PRESSURES FOR ECONOMIC AND POLITICAL CHANGE IN EASTERN EUROPE: IMPLICATIONS FOR EAST AND WEST

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP87T00126R000800970004-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 32
• Document Creation Date: December 22, 2016
• Document Release Date: June 30, 2010
• Sequence Number: 4
• Publication Date: March 12, 1984
• Content Type: NIE

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Director of Secret
Central
Intelligence
Et Europe:
ton for East and West
?L
Pressure for Economic and
Political Change in
N onat Ii etgenee Estimate
Secret
NIE 12-84
12 March 1984
503
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NIE 12-84
PRESSURES FOR ECONOMIC AND
POLITICAL CHANGE IN
EASTERN EUROPE:
IMPLICATIONS FOR EAST AND WEST
Information available as of 12 March 1984 was
used in the preparation of this Estimate.
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THIS ESTIMATE IS ISSUED BY THE DIRECTOR OF CENTRAL
INTELLIGENCE.
THE NATIONAL FOREIGN INTELLIGENCE BOARD CONCURS.
The following intelligence organizations participated in the preparation of the
Estimate:
The Central Intelligence Agency, the Defense Intelligence Agency, the National Security
Agency, and the intelligence organizations of the Departments of State and
the Treasury.
Also Participating:
The Assistant Chief of Staff for Intelligence, Department of the Army
The Director of Naval Intelligence, Department of the Navy
The Assistant Chief of Staff, Intelligence, Department of the Air Force
The Director of Intelligence, Headquarters, Marine Corps
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CONTENTS
Page
SCOPE NOTE ???
............................................................................................................ iii
KEY JUDGMENTS .................................................................................................... 1
DISCUSSION .............................................................................................................. 5
Introduction ............................................................................................................. 5
Economic Adversity ................................................................................................ 5
The Situation in Each Country .............................................................................. 7
East Germany ..................................................................................................... 7
Poland .................................................................................................................. 7
Czechoslovakia .................................................................................................... 10
Hungary .......................................................................................:....................... 10
Romania ............................................................................................................... 12
Bulgaria ............................................................................................................... 15
Eastern Europe as a Whole: Policy Alternatives .................................................. 15
Outside Forces: East and West .............................................................................. 17
The Current Soviet Role .................................................................................... 17
The Current Western Role ................................................................................ 18
The Overall Outlook ............................................................................................... 21
Implications for the United States and the West ................................................. 23
Selected Bibliography ............................................................................................. 27
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SCOPE NOTE
This Estimate discusses in general terms the economic difficulties
besetting the East European members of the Soviet Bloc;' examines
specific economic and political problems in each country; assesses the
present and possible future policies of the various regimes; and weighs
the roles played in the area by the USSR and the Western powers.
Finally, it estimates the overall outlook for Soviet-dominated Eastern
Europe for the rest of this decade, and then, on this base, considers the
implications of the East European problem for the United States and its
West European allies.
' East Germany, Poland, Czechoslovakia, Hungary, Romania, and Bulgaria. The independent Communist
states, Yugoslavia and Albania, do not fall within the purview of this paper.
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KEY JUDGMENTS
After almost 40 years under Soviet domination, Eastern Europe has
yet to become either stable or self-supporting. Looking at the six East
European states individually, we find that:
- Most of their economies are beset by very slow or nonexistent
growth, stagnating or declining standards of living, and severe
hard currency debts. Prospects for any appreciable recovery in
the near term are, we think, quite slim.
- Most of their. societies suffer from widespread popular disaffec-
tion, the product not only of economic deprivation but also of
deep political discontent and frustrated feelings of nationalism.
And public moods, we think, are likely to get worse over the
next several years.
- With the possible exception of Hungary, their leaderships fear
the risks of change and are in any case ill prepared and ill
equipped to cope well with the complex social, political, and
economic problems now facing them. Chances that they will
soon adopt more rational, efficient, and humane policies, even
of the cautious kind now pursued in Hungary, are not, in our
view, good.
- Yet none of these states can any longer count on foreign help to
bail them out. Western credits-bountiful during most of the
1970s-have pretty much dried up; Soviet assistance-princi-
pally in the form of price concessions on raw materials and
energy-has been declining for several years; and neither the
West (burned by Poland's de facto bankruptcy) nor the USSR
(wrestling with its own serious economic problems) seems likely
to become much more forthcoming, if at all, in the next few
years.
- In the short term, the East Europeans (excepting the Hungar-
ians) seem likely to temporize, some of them (for example, the
Bulgarians) experimenting with economic reform, others (for
example, East Germany) seeking solutions in a more efficient
command system and more advanced technology. Time can be
bought by trying to muddle through in this manner but, in our
view, notable progress toward prosperity and stability cannot.
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We believe, as a consequence of all this, that Eastern Europe will
remain a "depressed area," and a potentially volatile one, at least over
the next few years. There are, to be sure, major political and economic
differences among these countries; some (including Romania and
Poland) appear closer to the edge of domestic crisis than others
(Hungary and Bulgaria seem the most stable), and economically, despite
current difficulties, some are far richer (for example, East Germany)
than others (Romania is probably the poorest). But there are three
contingencies which might, singly or in combination, provoke crises
within any one of these states, or between any one of them and the
USSR, comparable to some of the major upsets of the past:
(1) A further, serious deterioration of economic health, which could
provoke widespread public disorder.
(2) The development of discord and disarray within the ruling
parties, perhaps growing out of, and reflected in, succession infighting.
(3) The emergence of a prolonged, intense succession struggle in
the USSR, which could confuse Soviet policies and delay Soviet actions
vis-a-vis Eastern Europe.
This is not to say that we think crises in the area are inevitable dur-
ing the foreseeable future. We do feel, however, largely on the basis of
the actual postwar record-10 significant crises in Soviet-dominated
Eastern Europe since 1948-and on our own reading of the current
troubled scene, that the odds favor the occurrence of political crisis in
one or more East European states before the decade is out.
In the event of crisis, any Soviet leadership would almost certainly
elect to intervene militarily if it concluded that the USSR's hold on a
Warsaw Pact state (or, a corollary, the hold on power of a local
Communist regime) was being lost. But we also believe that virtually
any Soviet leadership would-as in the past-seek initially to contain
any crisis without resort to force and run a certain risk and pay a certain
price to avoid military intervention (as demonstrated for a time in the
case of Poland in 1981 and, indeed, maverick Romania since 1964).
The new Soviet leadership is likely to continue Andropov's efforts
to improve Bloc cohesion and strengthen Soviet hegemony, partly via
the Council for Mutual Economic Assistance (CEMA) and the Warsaw
Pact. But we think it unlikely that it will be able to devise an effective,
consistent strategy for dealing with the USSR's long-term problems in
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Eastern Europe. Most of the East European regimes continue today, as
they have for years, to resist Moscow's efforts to pressure them into
boosting their (laggard) defense expenditures and strengthening CEMA
(and the Soviet role within it). Further, despite apparent Soviet
insistence on conformity, most seem uncomfortable with Soviet INF
countermeasures in Eastern Europe, and at least three of these states-
Romania, Hungary, and Bulgaria-still seem loath to join in a wholly
unified posture toward the West.
Western Europe-despite recent declines in trade with the area,
caused in large part by substantial East European cuts in imports-still
plays an important economic role in Eastern Europe. Many West
Europeans, especially the West Germans, seem persuaded that-
especially if East-West tensions subside-this role can one day be
expanded and perhaps converted into greater political influence as well.
It seems likely to us that the West European states and the United States
will from time to time disagree, and possibly vehemently so, over how
best to achieve their common objectives in Eastern Europe-to help
move Eastern Europe away from Soviet dominance and toward the
Western democratic model-and how best to relate the pursuit of these
objectives to the conduct of East-West affairs in general.
We do not expect any major increase in the West's ability to shape
the course of events in Eastern Europe in the near future. But we do be-
lieve that at least low-key tension between the East European states and
the USSR will persist and-together with pressing economic needs-will
help to keep alive East European interest in better relations with the
West. And in the longer term, barring another explosion in the area, we
believe that opportunities for the expansion of Western, especially West
European, influence will probably grow. Many, perhaps most, East
European regimes will, we think, try quietly over time to increase their
ability to pursue essentially national solutions to national problems.
Some may eventually come to understand, as Hungary apparently
already has, that they need both domestic reform and considerable
Western help-trade, credits, know-how-if they are ever to achieve
lasting health for their economies and a secure and long-lasting modus
vivendi with their own peoples.
Postwar history suggests that the initiatives for change in Eastern
Europe must come in the main from within. The West almost certainly
will not be able to create the conditions that give rise to moves toward
reform and autonomy, though it could, we think, reinforce such moves
through the prudent use of economic levers and political pressures. East
European perceptions of the Soviet Union are crucial in this context. An
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element of Moscow's strength in Eastern Europe rests on the USSR's
reputation as a resolute superpower, led by men strong and skillful
enough to make the tough decisions. Should that reputation and image
be undermined-as it has been from time to time in the past-pressures
for change and independence within Eastern Europe would probably
grow, and could do so rapidly.
For their part, in the event of growing Western involvement in
Eastern Europe, the Soviets would face conflicting objectives: they
would be determined to preserve their hegemony but wish to steer clear
of actions that might compromise their "detente" policies in Western
Europe and their efforts to sever the ties between the United States and
its NATO partners. Similarly, concerning East-West economic relations,
they would wish on the one hand to guard against East European
dependence on Western goods and credits but, on the other, want
Western help to aid ailing East European economies. On balance, we
believe that, short of a major crisis in the area, these competing
objectives will not be resolved. Further, while the Soviet Union will
maintain limits within which the East European regimes will have to
operate, it is unlikely to develop an effective, consistent strategy for
dealing with the long-term problems of Eastern Europe. This, together
with the USSR's probable inability to provide adeciuate economic
assistance, is likely, in our view, to give those East Europeans who seek
them new opportunities to push back the bounds of the permissible.
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DISCUSSION
1. Communist rule has endured in the six states of
Soviet-dominated Eastern Europe for almost 40 years.
But, as recurrent political and economic crises have
attested, the area has yet to become either stable or
self-supporting. Recent developments suggest, in fact,
that many of the basic problems afflicting these
societies are not getting any better and in some
instances are probably getting worse. For example:
- Economic growth is slowing down and living
standards are stagnating or dropping in most of
these countries. Domestic resources are tight and
productivity is falling. The financial crisis of
1980-82, occasioned by high levels of hard cur-
rency indebtedness and the decision of Western
creditors to reduce their exposure, has eased
somewhat but is far from over. And because the
USSR is troubled by economic difficulties of its
own, Soviet economic assistance is also
decreasing.
- Serious political problems also abound. Some are,
of course, related to grim economic conditions
and prospects; in particular, an implicit social
contract between regimes and peoples dating
from the early 1970s-essentially, more bread
for more support-no longer appears operative.
Other problems are traceable to deep-seated
social discontent, fierce resentment of Soviet
hegemony, and strong feelings of nationalism.
2. The accession to power of Andropov in late 1982,
the perplexity over his health and status during the last
half of 1983, and the current transition to yet another
leadership have added a new element of uncertainty
and possible instability to the East European scene.
Accustomed to at least implicit Soviet toleration of
diversity and some freedom of action during most of
the Brezhnev years and unsure of the direction Andro-
pov was taking them, the East European leaders must
now be uneasy about what might lie ahead. They seem
to fear the possible emergence of a tougher Soviet line
toward Eastern Europe-signals from Moscow during
Andropov's short reign were mixed on this score-and
are no doubt concerned that the fallout from an
Andropov succession struggle could prove disruptive
within their own bailiwicks. In any event, the politics
and policies of Eastern Europe may soon be unsettled
by party factionalism and succession struggles at
home; all but the Polish party are headed by men in or
near their seventies.
Economic Adversity
3. Following years of respectable growth-on the
order of 3 to 4 percent per year or more during the
late 1960s and early 1970s-the East European econo-
mies began to slip, stagnate, or decline in the late
1970s: (See figures 1 to 6.)
- In 1980, only three of the six states of the area
registered any economic growth at all, and that
quite modest; in the three remaining states, GNP
actually fell.
- Preliminary figures for 1983 suggest only mar-
ginal improvement-rates of growth ranged
from a low of -0.5 percent in Romania and
Hungary to a high of only about 2.0 percent in
Poland.
Increases in standards of living (consumption),
averaging 3 to 4 percent or more per year in each
of these countries in the late 1960s and early
1970s, have since sagged (to about 2 percent in
Bulgaria in 1983) or sunk (down about 2 percent
in Romania).
Industrial production in the area as a whole has
grown only slightly during the past five years; dt
dropped about 18 percent in Poland and rose on
average only about 2 percent per year in the
other five states.
Overall, East European agricultural production
has fallen since 1978.
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4. There are many reasons for this dismal state of
economic affairs in Eastern Europe: inept manage-
ment, systemic rigidities, scarce resources, obsolescent
equipment, and declining or stagnating productivity.
In addition, most of the area has in recent years
become ensnarled in acute hard currency problems.
The situation was worsened by external factors such as
the oil price shocks of 1979, high interest rates, and the
Western recession. But most of the blame lies with
economic policies during the 1970s that resulted in
massive imports of Western equipment and technol-
ogy on credit that failed to make sufficient use of such
imports and that were unable to boost exports suffi-
ciently to repay credits.
6. Moreover, the once advantageous Council for
Mutual Economic Assistance (CEMA) oil-pricing for-
mula-theoretically based on a five-year average of
world prices-has now produced price hikes that have
contributed significantly to a worsening of Eastern
Europe's terms of trade with Moscow. Hard currency
constraints preclude significant East European pur-
chases of oil from non-Soviet suppliers, and production
of domestic sources of energy will continue to increase
only very slowly. As a result, Eastern Europe's energy
supplies are likely to grow at probably less than 2
percent a year through the end of the decade, com-
pared to growth in excess of 4 percent throughout
much of the 1970s.
5. East European hard currency indebtedness, just
$6.3 billion in 1971, reached some $66.5 billion a
decade later (see table). Most of the countries-Poland
and Romania most conspicuously among them-had
overborrowed, and in 1981 and 1982, as Western
banks drastically cut back on lending, found them-
selves caught in a major credit squeeze. A lack of new
credits, combined with disappointing export sales, then
forced the East Europeans to slash imports-overall by
some 30 percent during the two-year period, 1981-82.
This produced a trade surplus for the region as a whole
of $5.3 billion in 1982 (compared to a deficit of $4.7
billion, for example, in 1979). But this turnaround in
the trade account could only be accomplished by
cutting domestic investment (down nearly 8 percent
annually, 1980-82) and by reducing consumption.
7. There are few signs of a sustainable economic
recovery in Eastern Europe. To be sure, economic
growth could improve marginally in some countries,
and the expected modest recovery in Western Europe
over the next couple of years should help revive hard
currency trade and provide some small stimulus. But
the forces depressing growth since the middle and late
1970s will probably survive in one form or another
well into the late 1980s. Thus, although there will be
individual variations, regional growth is unlikely to
exceed 2 percent per year on a sustained basis. To
achieve signficantly higher growth rates in the remain-
der of the decade, the East European regimes would
have to overcome:
- Virtually stagnant-and frequently decreasing-
levels of investment.
1971
1975
1976
1977
1978
1979
1980
1981
1982
1983a
6.3
23.9
30.6
37.3
47.3
56.6
66.1
66.5
62.2
62.2
Bulgaria
.7
2.6
3.2
3.7
4.3
4.0
3.6
3.1
2.7
2.6
Czechoslovakia
.5
1.1
1.9
2.6
3.2
4.1
4.8
4.4
4.0
3.9
East Germany
1.4
5.4
6.3
7.8
9.7
12.3
14.1
14.7
13.1
12.2
1.1
3.1
4.0
5.0
7.3
8.1
9.3
8.7
7.8
7.5
1.4
8.8
12.3
14.6
17.6
21.1
24.8
25.5
24.8
27.0
1.2
2.9
2.9
3.6
5.2
7.0
9.5
10.2
9.8
9.0
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- Declining increments to the total labor force.
- Continuing shortages of foreign exchange.
- Tight supplies of energy-especially oil-and
other raw materials.
Prospects that these problems will soon be overcome
are, in our view, very slight. This means that produc-
tivity is probably the only remaining source of higher
growth for these economies. But the growth of labor
productivity in most of the East European countries
has been slowing and the productivity of capital has
actually been falling. Consequently, even where earli-
er rates of growth of employment and capital stock
were maintained, GNP growth slowed. These trends in
productivity are likely to continue, largely because
systemic weaknesses have made it increasingly diffi-
cult for the regimes to manage increasingly complex
economies and sophisticated technologies.
The Situation in Each Country
8. Although it is thus possible to make generaliza-
tions about economic and political problems in Soviet-
dominated Eastern Europe as a whole, situations vary
widely from state to state. Economic health ranges
from bad, as in Poland, to reasonably good in Bulgaria.
Similarly, political stability, while nowhere improving,
ranges from shaky (as in Poland) to fairly firm (as in
Hungary).
East Germany
9. The East German economy-once the showcase
of Eastern Europe-has recently fallen on hard times.
Financial problems have forced the regime to cut
imports severely and push exports, and this major
adjustment of trade has exacted a stiff price from the
domestic economy: GNP growth sagged to about 0.5
percent in 1982 and improved only marginally to
about 1.5 percent in 1983 (see figure 1). The standard
of living apparently declined in 1982 and 1983, with
some foodstuffs and consumer goods in very short
supply. True, surpluses in the hard currency current
account balance in 1982 and 1983-coupled with East
Berlin's special relationship with Bonn-have contrib-
uted to an improved financial position; debt to West-
ern banks fell last year by $750 million and reserves
increased by, $900 million. But East Germany will
remain financially squeezed for at least the next two
years as debt repayments exceed $2 billion annually
and the regime must continue to roll over a large
short-term debt. As a result, the regime will probably
have to maintain its austerity program-including
some restraints on imports and investment-and
growth is thus likely to remain sluggish. Party leader
Honecker shows no signs of favoring market-oriented
reforms. The regime is trying instead to improve
management and efficiency-principally through the
creation of large industrial trusts closely supervised by
the central authorities-but we think this is likely to
help only marginally.
10. The East German people-for the past eight or
nine years accustomed to the highest standard of living
in the Soviet Bloc-have made known their discontent
with current trends in the economy. Consumers have
become more assertive in objecting to shortages, and
some workers have openly displayed their dissatisfac-
tion. Moreover, many young people, who seem to have
taken the relative prosperity of the 1970s for granted,
have become alienated and more defiant in mood.
(The unofficial, church-supported peace movement
appears to be, inter alia, symptomatic of this.) Social
ferment is likely, we think, to persist and perhaps rise
for some time to come. But the people, generally
passive for 30 years or so and faced with tight security
controls and the omnipresent Soviets, are unlikely to
resort to mass protests. Within the party itself, Hon-
ecker's position still seems strong, but his continuing
problems with the economy could over time make him
increasingly vulnerable to criticism from younger,
more pragmatic elements in the party and state
bureaucracies.
11. The Polish economy all but collapsed in 1981,
remained in terrible shape in 1982, and improved only
slightly and selectively during 1983 (see figure 2).
Living standards, which fell in 1981 and 1982, may
have increased a little in 1983. The financial picture-
Poland is still in effect bankrupt-is as gloomy as ever,
despite current trade surpluses with the West. The
overall outlook for the long term is at best murky,
depending as it does on such matters as the policies of
Western creditors; the willingness of the USSR to
provide additional economic help; the attitudes of
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Figure 1
East Germany: Domestic Economic Indicators, 1971-83
l i l i l i l i l i l i l
0
I i I i I i I i I i I i
1971 72 73 74 75 76 77 78 79 80 81 82 83 a
a Preliminary estimates.
b Private and social consumptions.
Source: CIA estimates
l i l i l i l i l i l i l
0
I i I i I i I i I i I 1-j
1971 72 73 74 75 76 77 78 79 80 81 82 83a
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Figure 2
Poland: Domestic Economic Indicators, 1971-83
1 1 1 1 1 1 1 1 1 1 1 1
-8
Agriculture
10
l l i l i l i l i l i l i l g l
-15 - ]o i 1 i 1 i 1
Consumptionb Fixed Investment
-20
I i I i I i I I I i I M _j I i I I I I I i I i I 1 1
1971 72 73 74 75 76 77 78 79 80 81 82 83a 1971 72 73 74 75 76 77 78 79 80 81 82 83a
a Preliminary estimates.
b Private and social consumptions.
Source: CIA estimates
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disaffected Polish workers; and the ability of the
Jaruzelski regime eventually to overcome a set of
enormous, often interlocking, problems in, for exam-
ple, investment, energy, transportation, and agricul-
ture. Further, as the regime has tacitly admitted, there
is little prospect of economic reform so long as eco-
nomic and political troubles remain acute, and the
regime is in any event fearful of innovation as a result
of the Solidarity experience. On balance, we believe
that over the next few years there will be a limited
economic recovery from the depths reached in 1981-
82, specifically an increase in industrial production,
but no major easing of financial pressures or improve-
ment of living standards and no official solution to
complex agricultural problems.
12. Politically-through the use of the security
services and martial law devices-General Jaruzelski's
regime has scored a tentative success. Thus the princi-
pal immediate threats to its existence-mass public
protests, Solidarity as an institution, and the resistance
movement-seem to have been contained or brought
under control. But long-term threats, including the
force of Polish nationalism, the power and moral
authority of the Roman Catholic Church, and the
spirit of independence fostered by the Solidarity
movement, are still potent. The regime remains trou-
bled by factionalism within the party, which almost
fell apart during the Solidarity era. Heavy dependence
on the Soviet Union both helps and hinders official
efforts to ensure stability. On the one hand, the regime
needs Soviet political and economic support to survive;
on the other, it will almost certainly fail to achieve
legitimacy as long as it is so closely bound to the USSR.
The regime itself seems to regard the Soviets with
mixed feelings, well aware of its need for help from
Moscow but resentful of, and occasionally resistant to,
Soviet pressures. On balance, we foresee a sort of stasis
in Poland for the next few years: the survival of the
Jaruzelski regime (and only a slow rebuilding of the
party), the persistence of popular disapproval and
unhappiness, the continuing influence of the church,
and the perpetuation of an uneasy relationship with
the USSR.
Czechoslovakia
13. Although not suffering from the debt problems
troubling other East European states, the Czechoslovak
economy is in bad shape. Estimated GNP, which rose
at a modest rate from 1975 through 1980, has since in
effect been stagnant. The standard of living has hardly
improved since 1978 (see figure 3). The list of econom-
ic problems facing the Czechoslovak leaders is the
familiar East European one-neglected agriculture,
transportation and energy bottlenecks, rigid manage-
ment, and an enervated work force. And, though
Czechoslovakia is one of the two most industrially
advanced of all East European states, it is saddled with
Stalinist-style central planners, and its industrial base
has become obsolescent and inefficient. Aware of all
this, the regime of Gustav Husak, prodded by a
number of economists and politicians, has talked about
limited economic reform (some decentralization and
emphasis on profitability as a major performance
indicator), but it has done very little to bring it about
and is currently emphasizing technological efficiency
rather than reform.
14. The Husak leadership, in fact, is one of the most
cautious and conservative in the area. Its quislinglike
role after the Soviet invasion of 1968, its general
inflexibility, its repressive rule, and its close and
subservient relations with the Soviets certainly deny it
popular respect and probably any real self-respect as
well. Although a survivor, Husak is not a strong leader,
and, from time to time, the party seems to be divided
within itself. The Czechoslovak people have been for
the most part passive, but lately have begun to grum-
ble about what they perceive to be a decline in living
standards. Factionalism within the party-of the sort
that might accompany a succession struggle-could
one day spread and resurrect pressures for change and
reform from the elites and elements of the population
at large. But we do not think large-scale antiregime
demonstrations and public violence would be likely in
these circumstances-they simply are not in the
Czechoslovak style.
Hungary
15. Hungary under Kadar is the only country in the
Soviet Bloc that is carrying out a program of genuine,
market-oriented reform. Today, some 15 years after
the program was introduced, planning is to a fairly
large extent decentralized, managers of a substantial
number of state enterprises enjoy considerable autono-
my, and many prices are determined by market
forces. Further, private and cooperative enterprises
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Figure 3
Czechoslovakia: Domestic Economic Indicators, 1971-83
-2 1 1 1 1 1 1
I I 1 1 1 1 1 1 1 1 1
0
1 1 1 1 1 1
-15
I I I I I I I I I I I I I
1971 72 73 74 75 76 77 78 79 80 81 82 83 a
a Preliminary estimates.
b Private and social consumptions.
Source: CIA estimates
I I I I I 1
1971 72 73 74 75 76 77 78 79 80 81 82 83 a
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play a major, even vital, economic role, relatively free
of government interference. The standard of living
improved during the 1970s, and gains in agricultural
production and productivity have probably out-
stripped those of any other Bloc state. The Kadar
regime remains committed to gradual and rational
change, consumer welfare, and expanding contacts
with the West, and it is pushing ahead this year with
several additional reforms. Hungary, however, has by
no means been immune to economic problems. Many
of the ills endemic to a centrally planned economy
linger on, the country's resource base is quite limited,
Soviet economic support is declining, the recession in
the West has hurt exports, and debt management
remains a major headache. Growth of GNP has
slipped, and the standard of living is in effect stagnat-
ing (see figure 4). The financial crisis of 1982 has eased
somewhat-principally because of major curbs on
imports and investments, a limited resumption of
Western (including IMF) lending, and hard currency
surpluses in trade with the USSR. But even under the
best of circumstances, financial pressures will remain
acute for the next two or three years, and the Hungar-
ian economy is not likely to grow at more than a
modest rate until the latter half of this decade.
16. Despite growing concern about trends in living
standards, the majority of the Hungarian people ap-
parently regard the Kadar regime as distinctly prefer-
able to any realistically conceivable alternatives. There
is some actively expressed intellectual dissidence, dis-
affection among urban youth, and unhappiness among
industrial workers who resent wage, incentive, and
pricing policies they consider discriminatory. But the
regime's efforts to build a national consensus and its
relatively tolerant approach to dissidence, coupled
with the general public's strong memories of the
abortive revolution of 1956, seem to have defused
most forms of opposition. On the whole, while the
regime seems somewhat nervous about the public
mood, the society seems basically stable, as it has been
for the past 15 years or so. Within the party, while
there is some debate over the pace and direction of
reform policies and of their impact on industrial
workers, Kadar and his supporters are in unchallenged
control. Even after Kadar departs (he is 72 and in
fairly good health), we believe that, barring Soviet
interference or a prolonged economic downturn, dom-
inant elements in the party will continue to see in the
Kadarist compromise approach the best way to pre-
serve stability, socialism, and their own privileged
positions in Hungarian society.
17. Romania's economic problems are among the
worst in Eastern Europe, and the Ceausescu regime-
managerially inept and ideologically committed to
forced-draft industrial development-seems one of the
least likely in Eastern Europe to address its problems
effectively. Even after years of statistically impressive
growth, Romanian living standards are probably the
lowest in Soviet-dominated Eastern Europe, have not
improved since 1980, and in certain key respects-the
availability of food and fuel-have gotten much
worse. The morale and productivity of the workers
have suffered accordingly. The growth of GNP began
to slow down in 1975, turned erratic in the late 1970s,
became negative in 1980, and has been weak ever
since (see figure 5). Energy problems are acute and the
agricultural sector is in very bad shape. The collapse of
Western lending and Bucharest's need to reschedule
its debts has led Ceausescu to make enormous cuts in
imports. (Total imports dropped by a quarter in '1982,
hard currency imports by a third.) Finally, there is
little reason to anticipate improvements in economic
performance-or living standards or worker morale-
over the next few years. In fact, the foreign trade
problem-specifically, the generation of surpluses
through draconian cuts in imports rather than through
export growth-is likely temporarily to damage the
economy. And, while Bucharest has crossed one hump
in its debt maturity schedule, Romania still has to cope
with the expiration of the IMF standby credit, possible
arrears from 1983, and continued restricted access to
credits. Moreover, the breathing space associated with
rescheduling ends in 1985, when Bucharest must begin
to repay obligations rescheduled in 1981.
18. Ceausescu, in power for about 19 years, com-
pletely dominates Romanian political life. He is an
absolute ruler and, together with his immediate entou-
rage (including his politically powerful wife), makes all
important decisions. Ceausescu's control rests in large
part on his use of the secret police and the frequent
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Figure 4
Hungary: Domestic Economic Indicators, 1971-83
I i I i I i I i I i I i I
-2
I i I i I i I i I i I i I 1 i 1 i 1 i 1 i 1 i I i I
-2 -10
1971 72 73 74 75 76 77 78 79 80 81 82 83 a
a Preliminary estimates.
b Private and social consumptions.
Source: CIA estimates
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1971 72 73 74 75 76 77 78 79 80 81 82 83 a
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Figure 5
Romania: Domestic Economic Indicators, 1971-83
l i l i l i l i l l l l l
-5
I l l i l i l i l i l l l
-5
I I I I I I I I I I I I I
-20
1971 72 73 74 75 76 77 78 79 80 81 82 83a
a Preliminary estimates.
b Private and social consumptions.
Source: CIA estimates
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transfers and firings of government and party bureau-
crats. There is, as far as we know, no organized
opposition to Ceausescu. Still, disaffection may now be
almost universal; the people seem increasingly weary
of oppression and deprivation-which is likely to get
worse this winter-and the elites are becoming more
and more openly resentful of clumsy and capricious
administration. Further, Ceausescu may no longer be
able to count on his stance as a nationalist to prop up
his personal political standing. In sum, Ceausescu's
vulnerability to political challenges is, we think, in-
creasing as a result of the economic decline; his
apparent inability or unwillingness to cope with it
effectively; and his harsh, arbitrary, cult-of-personal-
ity style of leadership. Following Ceausescu's depar-
ture from office, forced or otherwise, the redistribu-
tion of power will be a complex task and could result
in a sharp succession struggle. This, if prolonged,
would almost certainly invite Soviet meddling and
could even spill over into the streets.
Bulgaria
19. The Bulgarian economy is faring somewhat
better than the economies of other East European
states. GNP, which has suffered from bad harvests in
1980 and 1983, has nonetheless grown at a moderate
pace since 1978 (nearly 2.0 percent); living standards
have improved (at a slow pace) for several years (see
figure 6); and debt to the West has been kept to a
manageable size (see table). This is, in fact, a success
story of sorts-no other East European country has
been able to maintain both growth and financial
health in recent years. One of the reasons for this has
been the regime's skill in hewing to a conservative
financial line since 1975. But much of the country's
relative prosperity is attributable to economic support
provided by the USSR, which accounts for about half
of Bulgaria's total trade and which-at least until the
last year or so-has conducted that trade on terms
very favorable to the Bulgarians. (Even Sofia's trade
surpluses with the West have depended to a significant
degree on Moscow's willingness to tolerate Bulgaria's
profitable reexport of Soviet oil to hard currency
countries.) The country's economic prospects-GNP
growth around 2 percent a year and continuing, slow
rises in living standards-seem reasonably bright. But
they would dim substantially if Soviet support (already
declining) were cut back severely.
20. Todor Zhivkov has maintained firm control of
the Bulgarian party and government since the early
1960s, partly through his skills as an autocrat, partly
by serving the Soviets in an exemplary manner. But
Zhivkov is now 72 and recently has seemed somewhat
less sure of the orthodoxies of the past. He has
indicated a desire to improve contacts with the West,
encouraged once-forbidden expressions of Bulgarian
nationalism, and allowed domestic economic policies,
especially in agriculture, to reflect a hitherto rare
willingness to experiment cautiously with non-Soviet
concepts and structures. Zhivkov may be concerned
about the public's mood, which, while apparently not
restive, does not seem to be actively supportive either.
He may thus be seeking a better way to run the
country before he leaves the scene, and he may also be
flirting with the idea of compensating for declining
Soviet subsidies with new arrangements-larger cred-
its, expanded trade-with the West. While members
of the Bulgarian Politburo seem to be loyal to Zhivkov,
they fall roughly into two policy camps, the doctrinal
and the pragmatic, and apparently differ over such
issues as economic reform, cultural policies, and na-
tionalism. This argues for serious contention within the
party when Zhivkov departs.
Eastern Europe As a Whole: Policy Alternatives
21. Given the gravity of their problems and the
clear inadequacies of traditional ways of dealing with
them, the East European regimes might well be
expected to turn toward new and better ways to cope.
But only the Hungarian leadership, and to a much
lesser extent the Bulgarian, have so far actually done
so. The East Germans are trying to revitalize the old
command system, but their means are not essentially
new and seem likely to bring only marginal improve-
ments in efficiency and performance. And, in the
absence of Soviet pressures to undertake extensive
reform programs, the other regimes have been trying
in the main to muddle through.
22. Systemic reform, comparable, say, to that under
way in Hungary, has been forestalled by a variety of
factors. Many leaders and bureaucrats are no doubt
afraid that economic reform will require meaningful
political relaxation and major sociopolitical reforms as
well. And-with the image of Dubcek's Czechoslova-
kia in mind-they fear that this could, in turn, lead
not only to a dilution of the power of the party and a
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Figure 6
Bulgaria: Domestic Economic Indicators, 1971-83
-4 1 1 1 1 1 1 1 I- 1 1 1 1 1
1971 72 73 74 75 76 77 78 79 80 81 82 83a
a Preliminary estimates.
b Private and social consumptions.
Source: CIA estimates
I I I I I I I I I 1 1 1 1
1971 72 73 74 75 76 77 78 79 80 81 82 83a
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debasement of its ideology but also to a dangerous
instability, especially if-as has happened in the
past-various elites, interest groups, dissidents, and the
people themselves sought to test their political
strength. The regimes know in any case that reform
could not improve economic performance quickly
and, indeed, could temporarily retard growth, provoke
unrest among those threatened with job loss, and
agitate consumers faced with further price increases.
23. But, in our view, promising alternatives to far-
reaching reform or to trying to muddle through simply
do not exist:
Western lending to Eastern Europe has fallen
off dramatically since 1980. Understandably,
Western bankers, governments, and international
institutions are not now bullish about East Euro-
pean economies, and future lending will be more
selective and restrained than it once was. In any
case, the overextended East European regimes,
while still probably eager to acquire Western
capital and know-how, are now well aware of the
perils of overborrowing and presumably will be
more careful in the future.
- Austerity, manifested principally in the form of
cuts in imports and investments (and reflected in
stagnating standards of living), is already severe
in all these countries save Bulgaria. But it is, as
currently practiced in most of these countries, an
aspect of muddling through, less a program than
a jury-rigged reaction to economic events and
political concerns. The enactment of even
harsher, more systematic measures would proba-
bly further damage living standards and would
have to be coupled with heavier political repres-
sion as well. And such measures would not only
risk protests and strikes and further declines in
worker morale and productivity, but would also
seriously jeopardize whatever prospects remain
for the eventual resumption of healthy economic
growth.
- Soviet aid, principally in the form of concession-
ary prices for certain raw materials (notably
crude oil), was substantial during the 1970s but
has been declining as a result of: rising Soviet raw
material prices; the USSR's own economic diffi-
culties, which encourage Moscow to cut back on
some deliveries, to demand East European goods
of better quality, and to look for ways to reduce
its trade surpluses; and the apparent conviction
of the Soviets that further belt tightening by the
East European regimes is a sensible, perhaps
necessary, way for them to proceed and for the
Soviets to reduce costly economic concessions.
There thus is little chance that levels of Soviet aid
will rise anywhere in Eastern Europe in the
visible future.
24. The USSR exercises predominant foreign influ-
ence in each of the East European states and maintains
basic limits on East European independence. Commu-
nist Party control and membership in the Warsaw
Pact, for example, are both mandatory. The exercise
of the USSR's hegemony does, however, vary accord-
ing to time, place, and circumstance, and some of the
regimes have won substantial authority over the con-
duct of their own affairs. (Important in this regard are
the amount of confidence an East European leader
enjoys in the Kremlin and his political strength at
home. Kadar, for example, evidently acts with consid-
erably greater latitude than Husak, in part because he
is personally held in high repute in Moscow and is
securely in command in Budapest.) In any event, the
Soviets often encounter circumvention and resistance
to their pressures and accept developments rather than
provoke a crisis over them.
25. There are only limited elements of differentia-
tion in Soviet policy toward the East European states.
On the one hand, the three northern-tier countries
(East Germany, Poland, and Czechoslovakia) are stra-
tegically and economically the most important to the
USSR, and this is reflected in trade statistics, the
quantity and quality of weapons shipments, and in-
deed in war plans. Moscow also seems in effect to have
punished Romania for its maverick foreign policies by
refusing to sell it oil on terms as favorable as those
given other East European countries, and it has in the
past threatened economic reprisals against states that it
feared were departing radically from Bloc norms (for
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example, Czechoslovakia in 1968 and Poland in 1981).
But beyond this, Moscow has not established a clear
pattern of differentiating between the various coun-
tries on the basis of their political and ideological
fidelity or their economic performance. (Thus,
Czechoslovakia, probably the most orthodox and sub-
missive of the lot, does not, as far as we know, receive
any more favorable treatment than reformist, cau-
tiously autonomous Hungary.) This approach, which
has governed Soviet behavior since the mid-1960s, did
not seem to change under Andropov.
26. Andropov nevertheless had implied that his
predecessor's policies toward Eastern Europe were lax.
Yet, despite long experience in and with the area, he-
like Brezhnev and Khrushchev before him-did not
reveal a capacity or unveil a consistent strategy for
dealing with long-term Soviet problems in Eastern
Europe. His prescription for East European economic
problems, not unlike that for the USSR itself, seemed
to be greater productivity through increased labor
discipline, a crackdown on corruption, and closer
economic integration via CEMA.3 At the same time,
however, Andropov also suggested the desirability of
national solutions for national problems by emphasiz-
ing the need for pragmatic and innovative economic
adjustments and attacking (anonymous) officials who
cling to outmoded policies and doctrines.
27. Not surprisingly, these mixed signals from Mos-
cow, together with Andropov's health problems,
caused some confusion and concern in Eastern Eu-
rope. Until roughly midyear 1983, for example, con-
servative elements in the East European parties appar-
ently feared that Andropov would press hard for
innovation and change; after some initial optimism,
liberal circles began during the summer to fear that he
would not. Some East European leaders who were
close to Brezhnev, including Zhivkov and Husak, did
not seem at all enthusiastic about the new Andropov
regime, and it would be surprising if most were not
now apprehensive about the course of Soviet politics
' Moscow has long sought to integrate the CEMA economies
through the coordination of economic and foreign trade plans,
specialization in production, participation in joint investment pro-
jects, and the establishment of links among- enterprises. Past efforts
have for the most part foundered because of the East Europeans'
reluctance to concede greater Soviet control; difficulties over the
past year or so in convening a CEMA summit conference testify to
continued East European resistance.
over the next several years. But none of the regimes
seem since Brezhnev's departure in late 1982 to have
made any appreciable changes in their own policies or
in the ways in which they deal substantively with the
USSR. Indeed, indications are that a majority of them
continue to resist Moscow's efforts to enhance the role
of CEMA and to boost East European defense expend-
itures, most seem uncomfortable with Soviet INF
countermeasures in Eastern Europe, and at least three
of them-Romania, Hungary, and Bulgaria-still
seem reluctant to join in a wholly unified Bloc posture
vis-a-vis the West.
The Current Western Role
28. Trade between Eastern Europe and the devel-
oped West (Western Europe, the United States, Cana-
da, Australia, and Japan) has declined in recent years,
partly because of the recession in the West but
principally because the financially squeezed East Eu-
ropeans have had to make sharp cuts in imports. (As a
share of the total trade of each country, the West in
1982 accounted for from 13.6 percent to 27.1 percent;
the range in 1975 was 17.1 percent to 40.7 percent. See
figures 7 and 8 for trade shares and trends in the
values of Eastern Europe's hard currency trade.) The
West, however, plays a much more important role in
East European economic development than overall
trade statistics might indicate. It supplies significant
quantities of grain and livestock feedstuffs, chemicals,
and technologically advanced machinery, none of
which are easily available elsewhere. It also probably
remains, in the minds of many East Europeans, the
only source of the kind of technological and manageri-
al know-how these countries need to cope effectively
with their economic problems. Moreover:
- The fundamental economic difficulties that im-
pelled the East Europeans to seek a major expan-
sion of economic relations with the West in the
early 1970s still exist and are now, if anything,
even more pressing.
- Although East European financial constraints
now limit Western exports to the area, a number
of West European governments and commercial
interests still see the East as, potentially, a major
market, and expanded trade with the area as a
potential source of large profits (and a way to
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Figure 7
Eastern Europe: Trade Shares
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Figure 8
Eastern Europe: Hard Currency Trade
Billion US $
0 1 1 1 1 1 1 1 1 1 1 1 1 1
I I I I I I I I I I I 1 1
1971 72 73 74 75 76 77 78 79 80 81 82 83 a
a Preliminary estimates.
0 1 1 1 1 1 1 1 1 1
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Imports
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reduce unemployment in depressed industries).
Most West European governments seem, in addi-
tion, to regard economic ties as useful for shelter-
ing political contacts during a period of increas-
ing US-Soviet tension, as suggested by West
European emergency financial aid to Hungary in
1982, West Germany's large credit guarantee for
East Germany in 1983, and, in general, Western
Europe's relatively accommodating position con-
cerning the rescheduling of Polish debt.
The Overall Outlook
29. Despite severe economic and political problems,
the East Europeans (excepting the Hungarians) seem
likely, at least for the next few years, to continue to
temporize. Some of them (for instance, the Bulgarians)
will experiment with economic reform, others (includ-
ing the East Germans) will seek solutions in a more
efficient command system and technologically in-
spired improvements in productivity. Time can be
bought by trying to muddle through in this manner
but, in our view, notable progress toward prosperity
and stability cannot. (For its part, the Soviet regime
will probably go along with diverse, essentially tempo-
rizing policies, even as it also seeks to bolster its ability
eventually to move the East Europeans into lockstep.)
Eastern Europe is thus likely, we believe, to remain a
"depressed area"-and a potentially volatile one-for
at least the next few years.
30. This is not to say that major crises (accompanied
or occasioned by political turmoil or widespread disor-
der or both) are inevitable during the balance of this
decade. But popular disaffection in Eastern Europe is,
we think, more likely to grow than diminish, and
agitation for new, more effective approaches will
continue to stir the politics of the area, if not the
policies. There are, moreover, at least three contingen-
cies which could, singly or in combination, help to
provoke a crisis in one or another of these countries
comparable in import to some of those of the past:
-A further intensification of economic troubles
(and/or popular perception of the same), espe-
cially if mishandled by an inept regime (as in
Czechoslovakia in 1953, East Germany in 1953,
and Poland in 1970 and 1980-81).
- Serious disarray within the parties caused in
part by succession-related infighting, especially if
it leads to, or is preceded by, the involvement in
politics of other domestic interest groups and,
perhaps, the public as well (as in Hungary in
1956, Czechoslovakia 1968, and Poland 1980-81).
- A succession struggle in the USSR, of an intensi-
ty sufficient, inter alia, to disrupt policy toward,
and/or to contribute to party disarray within,
Eastern Europe (as was the case after Stalin's
death in 1953 and, to a lesser extent, after
Khrushchev's ouster in 1964).
31. We are not able to estimate the likelihood of
these contingencies, and we are not able to define with
any precision the possible effects of such contingen-
cies, should they come to pass. It is conceivable that
the post-Andropov leadership will find better solutions
to its problems in Eastern Europe than its predecessors
did. But we do not think this at all likely, at least in the
near term; the roots of these problems lie too deep for
quick and easy amelioration. We feel, in fact, largely
on the basis of the actual postwar record and our
reading of the current troubled scene in. Eastern
Europe, that (whoever is ruling the USSR) the odds
favor the occurrence of political crises within one or
more of the East European states, and/or between one
or more of these states and the USSR, before the
decade is out. There have been, by our count, 10
significant crises in Soviet-dominated Eastern Europe
since the establishment of Soviet hegemony after
World War II.' And the signs of the times-economic
adversity, impending changes in East European lead-
erships, the possibility of succession-related difficulties
in the USSR-certainly do not now seem to portend
stability in Eastern Europe, even if they do not
necessarily foreshadow turmoil (see figure 9).
32. Two sets of circumstances seem to be the most
likely to provoke unrest and mass popular protests in
Eastern Europe:
- The first is a move by a regime to correct or
alleviate serious economic imbalances-for ex-
' In 1948, the Yugoslav break with the Bloc; 1953, the insurrection
in East Berlin and other cities of East Germany; 1953, the major
riots and (temporary) loss of regime control in Plzen, Czechoslova-
kia; 1956, the political crisis in Poland (which brought Gomulka to
power); 1956, the Hungarian Revolution; 1961, the Albanian defec-
tion from the Bloc; 1964, the Romanian "declaration of indepen-
dence"; 1968, "the Prague Spring"; 1970, the Baltic Coast riots in
Poland; and 1980-81, the Solidarity era in Poland.
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Figure 9
Stability Assessment of Eastern Europe, 1984
Factors Affecting Stability Assessment
Economic Standard Regime Character of ' Popular Current Rank Stability Trend
Growth (GNP) of Living Cohesiveness Regime Rule Morale Stability
(Prospects
1984-85)
Hungary 1.0 Good, Good Fairly Pretty good Pretty good I Decreasing
declining benign but declining slightly
somewhat somewhat
Bulgaria 1.5 Fair, Fairly good Firm, Fair Fair 2 Steady
improving slowly repressive (much apathy)
East Germany 1.0-2.0 Good but Good Firm, Sagging Fair 3 Decreasing
probably repressive slightly
declining
Czechoslovakia 1.0 Fair to good but Fair Rigid, Depressed Poor to fair 4 Decreasing
probably repressive slightly
declining
Poland 1.0-1.5 Fair Poor Firm, selectively Bad Poor 5 Steady
repressive
Romania 1.5 Poor, Fragile Rigid, very Bad, and Poor 5 Decreasing
declining repressive declining
Note: The intent of this chart is to permit cross-country comparisons and to
weigh in rough fashion overall trends in stability in each country.
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ample, excessive wages, overly subsidized prices,
or-inflated currencies-largely at the expense of
the consumer. This has happened in the past in
Czechoslovakia (1953), East Germany (1953), and
in Poland (1956, 1970, 1976, and 1980) each
instance involving large-scale demonstrations and
riots. While other grievances and political frus-
trations certainly played a role, the immediate
causes of worker outrage were narrowly
economic.
- More complex in origin, expression, and effect,
the second set of potentially disruptive circum-
stances has three times led to revolutions in
Communist Eastern Europe (in Hungary 1956,
Czechoslovakia 1968, and Poland 1980-81).
Though well nourished by economic discontent,
the roots of these revolutions were in large part
political and social, and in each case, the re-
gimes-torn by related dissension within their
own parties-found themselves unable to with-
stand massive pressures for change. At the same
time, in the case of the Hungarian and Czecho-
slovak revolutions, succession-related uncertain-
ties and disagreements over how best to proceed
prevented the Soviet leaderships of the time from
dealing effectively with the onset of troubles.
33. Should there be another major crisis in an East
European Warsaw Pact state, any Soviet leadership
would, we believe, try initially to contain it without
resort to force. But if the Soviet leadership concluded
that the USSR's hold on that state (or, a corollary, the
local Communist regime's hold on power) were being
lost, then it would almost certainly elect to intervene
militarily.. There can be little doubt that the first
priority of the Soviet Union in Eastern Europe is to
preserve its dominion, imperfect as that may be. We
think it also true, however, that most of the East
Europeans retain substantial room for maneuver short
of that point where the Soviets would feel compelled
to use force. For the East Europeans, the lesson of past
Soviet military interventions (and noninterventions)
has been, we think, threefold:
- Moscow will move militarily if need be.
- But it may be indecisive about what precisely
constitutes need in any given circumstance.
- And (as was the case vis-a-vis Poland in 1981 and
has been the case concerning Romania since
1964) it will run a certain risk and pay a certain
price to avoid intervention.
Implications for the United States
and the West
34. Some fundamentals of the relationship between
the major parties involved in Eastern Europe seem
likely to apply for the foreseeable future:
- At least low-key or hidden contention between
Eastern Europe and the USSR will persist, and
this will among other things help to keep alive
East European interest in better relations with
the West.
- Contention between the West and the USSR
concerning, among other things, the fate of East-
ern Europe will also persist.
- Western Europe and the United States will con-
tinue to share the broad, basic hope that Eastern
Europe will be able over time to move away
from Soviet dominance and toward the Western
democratic model.
- But the West European countries and the United
States will from time to time disagree, perhaps
vehemently, over such questions as how best to
achieve their broad objectives in Eastern Europe
and how best to relate the pursuit of these
objectives to the conduct of East-West affairs in
general.
35. The West Europeans believe, in very general
terms, that history and geography have given them
unique insights into the problems of Eastern Europe,
years of Iron Curtain separation notwithstanding. In-
deed, many West Europeans seem persuaded that the
isolation of Eastern Europe was substantially mitigated
during the 1970s, largely as a result of their efforts to
expand East-West economic relations and to create a
detente-related relaxation of political tensions in Eu-
rope. And despite the unsettling events in Poland and
the financial crisis of the early 1980s, they apparently
believe that the atmosphere of the 1970s can and
should be created anew, that East and West Europeans
share an interest in alleviating US-Soviet tensions, and
that, over time, some or all of the East European states
can be eased back into the mainstream of European
life. They are in any case reluctant to jeopardize their
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economic stake in the area-far larger than that of the
United States 5-by applying pressure and pursuing
tough policies.
36. West Germany is particularly anxious to avoid
disruptions in its relations with Eastern Europe. All
West German considerations of policy toward the
East, in fact, are affected by Bonn's apprehensions and
aspirations in regard to East Germany, specifically the
fear of both major West German political parties that
serious instability in the GDR would hurt the East
German people, damage West German leverage, and
ruin whatever chances there are for ultimate
reunification.
37. We believe that, whatever the particular poli-
cies and disagreements of the NATO powers, the West
will in the short run possess only a limited ability to
influence the course of events in Eastern Europe. But
acute East European economic needs, and the USSR's
unwillingness or inability to satisfy them, do provide
the West with some continuing leverage in the area.
Some regimes-the Romanian, Hungarian, and per-
haps some others to a lesser degree-appear modestly
susceptible to Western economic pressures and induce-
ments. Hungary, anxious for better economic ties, still
seems to want to cultivate friendly political relations
with the West as well (though in d rather vague and
low-key way); Romania is apparently still eager for
Western political support; and even Bulgaria has
recently shown signs of seeking better relations with
the West, including the United States. Still, dramatic
movement toward closer relations with the West does
not seem likely in the near term, or at least so long as
East-West tensions-and thus Soviet pressures for con-
formity on major foreign policy issues-remain high.
38. In the longer term, however, we believe that-
barring certain contingencies, such as another explo-
sion in the area-opportunities for some expansion of
Western, especially West European, influence in the
area are likely to grow. Many, perhaps most, of these
regimes will, we think, try quietly over time to
'In 1982, the total trade of Western Europe (the four largest
countries plus seven others, including Austria) with the six East
European countries amounted to about $26.6 billion, or almost 14
times US trade with the same states (about $1.94 billion). In the same
year, Western Europe's share of Eastern Europe's hard currency
debt to non-Communist countries (roughly 60 percent of some $62
billion) was more than five times that of the United States.
increase their ability to pursue essentially national
solutions to national problems. And some of them may
come to understand, as Hungary apparently already
has, that they need domestic economic and political
reform and Western help-trade, credits, know-
how-if they are ever to achieve lasting health for
their economies and ever to establish a secure and
long-lasting modus vivendi with their own peoples.
Thus we believe that the prudent use of Western
economic levers and political pressures could over
time help to reinforce any moves toward market-
oriented reform and autonomy in Eastern Europe (or,
conversely, discourage the opposite.)
39. But risks would accompany any effort by the
West to increase its economic and political leverage in
Eastern Europe. The renewal of lending at high levels
would of course involve serious financial risks for the
lenders and thus might require greater than usual
governmental participation and guaranty programs. It
might in any case-and once again, as in the 1970s-
have unintended results, that is, provide the East
European regimes with the wherewithal to avoid hard
policy choices between Communist "principles" and
rational economic acts. And, to increase its leverage,
the West might have to consider the use of a number
of new and perhaps controversial approaches to East-
ern Europe, such as expanding membership in the
IMF, pursuing agreements between the East European
countries and the European Community, or assuming
politically motivated aid programs with more stringent
conditions than imposed in the 1970s.
40. Further, whatever its approach, the West al-
most certainly will not itself be able to create the
conditions that give rise to East European moves
toward economic flexibility and independence. Post-
war history-from the Yugoslav-Soviet break of 1948
to the Solidarity era in Poland, 1980-81-suggests that
the initiative for change in Eastern Europe must arise
in the main from within. It also suggests that each East
European regime will bring into its relations with the
West-as indeed each does in its relations with the
East-its own peculiar set of wishes, suspicions, ideo-
logical prejudices, and apprehensions about Soviet
attitudes. Accordingly, even in the best of circum-
stances, the movement of the East European countries
toward the West-if indeed there is to be such-
would probably be uneven and halting. It would also
probably be partly concealed.
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41. East European perceptions of the Soviet Union
are crucial in this context. An element of Moscow's
strength in Eastern Europe rests on the USSR's reputa-
tion as a resolute and dynamic superpower, led by
men skillful and strong enough to make the tough
decisions. When that reputation and image of leader-
ship have been undermined-as in the mid-1950s
(after the death of Stalin) and, to a lesser extent, in the
late 1960s and perhaps the late 1970s-troubles in
Eastern Europe have multiplied. Should that happen
again, through divisions and indecision in the Kremlin
and/or major Soviet setbacks on the international
scene, pressures in Eastern Europe for change, inde-
pendence, and movement toward the West would
probably grow, and could do so rapidly.
42. For their part, in the event of growing Western
economic and perhaps political involvement in East-
ern Europe, the Soviets will face essentially incompati-
ble objectives: they will be determined to guard their
hegemony-and the "purity" of the local parties-
against Western inroads; at the same time, they will
wish to steer clear of actions in Eastern Europe that
might compromise their "detente" policies in Western
Europe and their efforts to fray and ultimately sever
the ties between the United States and its NATO
partners. Similarly, concerning East-West European
economic relations, the Soviets will be of two minds,
on the one hand hopeful that Western "aid" could
help ailing economies and concerned that the USSR
would have to take up some of the slack if Western ties
were once again greatly reduced, but on the other
quite wary of East European dependence on Western
goods and credits.
43. On balance, we believe that, short of a major
crisis in the area, these competing objectives will not
be resolved. Further, while the Soviet Union will
maintain limits within which the East European re-
gimes will have to operate, it is unlikely to develop an
effective, consistent strategy for dealing with the long-
term problems of Eastern Europe. This, together with
the USSR's probable inability to provide adequate
economic assistance, is likely, in our view, to give those
East Europeans who seek them new opportunities to
push back the bounds of the permissible.
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