EUROPEAN REVIEW

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP87T00289R000100080001-0
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 23
• Document Creation Date: December 22, 2016
• Document Release Date: March 8, 2011
• Sequence Number: 1
• Publication Date: November 20, 1985
• Content Type: REPORT

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Directorate of
Intelligence
U'Utl Y
ILL
H TT GIVE OUT
CO
O MARK ON
European Review
Seeret
EUR ER 85-026
20 November 1985
Copy 4 4 8
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European Review
United Kingdom: Pushing To Speed Up Privatization
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West Germany-Greece-Turkey: Military Assistance
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West Germany: Broader Growth in 1986
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Acid Rain Problem Wor
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Bulgaria: Increasing Soviet Economic Pressure
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Canada: Federal-Provincial Tangles Brewing
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Switzerland: Foreign Minister Under Fire
F
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Defense spending among the NATO Allies increased only slightly in
1984, with only five meeting the Alliance goal of near 3-percent real
growth. Preliminary figures for 1985 and plans for 1986 suggest this
trend will continue and may well worsen, forcing more delays in
procurement and further cuts in operations and maintenance
funding.)
Belgium, once relatively untouched by terrorism, now finds itself
increasingly vulnerable because of its open borders, large number of
attractive international targets, and the appearance of indigenous
terrorist groups during the past year. A national counterterrorist
body, championed by Minister of Justice Jean Gol, was established
in September 1984, but a lack of training and experience, continuing
interservice rivalries, and austere budgets will impede Belgium's
counterterrorist efforts for some time to come.)
i Secret
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20 November 1985
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Some articles are preliminary views of a subject or speculative, but the contents
normally will be coordinated as appropriate with other offices within CIA.
Occasionally an article will represent the views of a single analyst; these items
will be designated as uncoordinated views. Comments may be directed to the
authors,
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London is seeking to offset overruns in public spending and deliver promised tax
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Treasury records proceeds from privatization as negative public spending rather
than revenue, increased sales would enable the government to achieve its planned
spending totals for 1986-87 despite budget overruns in several departments.
During the opening week of Parliament, the government revealed plans to
introduce legislation to privatize four major entities-the British Gas Corporation,
Atomic Energy Authority, British Airports Authority, and Royal Naval
Dockyards-but did not specify the amount of funds expected from the sales.
growth potential.
The bill probably will obtain Parliamentary approval despite misgivings about the
wisdom of selling off state assets as a short-term way of raising money. The sale of
British Gas most likely will present the greatest problem; critics question the
means of determining a proper valuation and regulatory mechanism needed for the
corporation when it is no longer state owned. Moreover, many financial analysts
believe that the actual sale of British Gas-which would represent the largest
privatization deal to date-could prove difficult because of the size of the project
and the fact that its outstanding stock is not a high-technology issue with rapid
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EUR ER 85-026
20 November 1985
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Recent forecasts-including the joint projection of the FRG's five major economic
research institutes and that of CIA's econometric model of the West German
economy-agree that economic growth next year not only will increase but also be
more broadly based. In particular, personal consumption and construction are
expected to revive and support the export surge that has been the mainstay of
growth over the past two years. The consensus foresees 3-percent real growth in
1986 after 2.2 to 2.5 percent this year. F_~
An important projection for the Kohl government, as the January 1987 election
approaches, is that the unemployment rate should edge down 0.2 to 0.3 percentage
points-the first decline since 1979-to just over 9 percent. Despite slower growth
in real exports, next year's trade surplus probably will surpass even this year's
expected record $30 billion. West German officials are concerned that the rapidly
mounting surplus will intensify calls from abroad to stimulate the economy to
boost imports. They will cite the forecasts of improved growth prospects as
evidence that such actions are unnecessary.F__1
West Germany Acid Rain Problem Worsens
Rapidly growing damage to West German forests from acid rain probably will
lead Bonn to press harder for international environmental cooperation. The
government's still-confidential 1985 report on the health of the nation's forests,
leaked to the press, estimated that 52 percent of the nation's trees are damaged. By
contrast, last year's report found 50 percent damaged, the 1983 report 34 percent,
and in 1982 only 8 percent. Although the rate of increase appears to be slowing,
the percentage of forest showing medium damage-26- to 50-percent needle loss-
has risen rapidly in some areas. Environmental groups are calling on Bonn to
declare a state of emergency to save the forests and to introduce a host of tough,
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new domestic environmental regulations. However, half of West Germany's acid
rain comes from foreign sources, particularly France, Britain, and East Germany,
according to government statistics.)
Bulgaria is under pressure from Moscow to improve economic management and
increase integration with the USSR. F]
Sofia on 18 October named Ivan Iliev to replace Stanish Bonev as State Planning
Committee Chairman, a cabinet-level post. Reflecting Soviet pressure to improve
economic management, editorials in the Communist Party daily criticized plan-
ning officials for failure to adopt modern planning methods and goals and for
failing to provide adequate resources and incentives for introducing modern
industrial technology. Planning officials were also cited for failure to plan for
adequate maintenance and modernization of electric power plants, thereby
contributing to Bulgaria's energy problems this year. F]
Sofia recently has responded to Soviet pressure to increase economic integration
and improve the quality of its exports to the USSR. According to Bulgarian
Machine Building Minister Doynov, the agreements to establish joint associations
for advanced industrial automation signed during the Gorbachev visit represent a
higher form of economic integration between Bulgaria and the USSR. Following
Gorbachev's visit, Sofia created a government committee to address quality
problems.n
Sofia's economic difficulties, expected to continue this winter, have triggered
Soviet criticism of the regime's economic mismanagement and fueled rumors that
Gorbachev lacks confidence in Zhivkov. The new joint industrial association
agreements and the dismissal of Bonev suggest that Moscow intends to push
Bulgaria not only for increased economic integration and better quality exports but
also for more effective economic management as well. Although some Bulgarian
leaders may resent Soviet interference, Bulgaria's heavy dependence on the USSR
for supplies and markets limits the regime's ability to resist Soviet pressure.
Ottawa's decision to permit a Nova Scotian fishing company, National Sea, to
operate a trawler capable of catching and processing fish at sea seems destined to
spawn a three-way quarrel among the federal government, Nova Scotia, and
Newfoundland. National Sea and the Government of Nova Scotia had requested
permission to use the factory-freezer trawler to allow the company to operate
further out at sea where stocks are more plentiful. The Government of
Newfoundland and fishing firms in the province opposed the plan because it would
permit Nova Scotia's fishermen access to cod stocks off Newfoundland for the first
time, and more important, because it would reduce fish stocks available to
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Newfoundland's traditional coastal fishery. Much of Newfoundland's rural
economy depends on the coastal fishery's catch to provide fish for processing in
plants located in isolated communities.F_~
Ottawa's decision is another step in an effort to modernize Atlantic coast fisheries
as well as an attempt by Prime Minister Mulroney's Tory government to restore
some of the political support lost in Nova Scotia since the election in 1984.
Nonetheless, the action is spurring sharp protests from Tory Premier Peckford of
Newfoundland, who is accusing Ottawa of ignoring arguments that the trawler
will ruin his province's coastal fishing industry. Ottawa's seemingly innocuous
decision on the trawler probably marks the opening of a renewed period of federal-
provincial bickering-Ontario already nurses a grudge against Ottawa's refusal to
let domestic natural gas prices decline, and Quebec is angry over the federal
government's failure to provide job-creation funds for Montreal-reminiscent of
the Trudeau era's strife Mulroney promised to end.F_~
Foreign Minister Aubert's activism is drawing increasing criticism from the media
and parliament, according to press and US Embassy reports. Aubert has been
urging intensified Swiss efforts to mediate international conflicts, but many
commentators argue that his public statements and frequent foreign travels
naively exaggerate Bern's influence. During the Achille Lauro hijacking, for
instance, Aubert misleadingly implied he was playing a key role in helping to
resolve the crisis. Aubert told parliament he carried a confidential message from
Egypt to Israel in October-an indiscretion Egyptian President Mubarak has
denied.)
Aubert's activist vision is unlikely to change the prevailing Swiss concept of armed
neutrality, which accepts a peacemaking role but fears excessive entanglement in
foreign conflicts. Few observers expect Swiss voters to approve a referendum
proposal for full UN membership next March, a move Aubert vigorously supports.
The press is speculating that parliament may show its displeasure by declining to
elect him vice president of the Federal Council next month, as previously agreed
among the parties. A defeat would not remove Aubert as foreign minister, but it
might prompt him to resign or-at a minimum-become more cautious in
undertaking new foreign policy initiatives. F_~
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NATO: Little Growth in
Defense Spending
NATO: Real Growth in Defense
Spending, 1984-86
Defense spending among the NATO Allies increased
only slightly in 1984, with only five meeting the
Alliance goal of near 3-percent real growth.
Preliminary figures for 1985 and plans for 1986
suggest this trend will continue and may well worsen,
forcing more delays in procurement, and further cuts
in operations and maintenance funding. Austerity
limited the Allies to increases in real defense spending
that averaged only 1.7 percent in 1984, following even
more modest growth of 0.7 percent in 1983. The
increases were lower than the Allies had projected,
and spending, in fact, decreased in several NATO
countries.)
The Big Four
Of the four major Allies, only the United Kingdom
exceeded a 3-percent real increase in 1984. London,
however, has publicly abandoned the 3-percent goal
and is now projecting annual declines in real spending
through 1987. The British claim greater efficiency in
procurement will offset much of this decline.
Although the Army has been able to buy more tanks
because of savings through improved purchasing
practices, the Air Force has cut back on flying time to
compensate for cost overruns in a major procurement
program. The British are likely to face serious
budgetary problems as they try to fund the Trident
program and the new European Fighter Aircraft
project.)
Defense spending in France has stagnated, and
improvements in conventional forces have suffered
because of the high cost of programs to modernize
strategic forces. Claims that real growth will be as
high as 2 percent in 1986 are based on optimistic
projections of inflation. Growth probably will not
exceed 1 percent.F__1
Greece
4.4
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9.5
Luxembourg
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-0.5
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Netherlands
3.4
0.7
1.7
Overall non-US
NATOc
1.7
1.6
0.3
a Estimates.
b Projected on basis of current budget plans.
France was not committed to NATO's 3-percent goal; excluding
France, growth for 1984 was 2.2 percent.
Real defense spending in West Germany declined in
1984, following several years of almost no real
growth. Budget stringencies have not yet had a serious
effect on procurement because Bonn is nearing the
end of a modernization cycle. Major problems will
emerge at the end of the 1980s, however, as West
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Germany tries to offset a substantial decline in
conscripts and enters a new modernization cycle.
Chancellor Kohl has already warned that any changes
in personnel policies, such as increased pay for
volunteers, will have to be funded out of existing
budget plans. F__1
Italy increased spending by 2.8 percent last year and
will have fairly consistent real growth in 1985-but
below the 3-percent level. The increases have allowed
Italy to implement most modernization programs,
although more slowly than planned. F__1
The Smaller Allies
Inadequate expenditures by many smaller Allies have
hampered force modernization programs and
peacetime operations for some time:
? Belgium was forced to cut Army and Air Force
training several years ago, has curtailed a number of
procurement programs, and is withdrawing some
units from West Germany to cut costs.
? Attempts in Denmark to free funds for procurement
by reducing the number of regular troops were
scuttled by the soldiers' union and by the opposition
Social Democrats.
? Canada, despite real growth in defense spending
over the last several years, has not been able to
compensate for major cuts in the 1970s
? Norway remains committed to substantial growth in
defense, although budgeting problems distorted its
spending plans in 1984 and 1985.1
Despite funding problems, many Allies have made
headway in some key areas. Ammunition stockpiles,
for example, have been increased in most countries.
The purchase by Portugal of six antisubmarine
aircraft will considerably strengthen its maritime
surveillance capabilities despite a continuing overall
decline in armed forces effectiveness. Purchases by
Greece and Turkey of modern fighter aircraft will
greatly improve their air defense capabilities in the
early 1990s. F-l
Outlook
We do not expect major increases in Allied defense
budgets over the next several years. Most countries
are committed to austerity to cut government deficits,
but they are under heavy pressure to maintain social
programs. As a result, they probably will be forced to
postpone further or stretch out major procurement
programs and are unlikely to make up most shortfalls
in operations and maintenance. In the early 1990s,
many countries also will face declining pools of
draftees and may have to spend more to attract long-
term volunteers. F__1
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Belgium:
Coping With Terrorism
Belgium, once relatively untouched by terrorism, now
finds itself increasingly vulnerable because of its open
borders, large number of attractive international
targets, and the appearance of indigenous terrorist
groups during the past year. A national
counterterrorist body, championed by Minister of
Justice Jean Gol, was established in September 1984,
but a lack of training and experience, continuing
interservice rivalries, and austere budgets will impede
Belgium's counterterrorist efforts for some time to
come.
Terrorism: Foreign and Domestic
Belgium historically has served as a supply base and
sanctuary for terrorist groups from all corners of
Europe. The Spanish Basque separatist
organization-Basque Fatherland and Liberty
(ETA)-created an infrastructure in Belgium in the
1960s and received open support from some extremist
movements. More than 100 sympathizers attended
the trial of four ETA members in 1983, and,
according to ETA, the powerful bomb that extensively
damaged the Palace of Justice in Antwerp was its
retaliation for extradition of two of the four members
to Spain.
Despite this progress, the Belgians were not fully
prepared to deal with the series of bombings begun in
October 1984 by the Communist Combatant Cells
(CCC), a domestic group that emerged during the
heated debate on INF deployment. The CCC
attacked NATO and foreign subsidiaries of defense-
related businesses initially, but the group recently has
broadened its targets to include domestic companies,
banks, and even the pacifist movement. Two other
Belgian-based organizations, the Revolutionary Front
for Proletarian Action (FRAP) and a radical
environmental group, the Peace Conquerors, have also
claimed credit for bombings.F__1
As host to numerous exiles, particularly Albanians
and Yugoslavs, as well as a growing Middle Eastern
community, Belgium has been the venue of violent
activity in the past. The Irish Republican Army
carried out bombings in 1978-79, the German Red
Army Faction attempted to blow up NATO Supreme
Commander Haig's car in 1979, Palestinian guerrillas
tried to seize an Israeli airplane at Brussels airport the
same year, and an Armenian group claimed
responsibility for the murder of a Turkish attache in
1983. It was following an attack on a synagogue in
1982 that Gol pushed for a central policymaking
group-the Anti-Terrorist College-to collect
intelligence and combat terrorism. Two years of study
and negotiations on the complicated and politically
sensitive organizational and control aspects of the
college preceded the signing of protocols among the
various police and security services. F___-]
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Expanded Cooperation
Brussels has displayed interest in exchanging
information with other countries. West Germany and
France, for example, drew Belgium into cooperative
efforts in February when they agreed to form a joint
operational working group to intensify police and
intelligence exchanges
Foreign Minister Tindemans has stressed cooperation
on an international level as well. During Vice
President Bush's visit in June, Tindemans pointed out
that the Belgian parliament had just approved a plan
to work within the Council of Europe against
terrorism. In his UN speech in September, Tindemans
also urged countries to agree that certain acts
constitute terrorism and to take some universally
recognized measures to combat them.
Outlook Mixed
In a period of economic austerity, Brussels until
recently devoted few resources to counterterrorist
efforts. Last fall, however, funds for security forces
were augmented substantially, and money was
earmarked to automate files of the State Security
Service, establish a Senior Police Institute, and equip
and train regional gendarmerie special intervention
units. These units should be trained by late 1986 and
will receive tasking from both the GIA and the
Gendarmerie. In addition, Brussels has authorized an
Belgium's Counterterrorism Apparatus
The Anti-Terrorist College, formed in September
1984, is a policy and coordination council for
terrorism that meets regularly to discuss terrorist
topics and conduct threat assessments. In the event of
a terrorist incident, it provides a crisis staff. Located
in the National Gendarmerie Headquarters in
Brussels, it is chaired by the Minister of Justice and
includes representatives of the royal police, military
intelligence, the Gendarmerie, the State Security
Service, the judiciary police, and the public
prosecutor's office. It oversees the activities of a
subordinate action group, the Interforces Anti-
Terrorist Group
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increase in the Gendarmerie to nearly 17,000 by the
end of 1986.
The lack of a clearly defined chain of command will
continue to create problems. The Gendarmerie, for
example, is tasked by the Ministry of Defense but also
assists the Ministries of Interior and Justice. A study
group is exploring the question of command structure,
but this is likely to be a lengthy process.F_~
As recent bombings by the CCC demonstrate,
Belgian authorities currently are unable to suppress
domestic terrorist groups. Foreign terrorists also
continue to transit Belgium with ease and to find
sympathizers and shelter there. The border with
France, for example, has 600 crossing points, only 40
of which are checked by the police. Despite the strides
forward represented by the Anti-Terrorist College
and expanded counterterrorist cooperation, financial
and personnel limitations and the newness of the GIA
do not augur well for immediate results. For the time
being, Belgium's response to terrorism is likely to be
reactive rather than anticipatory.F--]
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Britain's state-run Electricity Board will not renew
10-year contract with Namibia for uranium
imports ... will turn to US suppliers ... seeks to
diversify sources because of unrest in South Africa
and stalemate in Namibian independence
negotiations.
London's overseas aid budget will rise by $80 million in
1986-87, roughly a 1-percent increase in real
terms ... bulk of money earmarked for Africa ... UK
also planning greater use of soft loans to assist
exporters to gain contracts in developing countries.
West German inflation in October up just 0.2 percent
over September ... annual rate probably will be about
2.2 percent-lowest since late 1960s ...F
Spanish consumer price index rose 1.1 percent in
September, bringing inflation up to an annual rate of
8.3 percent ... primarily due to price increases in
food, clothing, and footwear, the major components of
the CPI ... Madrid to continue austerity policies to
ensure that its 1985 inflation goal of 7.9 percent will
be achieved.
Spanish Council of Ministers approved value-added
tax (VAT) legislation ... effective 1 January
1986... part of integration process into European
Community ... projected to increase 1986 inflation
rate by 1.5 to 2 percentage points to approximately 11
percent
Turkish exports reached $5.7 billion in first nine
months of year, up 13 percent over same period in
1984... imports rose about 5 percent, reducing trade
deficit to $2.2 billion, down 10 percent from same
period last year ... good export performance needed
to reduce Ankara's steep debt-service burden as
repayments on previously rescheduled debt began this
year.
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Looking Ahead
December
Western Europe Netherlands Prime Minister Lubbers has accepted in principle Soviet invitation to
visit Moscow ... may do so by end of year ... probably sees trip as necessary for
INF ratification and to help government's reelection prospects.
December promises to be an important month for the Greens Party in West
Germany ... Constitutional Court ruling on the Green petition for representation
on the Bundestag Committee that controls budget allocations for the intelligence
services is expected on 12 December ... a day later, the national congress convenes
in Offenburg, where it will almost certainly address the issue of future cooperation
with the Social Democrats
Eastern Europe Special meeting of CEMA prime ministers appears set for December ... East
Europeans will be assigned tasks to achieve greater integration during 1986-90 ...
results from recent push for direct links between enterprises instead of ministries.
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