losses would have been even
greater were it not for Schmidt's dynamic leader-
ship. Most Social Democrats realize that Schmidt's
conservative style lubricates the coalition with
the Free Democrats, and that he must head the party's
ticket next year if the Socialists are to win.
Relations with Washington
The Chancellor believes that his chances for
reelection will depend, to a large extent, on an
upswing in the US economy that presumably will trig-
ger a corresponding improvement throughout the in-
dustrial world and increase demand for German goods.
Schmidt accordingly favors proposals to increase
coordination among the four or five leading Western
industrial states on fiscal and monetary policy, but
he wants to avoid institutional forums that probably
would antagonize the smaller members of the Euro-
pean Community.
While in Washington, he may want to explore
whether US officials plan any further anti-reces-
sionary measures. He feels that Washington is
overly concerned with inflation and is following
excessively restrictive monetary and fiscal policies.
(continued)
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The Schmidt government views high US interest rates
as a harbinger of future measures that will slow
the pace of US expansion. Additionally, he will
contend that the gap between US and West German in-
terest rates--6.8 percent versus 3.8 percent for
respective short-term rates--is helping to frustrate
Bundesbank attempts to stimulate the economy.
Cuts in the German discount rate have done more
to trigger capital flows out of marks into dollars
than to boost domestic investment. This phenomenon
is part of the general problem of the volatility of
the dollar-Deutsche mark exchange rate, a problem of
considerable concern to the Chancellor.
Any renewed calls by Schmidt for synchronizing
recovery efforts, however, will ring hollow, given
his intention to raise taxes and cut government
spending for next year. For the moment, his pro-
gram reflects a judgment that the long-run dangers
of large government deficits are greater than the
political and economic costs of the current reces-
sion. He counts on Washington to take the lead in
anti-recession policy.
Schmidt also views the financial difficulties
of New York City with trepidation. He fears that
a default on NYC bonds could send shock waves
throughout international capital markets. Collapse
of the Herstatt bank last year and its repercus-
sions still are fresh in his mind. The Chancellor
will diplomatically seek information on Washington's
plans.
Schmidt devotes little attention to defense
issues. He and Defense Minister Leber, neverthe-
less, share a strong conviction that nothing should
be allowed to jeopardize the security tie to the
US. This factor is undoubtedly playing a role in
Schmidt's attitude toward Washington's demand for
another offset agreement--a "bitter pill," in his
view, given the tight budget. The Chancellor wants
to avoid the "rigid" formal agreements of the past
and, according to one report, may propose in Wash-
ington that future arrangements be placed on a
multilateral basis, including other NATO allies.
(continued)
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Bonn would also voluntarily offset some of the cost
of stationing US troops in the Federal Republic by
buying US weapons and depositing official funds in
the US. The last two-year bilateral agreement, which
expired in June, made such actions obligatory.
Bonn does not always see eye to eye with the
US and other West European countries on the energy
problem. Schmidt supported Washington on creating
the International Energy Agency. But like most of
their neighbors, the West Germans want to avoid con-
frontation politics with OPEC. At Schmidt's direc-
tion, Bonn officials are reviewing policy on commod-
ity markets and development aid to ensure fruitful
dialogue with the oil and raw material producers at
the energy conference in Paris this month.
As far as relations with the East are concerned,
Schmidt conducts Ostpolitik not on the basis of the
visionary political goals of Brandt, but on a cold
calculation of the state of Bonn's relations with
Moscow and its allies. This does not mean that the
Schmidt government has lost interest in humanitarian
and security issues. The Chancellor has shown a
high degree of flexibility in maintaining the ap-
pearance of progress with the East Germans and So-
viets on Berlin matters, and with the Poles on the
repatriation of ethnic Germans.
His underlying concern is to minimize political
friction in order to foster a favorable climate for
trade with the East. He emphasized in his opening
speech to parliament the growing importance of
Eastern trade for the German economy. The Eastern
countries now purchase nearly 10 percent of Ger-
many's exports and account for a large share of the
nation's trade surplus.
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