PROSPECTS FOR EASTERN EUROPE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79R00603A002600050001-1
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 38
• Document Creation Date: December 15, 2016
• Document Release Date: January 7, 2004
• Sequence Number: 1
• Publication Date: June 2, 1977
• Content Type: MEMO

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1'y sp ao-,
PROSPECTS FOR EASTERN
EUROPE I
Main Points' T 4 i
--Unrest is likely to grow in Eastern Europe over the next
three years. The destabilizing effects of detente, slower
economic growth, and dissident. activity will all add to the
tension between the East European regimes and their peoples.
-The impact will not be uniform. Poland will be the most vola-
tile.and a blow-up there, which might bring down Gierek and even
conceivably compel the Soviets to restore order, cannot be
ruled out. The situation will be less volatile in East Ger-
many,,'but.the Honecker regime is going to have a harder time
balancing its economic need for closer ties to the West with
the unset ling effect those ties have on the East erm~n people.
Tn rt-s t=-.z Eurof;c-Y`1c 4c-,z,1 c--) i'z, no? +c, ~o~~ ~w~~,
--Under economic pressures, all of the East European countries &C 4+~ is4-s
will show more interest in expanding their trade with the West
J1j
Despite misgivings, the Soviets will acquiesce or even en C~r~lle^~4
courage such expansion because they are increasingly reluctant,
to subsidize the East European economies.
will he1f 4;^^r* Ecs-- Lurope' fC0l - C 4 cs -o We- ~' ({I
--East European leaders will continue to give ground, sporadi-
cally and reluctantly, on human ri hts issues of interest to
res; s f ~,~ ~ , ~ ,,d- looks I Iz ~ LO-Cs4e?Rn 446-4- 4o
the West. But they will s-tha-t_
fie`--bd~?s-sekxr to~~ase?~econo7nis -leverage to bringAsi gnifi-
can political change.
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prospects are fair for a slo e'v,0lution toward less.authori-
r~ tarian methods of rule in East Europe?2f there is no major
threat to internal order in any of the countriesy
--The East Europeans are not likely to seek or get any signifi-
cantly greater ,independence in foreign affairs. C?-e--iz- enta-1ra
for the increased
1Csuch ties bestow on the current
leaders.
independent line, in the interest of
getting more favorable economic treatment from the USSR-
-The US is not likely to have a major impact on how the inter-
nal picture develops in any of the East European countries.
But the'East Europeans will attach more importance to develop-
ing relations with the US, not only for the possible economic
benefits butt' r and Poland~cds
is likely--to moderate its
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DIA does not agree that East European leaders will
r
accommodate to Western views on Human,jRights A4iO that
prospects are fair for a decline in authoritarian hie' t
rule in the absence of a threat to internal order. DIA
believes that the necessity for tight centralized party
control the likelihood of growing unrest, constraints
imposed by the USSRand the example of Soviet treatment
of dissent all argue against such developments.
25X1
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CORMH
cope Note.......... .........................-.w.-.....
DISCUSSION ..............................................
Economic Trouble ...................................
The Dissident Problem ............................
If Leaders Change ..................................
The Soviets ........................................
The Western Connection ...........................
Poland .............................................
Hungary ............................................
Czechoslovakia .....................................
Romania ............................................
Albania... ....................................... -
Bulgaria ...........................................
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Scope. Note
40
This paper covers the next three years. \y~ is guided
/~ - Rs
se 4-1
`j n -)-uesc}D ''f
--What are the prospects for instability in, the re-/
!VroPe
gion, and in particular countries?
--What are the various countries' economic prospects?
--What is the outlook for an amelioration of tradi-
tional Communist practices?
--Do any of these countries have leeway for a foreign
policy selectively independent of Moscow's in areas
of significant interest to the US?
--What impact is the US likely to have?
c~ns~ G~PJty~ i
Q q, usiR) Y,:o.siat,.-
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by these questions:
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DISCUSSION
1. The riots by workers in Poland last year and the
s ?-quent emergence of dissident activity in Czechoslovakia,
East Germany, and Romania are signs that East European countries
will live in a more fragile than usual situation over the next
two or three years. The underlying causes are unchanged: the
chronic disaffection of the East European people with the Com-
munist systems they are stuck with, nationalism, and the attrac-
tion of the West.
2. But there are some new factors. Moscow's detente
policy has reduced the isolation of the East European people and
raised demands for more personal freedoms and a better standard
of living. At the same time, the requirements of detente have
made it harder for the regimes to deal with their peoples in
authoritarian ways abhorrent to Western sensibilities.
3. New economic. problems are also emerging. The East
European economies and the material well-being of the East Euro-
pean people have grown significantly over the past 15 years.
But the growth rates are slowing down, and the prospects are
good for growing consumer dissatisfaction over the next few
years. This is dangerous because rising material expectations
were consciously generated by the regimes to help neutralize
unfulfillable political and national aspirations.
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Economic Trouble
4. The region as a whole is resource-poor. Even in good'
harvest years, the northern countries are not self-sufficient in
grain. Eastern Europe is especially dependent upon energy im-
ports. Heavily reliant on foreign trade anyway, these coun-
tries have in recent years also suffered the consequences of
Western recession and inflation, higher prices for Soviet oil and
raw materials, and larger grain import needs due to poor har-
vests. At the same time, East European manufacturing plants
are obsolescent in important sectors. The labor force is rela-
tively skilled, but productivity suffers from lack of incentives.
Management is beset by the irrationalities and inefficiencies
endemic to centralized planned economies-
5. Unable to generate sufficient exports, the countries
of the region--especially Poland--are accumulating a large hard
currency debt'. In order to keep new borrowing down, the East
Europeans will have to restrict imports from the West while at-
tempting to maximize exports. But economic growth itself depends
on quality Western equipment and industrial materials. The East
Europeans have already scaled down their growth projections for
the current 01976-80) five-year plan. There is reason to doubt
that even these more modest projections will be met. Tensions
will rise as consumers feel squeezed. The regimes will want to
raise consumer prices to stem demand, but they will be wary in
view of the Polish experience.
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6. In the background loom more severe strains in the
early 1980s, when anticipated declining Soviet oil production
will reduce oil imports from. the USSR (see Figure 1).and will
greatly increase East European hard currency purchases of oil.
The East Germans and Czechoslovaks have already begu steps to
increase conservation and to substitute coal for oil in power
plants.
7. All these problems will renew the case for reforms--
increased material incentives, realistic price structures, and
more decentralization. Most of the East European leaders will
be reluctant to embark on this road. In addition to their in-
herent ideological misgivings, they are likely to want more, not
less, centralized control at a time when hard economic choices
must.be,,made. Under pressure, they are,likely to be more con-
cerned about Soviet misgivings regarding the orthodoxy of reforms.
While reluctant to.make basic structural changes, the East Euro-
peans will want to increase the output from the private sector
of the economy, and perhaps increase its share of the economy.
8. Increased economic constraints do not augur well for
political stability, but how bad things will get politically is
much less clear. The East European people know they are better
off materially than ever before. They also are accustomed to
some economic discomfiture and even deprivation. They know that
the West )K is
experiencing high levels of unemployment and
inflation. Experience will tell them they cannot expect much
*('G ~? tJ~ ev z
G - 6 - ELF ? l/j~ < < v ~t c
 FIGURE 1
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Eastern Europe: Oil Consumption by Source, 1975
Total Eastern Europe
Million
Metric
Tons
Bulg. Czech. CDR Hung. Poland P --II,. ( Yug.
We anticipate that the USSR will try to distribute the burden of any drop
in its'oil production on internal Soviet consumption and on hard currency,
exhorts, as well as on exports to Eastern Europe. However, these Soviet
tradeoffs' 41111 not be easy choices; oil has yielded about 41 percent total
SovietA~~Mv&a "ale% om Se ydisb~96ftCbgb3Abb2?dddgob'tlrY-1also rising.
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help from the West. With adroit economic tinkering and reason-
able luck, many or all of the East European regimes may dodgy
the various hazards of the next few years with the grudging
support of peoples reluctant to risk their hard-won margins of
improvement. The. greatest hazards lie in Poland, whose people
are- the most volatile in the region, and East Germany, where
the attraction of West Germany cuts very deep.
The Dissident Problem
9. 'Dissidence is not a new phenomenon in Eastern Europe..
y e But its re-emergence over the past is of more than
usual concern to the East European leaders. Their 1aq! .-a---
as rulers is being judged against Western standards of freedom
and human rights, at a time when their economic performance vis-
a-vis the West is being found wanting. These concerns are in-
creased by the evidence that A dissidentnro
Lf Tn`i-s-olat.e-d--d-is-s- dents, is at -work in East Euro-pe. ] Helsinki
has been a major stimulus, ''Eurocommunism'' has added its fuel;
and the East European leaders are concerned that the Carter ad-
ministration's emphasis on human rights will L
p.nrt_nt .. encourages the dissidents. They also know that Hel-
sinki has impacted, particularly in East Germany, on wide seg-
ments of the population in addition to the dissidents.
10. Nowhere do the dissidents seriously threaten Com-
munist rule, nor will they do so in the foreseeable future.
The danger for some of the East European leaders is that the
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dissidents will incite) oa population restive
over economic and other grievances. The dissidents also make
it more difficult to maintain the kind of political relations
with the West and the US that can be helpful on the economic
front. Further, their activities create another source of tacti-
cal disagreement with Moscow and among the East European party
leaders themselves.
11. So far, the East Europeans have been given consider-
able latitude in handling the dissidents by the Soviets. But if
Moscow decides to impose a tougher dissident policy on the East
Europeans, then the prospects for miscalculation and serious
troubles increase. Specific consequences are far less certain
or predictable, although they may well become severe and might
even result in a situation reminiscent of Hungary in 1956 or
bring down a leader, like Gomulka in 197
If Leaders Change
12. A change in the leaders in any of the East European
countries would have an unsettling effect. New leaders might
have trouble establishing their personal authority and would have
to gain Soviet confidence.
13. Serious instability in Yugoslavia or a clearly dis-
cernible ";'movement toward the West after Tito would cause
the East European leaders to tighten up their internal control
and to take special care in their external policies not to give
the Soviets cause for concern. Dissidents and disgruntled elements
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in countries like Poland, East Germany, and Czechoslovakia might
be encouraged by such developments in Yugoslavia to press harder
for changes at home.
14. A leadership change in the USSR would have a more
pronounced effect. The East European leaders are comfortable
with Brezhnev because he has given them considerable latitude
in managing their internal affairs. His demands usually have
not been unreasonable and they have with time gained some sense
of his limits of tolerance. New understandings with Brezhnev's
e
successors might be reached with relative east if they consoli-
date power smoothly and conduct similar policies toward Eastern
Europe and toward the West. But a period of political infight-
ing in the Kremlin, or. the emergence of a new Soviet leadership
with a tougher stance toward Eastern Europe, would be very un-
settling. Contradictory Kremlin signals on policies and per-
sonalities might well be mirrored in the politburos of Eastern
Europe.
The Soviets
15. Moscow is obviously concerned about the unrest in
Eastern Europe. A blow-up in any country not only has important
implications for the region as a whole and for its ties to the
USSR, but also for the tranquility of the Soviet Union itself
and for its dealings with the West.
16. While Czechoslovakia in 1968 proved that Moscow can
~~\' PnrJ~ tv ~) Vfl ve"~ _ 14a_~ toPC .? i# _ i~~ 4 ~?~5 i-g S~Uri 1?15~~
1,v r~iichcaA +nr~ fa r!_ -1h anA larrro I-hr~ C~vicb loariorchin nAor ) L.
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I$.
Brezhnev has opted for stability i Eastern Europe at the ex-
pense of ideological purity. The Soviets feel uncomfortable.
with the more permissive approaches of the Poles and the Hungarians,
but they have reluctantly permitted both Gierek and Kadar to
fashion their tactics to fit their own circumstances. Gierek
and Kadar are, in Soviet eyes, good Communists who will neither
be transformed into social democrats nor forget the special re-
lationship with Moscow.
17. ~T'4re Soviets can help promote political stability in
- sovicd'3
Eastern Europe on the economi nt] y,\helped create
the tougher economic environment in which the East Europeans
must now operate. In 1975, Moscow sharply increased the price
it charged East Europeans for oil and other raw materials, and
prices also went up in 1976 and 1977. Moscow's policies derive
from its own economic problems, plus a lingering feeling that
the Soviet Union has had to sacrifice to ensure that people in
Eastern Europe continue to live better than Soviet citizens.
Trope n a t_ e-
mo r-e .. _ 0.47 1 a b.a ]xt
Realizing
increases
accepted
payment in overpriced machinery, i -permitted the East
Europeans to run sizabl tray d f t
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t h a n a 9s '--e t=f b`1`e' o v e-t U ia:.o -._,- $
this,. Moscow has restricted its price
credits and supplementary oil deliveries.
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if. One consequence of these economic pressures is
that the USSR will have to continue to look relatively favorably
on Eastern Europe's economic ties with the West. They hope
44
that the West will share the burden byI\financeq. Eastern Europe's
purchases of industrial and raw materials and agricultural prod-
ucts and by helping to modernize East European industry so that
it can pay with quality goods for Soviet imports. The Soviets
probably will be willing to countenance such ideologically ques-
tionable arrangements as joint ventures with Western companies.
They will be, willing to allow a more favorable political rela-
tionship between Eastern Europe and the West to the degree that
seems necessary for closer economic ties. They will probably
allow some internal reform if it seems to promise economic re-
suits. But they will be concerned about the cumulative effect
of these trends. How far they will be willing to let the East
Europeans go will depend on their confidence in the particular
Communist leader's ability to retain essential control and
their perception of Western political intentions. This is a
complicated equation that Moscow will recalculate as specific
situations arise
The Western Connection
JX0? Without making any special effort, the West has
a substantial unsettling impact on Eastern Europe.. Many in the
region identify with Western cultural and social traditions and
consider an ''Eastern way'' in alliance with Russia as alien to
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23 n ecause of these interests, East European leaders
continue to give ground, sporadically and reluctantly, on
show increased interest in barter rrangement with _Western
taut to bail out their economies and that they must do more
business with the West. Those countries which do not have MFN
status will have increased interest in getting it. All will
those traditions.. Other East Europeans are drawn to the dynamic
and material features of Western life that contrast sharply with
the drabness of their own lot.
21. At the same time, the West has be n it so a re-
~e ke-iPek C- &d Europe-Ls .3o e orc eai't-ae i~ ear- 1e~~~s
spects a force for stability 'A western goods bolster economic
growth and enrich consumer supplies; Western credits Cof
'~ perm,F-
c J large trade deficits; Western contacts cater to,-as
well as arouse, popular aspirations. Eastern Europe's economic
needs have been a strong underlying motive for detente in Europe
and for the region's opening to the West. These needs will grow
over the next few years, and while increased trade and credits
from the West will not be a panacea for Eastern Europe's eco-
nomic ills, they can be of considerable help. The East European
leaders will discover that the USSR will be increasingly reluc-
companies and in joint economic ventures -Aft
ere are"c e,f -t-e-
.- l ,r1L. \Lu prjesent a n a jteas)le West-e-rn Jc-o om- c
some human rights issues of interest to the West. But they will*
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 S
0
Percent of.
Total Trade
Ccnrnunist
76%
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.Figure 2
West
German
West
Germany
West
Germany
Other
West
Gennar~y
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67% ?, 68 ~cL
Ccnmunist
45`.
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Eseeconomjc be hypersensitive to indications that the West is seeking to
leverage tbring about significant political
change in East9 urope. The Soviets in particular will be dis-
posed to see evidence that the West is seeking to make trouble
for them in their backyard. They will continue to see in the
US emphasis on human rights a hostile political, rather than
humanitarian, motivation. If problems of internal order grow
serious enough--if for example there is a blow-up in Poland or
East Germany--the imperative of order will prevail, with the So-
viets seeing little choice but to accept the damage to wider
equities with the West.
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2q. Internal unrest is more serious in Poland than
anywhere else in Eastern Europe. It will continue to be so
during the next two or three years. Disaffection with the
regime, and with Communist rule, is widespread. The moNpd of
the Polish workers fluctuates between resignation and surliness.
As last year's riots and sabotage over proposed price increases
proved, the workers are ready to express their grievances in
action. They know that what they do sometimes counts; in
1970 they brought down Gomulka. The workers are angry over
the failure of the Gierek government to make good on its
promises of a better material life. The quality of life has
improved but has not kept pace with expectations. __
t
11
(eoP is ST i~ atC a.
~enshortage of apartments, t3 long waiting lists for
automobiles, refrigerators, and the like..
2 But the workers' resentment is not entirely fixed
on pocketbook issues. The riots last year were also a response
to the sudden and arbitrary nature of the regime's decision
to raise prices steeply. For years, Gierek has been touting
his commitment to consultations with the workers; his action
gave the lie to his words.
2~. Polish dissidents have tried, through the establish-
ment of such organizations as the Workers Defense League, to
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make common cause with the workers. This has not yet paid
off in any tangible way, but the~l&;__4-4 e-'---are still working
to create the impression that they speak for more than them-
selves. They are pushing for more freedom in the arts and mass
media and for the right to travel. Beyond such personal free-
doms, some dissidents are urging a more pluralistic system for
Poland in which the Communist Party would share some of its
power wor [C':S V'NcoT ? , ~j M
A, (r1 QiY?el W I h J ~~7`~} p Q'\~
2-r The irony is that personal freedoms are greater i
Poland than anywhere else in East9Europe. Moreover, it is the
only country in the region where agriculture is still largely
in private hands and where the number of people engaged in
retail trade and in services Iis increasing.
The position of the already powerful Catholic Church
has been strengthened by the recent unrest. It has helped
Gierek by urging restraint on the workers and, more recently,
on restive students. The Church calculates that a.breakdown
in order will work against its interests and the prospects
of a less authoritarian state by bringing to power leaders
more orthodox than Gierek, possibly through the direct inter-
vention of the Soviets. At the same time, the Church will
be exerting increasing e pressure on the regime on behalf
of its own direct interests and in the area of human rights.
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21. Gierek's primary goal will be to keep the lid on.
He can do little else, for there are no short-term solutions
to the underlying economic problems. Supplies of consumer
goods will continue to fall short of demand. The regime will
continue to juggle reserves of foodstuffs and to import extra
supplies of consumer goods to take the edge off frustration
and get through the sensitive periods of Christmas and Easter.
30
. Much of Poland's economic progress since 1970 has
been due to, extensive imports of Western technology. This
pace cannot continue during the next few years because of Poland's
serious balance-of-payments problem. Central planners must find
ways to use the resources already on hand more efficiently.
The leadership has hesitantly taken measures to encourage pri-
vate farmers and craftsmen to expand their activities. More
investment funds will be diverted to the production of con-
sumer goods. Poland may well seek refinancing of its Western
debt.
31
On the basis of the evidence of the past year,
Gierek seems inclined toL e policies J move toward a less
authoritarian Poland. He has given new encouragement to the
private sector of the economy, has loosened censorship, and
is quietly encouraging members of the rubber-stamp parliament
to act more like real representatives of the people. He has
to proceed carefully because such policies are not universally
supported within the party, and the Soviets undoubtedly are
suspicious about their implica18ions.
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.3A. SoI far, the Soviets are acqescing, for what they .
h~++c Ie ~ lpe~~ o~d-u, cw a.,l~a~^x;vmucl~`@ b;JI;o~ r,,b(C- CC- '0Q;+( cry
want most out o clan at this juncture is quiet. If or de
' supp l ins
5~'ou ( ~rq:-r
ems reak down, both Warsaw and Moscow will want to see it ?'
restored by Polish forces. Only if these fail will the Soviets
intervene.
3#. The policies of the US and the West are not likely
to be critical to what happens in Poland over the next few years.
But they will have some effect on Gierek's prospects. On the
economic side, he hopes that the US will encourage private lenders
to be responsive to Poland's needs both with respect to refin-
ancing and to granting new credits, particularly to cover the
There are few trade barriers
importation of consumer goods!q 31,
only 4 percent of Polish foreign trade) and little the US can
do over the' short term to help Poland do a better job marketing
in the US./A Warsaw wants recognition by the US that it is doing
o an increase in Polish sales to the US (the US accounts for
better the human rights area and muted coverage of internal
and dissident affairs by Radio Free Europe. Above all, it
wants to avoid a too vigorous US policy that would arouse Moscow's
fears of American intentions in Eastern Europe and generate
higher Soviet pressure against Gierek's reforms.
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The principal question in Hungary over the next
few years is whether the Kadar regime will continue to pursue
economic and cultural policies that are among the most '10liberal*#
in East Europe. The prospects seem good.
36Hungary's economic reforms--introduced in 1968
as the New Economic Mechanism-~featureaf some decentraliza-
tion of decision making, a greater role for material incentive,
and more reliance on price fluctuations to control supply and
demand. The reforms encouraged innovation, productivity, and
efficiency. They improved the performance of the Hungarian
economy. But they also created political problems for Kadar.
Workers complained about growing inequities in wage scales,
conservatives about the creation of a bourgeois atmosphere,
and the Soviets about the implications for socialism. The con-
sequence has been some retrenchment and the fall from power of
the leading reformists. But Hungary has not returned to the
centralized, rigid model of the other CEMA countries.
31. Indeed, in its economic dealings with the West,
Hungary has continued to be the most innovative East European
country. It has led the way in establishing joint ventures
with Western companies and recently has allowed Western com-
panies to hold majority ownership in banking and service enter-
prises. Hungarian leaders are arguing that increased economic
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ties with the West are necessary to cope with the changing
world economic environment. They have acknowledged that ques-
tions have been raised within the ''socialist system'' about
the compatability of increased economic ties to the West and
further economic integration in CEMA. Kadar is under some
pressure from the Soviets, other East European leaders, and
within his own party ranks not to go too far in orienting Hun-
gary's economy toward the West.
3~
Kadar's social and cultural policies have been, by
East European or Soviet standards, enlightened. The security
apparatus is less in evidence, its abuses curbed. Writers and
artists can pursue nonideological work, and there is little
formal censorship. A wide range of Western literature, movies,
and plays is available in Budapest. There are limits, and
the government does not hesitate to enforce them., Intellectuals
must take care in commenting on the regime, must not criticize
the Soviets, and cannot question Hungary's commitment to communism.
The party is sensitive to unauthorized ideological interpreta-
tions.of its practices. It clearly wants to avoid giving Moscow
reason to believe that questionable practices are hardening into
ideological positions.
3- Kadar himself seems to have won the sup-
or, '04";se>
port, ~C of most Hungarians. A small number of
Hungarian intellectuals have come out in support of the Charter
77 group in Czechoslovakia but have avoided criticism of condi-
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tions in Hungary. Kadar has successfully ignored them.
103f
?/ He has had some trouble with workers and others
over the cumulative effects of price increases; last year, after
the Polish riots, there was a work stoppage in a large Budapest
factory. None of this got out of control >and Kadar raised
prices on some goods tI4.s past winter without incident. He
P611 51)
has also promised no f'T
aa'increases his year and he has raised sorrir_
wages, C ~ ~n .J Nonetheless, Kadar knows that the consumer
will inevitably be facing more stringencies) and he is therefore
moving to expand his support. He is seeking better relations
with the Catholic Church and will soon visit the Pope. His
projected trips to Western Europe are, in part, designed to
show the Hungarian people that he has developed an active foreinn
policy within the framework of Hungary's Soviet alliance. He
re coo Ie.r
has also mounted a new campaign to the national trea-
sures held by the US.
W
Kadar's light touch has not endeared him to all of
his colleagues in Eastern Europe,
ar y The
Ep--&
Soviets are more of a worry. Kadar's most powerful argument
for his policies is that they work, that Hungary does not have
a significant dissident or stability problem~rand is still a
Marxist state faithful in its own way to the USSR. But if un-
rest grows elsewhere in Eastern Europe, the external pressures.
will increase on Kadar to impose a tougher regimen in Hungary.
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reJuc~w+ce ~o k^r- uQ e~p a,sJ so~^e U.~es
His Cd-veep-ear ?~ he ' ~.