EUROPEAN REVIEW

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP87T00289R000100100001-7
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 34
• Document Creation Date: December 22, 2016
• Document Release Date: August 8, 2011
• Sequence Number: 1
• Publication Date: December 20, 1985
• Content Type: REPORT

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STrn FiLE
C
D rUT IGI E 0U r
OR MARK ON
Directorate of
Intelligence
Py i
t
/o
European Review
Secret
EUR ER 85-028
20 December 1985
448
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European Review
Sweden: Limited Liberalization of Exchange Controls
East Germany: Economic Targets for 1986
Bulgaria: New Reform Legislation
Articles NATO: France's Role in the European Fighter Aircraft
In November President Mitterrand announced that France would
rejoin the the European Fighter Aircraft (EFA) program on a
limited basis. The decision to participate apparently reflects Paris's
concern over the high development costs of its own Rafale fighter
program and its desire to gain access to EFA-related technology
advances and potential export markets.
Europe.
Eastern Europe's economic links with China are on the upswing
after languishing for decades since the Sino-Soviet split. Trade with
China probably has increased this year, and several agreements
signed by trade delegations have paved the way for future growth in
commercial contacts. Nonetheless, Beijing's continued interest in
acquiring advanced Western technology and growing Soviet
pressure for closer CEMA integration are likely to prevent such
trade from acquiring major significance for either China or Eastern
Portugal: Prospects for Instability
trend in Portugal's relations with the United States.
The presidential election early next year probably will continue a
shakeup of Portuguese politics that began with the parliamentary
election on 6 October. The shakeup may increase political
instability, expand Communist influence, and accelerate the cooling
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EUR ER 85-028
20 December 1985
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with economic problems.
Despite a recent merger of the principal leftist parties, some gains in
support for a rival party on the right, and apparent slippage in the
government's popularity, Prime Minister Ozal's ruling center-right
Motherland Party is unlikely to be challenged seriously by next
summer's byelections for vacancies in Turkey's parliament. Looking
ahead to the next general elections in 1988, however, Ozal may face
stronger opposition if he fails to demonstrate some success in coping
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normally will be coordinated as appropriate with other offices within CIA.
Occasionally an article will represent the views of a single analyst; these items
Some articles are preliminary views of a subject or speculative, but the contents
will be designated as uncoordinated views
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Cyprus Election Results
President Kyprianou is likely to read the parliamentary election in early December
as vindicating his hard line on the UN-sponsored Cyprus peace talks. Kyprianou's
centrist party captured about 27 percent of the popular vote, as compared with 20
percent in 1981. The conservatives maintained their traditional one-third of the
vote, but the Communists were the big losers, down from 33 to 27 percent.
While Kyprianou's opponents are claiming success and calling for the President's
resignation, they failed to capture the two-thirds vote necessary to try to amend
the Constitution and limit his authority. Since the Communists' losses can be
attributed in part to their supporters' dissatisfaction with cooperation with the
conservatives, they may distance themselves from the conservatives in the future.
Kyprianou almost certainly is relieved and heartened by the outcome. He is less
likely to compromise further in the UN peace talks and undoubtedly sees the
election results as endorsing his hardline approach to Turkish troop withdrawals,
return of refugees, and freedom of movement between the northern and southern
sectors of the island. While Kyprianou's party still lacks a majority in parliament,
he is now better able to play the balancing role he has perfected during his eight
years in office.
Secret
EUR ER 85-028
20 December 1985
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Limited Liberalization of Exchange Controls
constraints preclude more extensive liberalization.
Despite eight years of work, a divided parliamentary commission has proposed
only minor reforms in loosening Sweden's foreign exchange and capital flow
restrictions. The commission majority, appointed from Prime Minister Palme's
Social Democrats and the trade unions, argued that balance-of-payments
within the OECD not to make existing regulations more restrictive.
The influential trade unions are especially concerned about a more liberal
exchange regime because they fear that increases in Swedish investment overseas
would cost jobs at home and require greater wage restraint in order to maintain
Swedish industrial competitiveness. Consequently, the report recommends only
minor changes, such as permitting Swedish firms to hold foreign securities as a
hedge against exchange risk and allowing small firms to retire foreign debts before
maturity. Some of the proposals would strengthen the central bank's control over
Swedish overseas investment and thus may run counter to Stockholm's agreements
government can introduce legislation to carry them out.
Minority members of the commission, chosen from the opposition parties and the
business community, had sought much more extensive deregulation as a way to
impose discipline on domestic economic policy and control inflation. The report's
main recommendations are subject to a six-month review process before the
growth rate than in recent years.
East Germany's economic plan and state budget for 1986 suggest that East Berlin
will continue most of its current economic policies into the first year of the new
five-year plan (1986-90):
? Projected national income growth of 4.4 percent is the same as this year's target,
and goals for industrial production, labor productivity, cost reductions, and retail
sales are similar to 1985 objectives.
? Production of lignite is to rise 6 percent, further reducing East German
dependence on imported-mainly Soviet-energy.
? A 13-percent increase in investment reverses the declines of recent years and
could indicate increased purchases of capital goods from the West.
? Steel production is to reach 9.24 million tons, up from 7.57 million tons in 1984,
which probably reflects completion of a new Austrian-built mill.
? The state budget includes another big increase in subsidies for consumer goods-
a reflection of the Honecker regime's understanding that it is politically
important to maintain stable prices for basic consumer goods.
Also noteworthy is a 7.7-percent increase in defense spending, a slightly higher
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The plans suggest that the economic "strategy of the 1980s" promulgated at the
last Communist party congress in 1981 will continue through 1990 and that the
next party congress scheduled for April 1986 may bring few new economic
initiatives. The plans and regime rhetoric at a recent party plenum indicate that
the government will continue to stress science and technology, including computers
and microelectronics, as a means of increasing efficiency and improving labor
productivity. The growth target for 1986 could be a harbinger of goals for the next
five years, implying continued rapid growth by East European standards. We
believe the current strength of the economy should make next year's goals
attainable. Over the longer term, however, the regime will have to overcome
numerous problems, such as inefficient industrial plants, a growing pollution
problem, a poor resource base, and a steadily declining population.
Bulgaria New Reform Legislation
The National Assembly is considering a law that would reorganize unprofitable
enterprises under new management, according to the US Embassy in Sofia. The
law is designed to reduce complacency among managers by removing traditional
guarantees of job security and making managers responsible for enterprise
performance. The new legislation is a response to Bulgaria's poor economic
performance this year and Soviet demands for greater efficiency. The Soviet
Ambassador to Bulgaria last July publicly criticized Bulgarian economic
management, and the official press has subsequently denounced managers for
corruption, cronyism, and .failure to adopt more efficient technologies.
The proposed law is not likely to be implemented broadly. Cronyism, a preference
for the status quo, and fear of jeopardizing their own position will discourage party
and government bureaucrats from approving more than token dismissals. The
regime is unlikely to cut subsidies and liquidate unprofitable firms because any
resulting unemployment would contradict official ideology and bottlenecks in
supply would complicate planning.
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Articles
NATO: France's
Role in the
European Fighter Aircraft
In September, only a month after withdrawing from
the European Fighter Aircraft (EFA) program, the
French Government proposed the creation of a joint
aerospace industry group to study and consolidate
future aircraft development in Western Europe. Then,
in early November, President Mitterrand announced
that France would rejoin the EFA program on a
limited basis. These two developments, we believe,
spring in large part from Paris's concern over the high
development costs of its own Rafale fighter program
and its desire to gain access to EFA-related
technology advances and potential export markets. It
also reflects in part Mitterrand's unwillingness to
jettison French participation-however minimal-in
a project that has become an important symbol of
European defense cooperation. Although the EFA
program faces difficult decisions ahead, progress has
been made toward meeting first flight dates for the
two demonstrator aircraft-Britain's Experimental
Aircraft Program (EAP) version and France's
Rafale-which will form the basis of an eventual
EFA design
Background
A five-nation working group comprised of the United
Kingdom, France, West Germany, Italy, and Spain
was formed in 1983 under NATO auspices to study
joint development of an advanced fighter. Officially
designated the European Fighter Aircraft, it would
replace with a common aircraft the countries' aging
F-4 Phantom, Jaguar, Mirage-3, and F-1 aircraft.
Motivated by the potential for minimizing R&D and
production costs, the Europeans also wanted to reduce
their dependence on US technology and weapons and
keep their armaments industries alive. Under the
EFA program, development and production would be
undertaken by the principal aircraft companies of
each nation.'
Disputes among the partners quickly arose over
project leadership, aircraft design, and production
sharing, and, last August, France withdrew from the
consortium. The United Kingdom, West Germany,
and Italy subsequently decided to proceed with joint
development of the fighter on their own, leaving
France to develop its aircraft independently. In
September, Madrid-after having tried in vain to
convince Paris to return to the consortium-
announced that it would join London, Bonn, and
Rome in EFA development and production.
Contrasts in Concept
Disagreements among the original five partners were
fundamental and ultimately irreconcilable. France
viewed the ground attack role as the primary design
criterion for EFA, with air defense as a secondary
requirement; the United Kingdom and West
Germany, however, wanted the fighter's primary 25X1
mission to be air superiority and ground attack to be
secondary. The French Government, moreover, was
not eager to participate in the design and production
of an advanced air defense fighter which would
compete directly for sales with the Mirage 2000; nor
were the British or West Germans interested in a
ground attack fighter that would compete with the
Tornado.
Another area of disagreement was over performance
characteristics of the aircraft. France wanted a
lightweight, twin-engine, relatively unsophisticated
' France's Dassault-Breguet, the UK's British Aerospace, West
Germany's Messerschmitt-Boelkow, Italy's Aeritalia, and Spain's
Secret
EUR ER 85-028
20 December 1985
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aircraft with comparatively small development costs
that would be competitive in Third World markets.
The British and West Germans, however, were
interested in a much heavier, more complex two-
engine fighter capable of countering first-line aircraft
of the Warsaw Pact.
A third major reason for the lack of consensus
concerned project leadership and the sharing of costs
and manufacturing tasks. Both France and the United
Kingdom insisted that their own aerospace companies
head up the EFA project. In addition, Paris initially
insisted on a much larger share-40 percent-of the
program's development and production than any of
the other participants. With Paris out of the
consortium, the four remaining partners agreed on a
participation formula whereby the United Kingdom
and West Germany would share equally in the major
development and production costs, with Italy and
Spain contributing smaller shares.
France Rejoins the Consortium
On 26 September, President Mitterrand sent a
personal message to the leaders of West Germany,
Italy, Great Britain, and Spain proposing the
formation of a joint European aerospace industry to
study and consolidate future aircraft development.
The study group would promote periodic meetings of
Foreign and Defense Ministers as well as frequent
contact among armament directors and
manufacturers. Paris would like this cooperative
agreement to extend to all types of military aircraft.
Mitterrand then announced on 8 November that
France would rejoin the EFA program. Paris now
expects its financial share in the project to be between
5 and 10 percent of the total-considerably less than
the 40-percent share it had insisted on earlier. At the
same time, Mitterrand also announced that he has
invited other European governments to join France's
own new fighter project-the Rafale-which will
continue.
French Motives
Mitterrand's proposal for a joint aerospace industry
underscores France's desire to foster European
defense industrial cooperation, preferably with
minimal US participation. Paris will promote the
Likely Areas of French Participation
We believe France could contribute to EFA in three
main areas:
? Avionics. The French will offer communications
equipment and inertial navigation sensors including
high-accuracy ring laser gyroscopes developed by
SFENA. Cockpit avionics, including color-screen
and holographic headup displays developed by
Thomson-CSF, may also be offered to EFA.
? High-tech materials. Paris also will probably offer
to cooperate with the other EFA partners in
developing advanced materials such as aluminum-
lithium and carbon composites for the aircraft. All
the partners will benefit from such cooperation
because European experience with these materials
is relatively limited and both Rafale and EFA
designs use them extensively. A pooling of their
knowledge would help advance Europe in this
critical technology and could reduce costs and
minimize program delays.
useful to EFA members.
? Airframes and control systems. Rafale and EFA
will have similar twin-engine, delta-wing canard
airframe designs which make a pooling of efforts
technically and financially attractive. French
experience with fly-by-wire control systems also
may provide valuable design know-how to the EFA
consortium. In addition, French R&D in fiber
optics used in these control systems may prove
competing national firms and the less efficient
project-by-project cooperative approach.
The proposal to rejoin EFA is being touted as an
indication of Mitterrand's personal commitment to
European cooperation. Mitterrand has made the
"relaunching of Europe," promotion of greater
European integration, and enhanced European
defense cooperation the centerpiece of his foreign
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policy. Defense Minister Quiles was quick to point out
that France's participation was not a return to the
original five-nation venture, but he did suggest that
France's limited participation in EFA was ultimately
to lead to cooperation among European countries for
the next-generation fighter.
We believe French participation is calculated to
cushion the effect of France's withdrawal from the
original EFA cooperative development program and
provide access for French industry to EFA technology
and markets. The commitment to the Rafale program
ensures priority for French industrial and financial
resources, but French participation in EFA should
reduce R&D costs for both EFA and Rafale.
Prospects for EFA
All members of the EFA consortium are receptive to
the broad outline of the French proposal for aircraft
development cooperation and EFA membership but
are skeptical of the French motives. Thus, the British
and West Germans will be careful not to allow France
to slow the EFA project or concentrate its limited
contribution on design and development of a single
subsystem.
EFA project management activities probably will use
the existing Panavia complex in Munich, set up in
1969 to coordinate the design and development of
Tornado, because of the costly investment in these
facilities.' EFA is unlikely to employ the same
Panavia management team, however, since this group
will be occupied for some time in completing the
Tornado program. Rather, a new team probably will
be created, with new personnel to manage another 10-
year program but operating from the same facility.
Joint work on engine development will be coordinated
through Turbo-Union, the three-nation partnership
that produced the Tornado engine.
Disagreements within the EFA consortium have not
affected progress toward the most criticial phase of
the effort-first flights in 1986-87 by two
demonstrator aircraft, the British EAP version and
2 The Tornado is a twin-engined two-seat supersonic aircraft
manufactured by British Aerospace, MBB, and Aeritalia. It is
deployed in interdiction/counter air strike and air defense roles by
the French Rafale. The new technologies being tested
in the demonstrator aircraft will be needed to
complete EFA design specifications. The final design
of EFA probably will incorporate design features
from both the EAP and the Rafale.
The EFA consortium still has some potentially
divisive decisions to make on design responsibility for
sections of the aircraft and corresponding workshares
allocated to the partners. The British and West
Germans are likely to receive the largest and roughly
equal shares, the Italians a somewhat smaller share,
and Spain and France about 10 percent of the work.
The British will push hard for the nose section of
EFA, including the cockpit. France probably will
make most of its contribution by providing specific
components. We expect EFA will have Italian wings,
a West German fuselage center section, and a
Spanish tail section. Workshares for the new engine
also will have to be adjusted to accommodate the
Spanish engine subcontractor and probably will
provide for some French involvement.
Implications for US Participation
French involvement in EFA could alter the potential
contribution of US industry to the project. France is a
leader in avionics and design and development of
flight control systems. Equipment in these areas is
difficult to develop and expensive to produce, and
French collaboration with the UK and FRG will
reduce the need for the consortium to turn to US
companies for help. Even before France's decision to
participate, US firms were not likely to be invited to
join in materials research-an area in which we
believe the Europeans possess a slight lead over the
US.
aircraft subsystems.
Potential US involvement in EFA probably lies at the
subcontractor level, providing components for major
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European Fighter Aircraft: Demonstrator Models and Design Features
British EAP (top)
European EFA
Airframe
Single seat twin engine
Airframe -
Single seat, twin engine
Maximum engine
75.6 (RB 199-104 engine)
Maximum engine
90
thrust a
thrust a
Combat weight b
16
Combat weight b
17
Empty weight b
11.75
Empty weight b
9.75
Control system
Digital, fly-by-wire
Control system
Digital, fly-by-wire
Radar
Advanced multitarget
Radar
Multitarget handling capability
French ACX (Rafale) (bottom)
Airframe Single seat, twin engine
Maximum engine 71.2 (GE-F404 engine)
thrust a
Combat weight b 14
Empty weight b 9.47
Control system Digital, fly-by-wire
Radar Lookdown/shootdown
a Kiloneutrons each.
b Metric tons.
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Eastern Europe:
Expanding Trade With China
Eastern Europe's economic links to China are on the
upswing after languishing for decades since the Sino-
Soviet split. Trade with China has increased this year,
and several agreements signed by trade delegations
have paved the way for future growth in commercial
contacts. Chinese Vice Premier Li Peng in May led a
delegation-the highest ranking group to visit Eastern
Europe in more than 20 years-to East Germany,
Poland, and Hungary that underscored each side's
interest in expanded ties. Nonetheless, Beijing's
continued interest in acquiring advanced Western
technology and growing Soviet pressure for closer
CEMA integration are likely to prevent such trade
from acquiring major significance for either China or
Eastern Europe.
Renewal of Trade Ties
Soviet and East European advisers helped China build
many industrial plants in the 1950s but left abruptly
when Moscow and Beijing broke relations in the early
1960s. Although Beijing continued some cooperation
with Eastern Europe, such as a Sino-Polish joint
shipping company, most ties were suspended. The first
signs of a thaw in relations did not appear until the
early 1970s when Romania's desire to demonstrate its
independence from Moscow led Bucharest to establish
closer links to the PRC. Romania soon became
China's single-largest trading partner in Eastern
Europe, but economic relations with the other
countries remained minimal.
When Beijing-after ending its self-imposed
detachment from international trade-entered world
markets in the late 1970s, Eastern Europe did not
initially benefit. In fact, in the early 1980s trade with
China accounted for only about 1 percent of all East
European trade. Moreover, while Sino-East European
trade turnover declined about one-third from 1980 to
1984, China's trade with the industrial West was
rising. As a result, Eastern Europe's share of China's
trade dropped from 6 percent in 1980 to 3 percent in
In the past two years, however, both sides have sought
to revive commercial ties. In 1984, a delegation from
the Chinese State Economic Commission followed by
Chen Muhua, then the Minister of Foreign Economic
Relations and Trade, visited several East European
countries. Several exchange delegations explored
issues of mutual cooperation and ways to improve
economic efficiency.
Eastern Europe resulted in five-year trade pacts with
Warsaw and Budapest. Since then, the other East
European states except Bulgaria have concluded
bilateral five-year trade pacts with the PRC as well as
other formal economic agreements. Li Peng is
scheduled to visit Bulgaria in mid-December to
promote trade and sign a five-year trade pact,
according to press reports.
Of all the East European countries, Poland is
expanding its trade with China the fastest. According
to the Polish press, two-way trade will nearly triple
this year, led by large sales of Polish mining
equipment and vehicles. Polish exports to China in the
first half of 1985 were 72 percent greater than those
for the same period of last year, according to Polish
trade statistics. On 23 November, the senior economic
planning officials for China and Poland signed an
agreement calling for closer contacts between the
state planning commissions of the two countries. At
the signing, both officials said that bilateral trade
between the two countries over the next five years
would actually be about 40 percent greater than the
amount planned in their five-year trade protocol
signed last May. Hungary's trade with the PRC also
increased in the first half of 1985, with exports rising
90 percent and imports 74 percent over the same
1984.
Secret
EUR ER 85-028
20 December 1985
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Table 1
China-East European Five-Year Trade Pacts a
Poland May Rice, maize, soybeans, shoes, cotton, Power generators, trucks, mining equip-
clothes, textiles, porcelain, minerals, ment, copper
tea
Hungary June Rice, fruits, shoes, tea, cotton, clothes, Steel, aluminum, trucks, medical
vegetables, cooperation in agriculture instruments
Railroad cars, trucks, combines, agri-
cultural harvesters
Romania October Coal, coke, crude oil, chemicals, non- Railroad cars, tractors, oil drilling and
ferrous metals, clothing mining equipment
Yugoslavia October Textiles, rice, soybeans, oil Sheet metal, trucks, buses, fertilizer
Czechoslovakia December Cereals, meats, tea, chemicals, miner-
als, clothing
a China has signed bilateral trade protocols this year with virtually
every country in Eastern Europe. Bulgaria, the sole exception, is
still negotiating and may conclude an agreement with Beijing in
late December. Coming as the countries' five-year plans are being
completed, the trade agreements are intended to assist central
planners in coordinating their long-term foreign trade. Each agree-
ment sets out a general framework for negotiating annual trade
protocols plus broad targets for the volume of trade over the 1986-
90 planning period. Moreover, the pacts provide the Chinese and
East Europeans with a rationale for continued dialogue and
improvements in overall political and economic relations.
b Negotiations continue.
period last year. Czechoslovakia and Bulgaria
planned 30-percent increases in their trade with the
Chinese this year. Although Romania continues to be
China's major trading partner, Beijing is resisting
Romania's pitch for even greater trade, in part
because of improved ties to the rest of Eastern
Europe, according to the US Embassy in Bucharest.
Chinese trade with Yugoslavia and Albania also is
increasing. According to the Yugoslav press, total
trade between China and Yugoslavia for the first 10
months of 1985 was double that for the same period
last year. The two countries signed a five-year trade
protocol in October that calls for Sino-Yugoslav trade
in the 1986-90 period to increase fourfold over the
Machinery, iron, steel, railroad cars, tech-
nical assistance in energy production
level for the previous five years. Politburo member Hu
Qili visited Yugoslavia in November mainly to
encourage greater economic cooperation, according to
the US Embassy in Belgrade. On 3 December, China
and Albania signed a trade protocol for 1986 and a
trade pact for 1986-90, their first long-term trade
accord since they split in 1978.
Motives for Expanded Trade
Both Eastern Europe and China can profit from closer
economic cooperation. Trade may expand without
using limited hard currency reserves because each
produces goods the other can use and is willing to
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Table 2
Chinese Trade With Eastern Europe, 1983-84 a
Czechoslovakia
90.1
103.8
112.7
124.6
-22.6
-20.8
East Germany
59.0
85.9
186.8
131.2
-127.8
-45.3
Hungary
25.9
27.8
45.3
58.9
-19.4
-31.1
Poland
163.5
100.6
99.8
160.0
+63.7
-59.5
Romania
289.7
222.8
309.1
448.9
-19.4
-226.1
Yugoslavia
16.0
18.6
71.8
98.8
-55.9
-80.2
a Although Eastern Europe's trade with China is conducted primar-
ily in barter, prices are attached to traded goods and any deficits
are registered in clearing accounts. Through the 1980s, the Chinese
have run sizable deficits with Eastern Europe and are pressing them
to close the deficits by importing more Chinese goods.
barter. Also, each side gains an outlet for goods that
are not competitive in international markets because
of low-quality, low-demand, or protectionist measures.
East European exports of medium-technology
manufactured goods-vehicles, machine tools,
agriculture and mining equipment, and electric power
generating equipment-are useful in China's
modernization effort. Chinese deliveries of low-
technology, labor-intensive products-shoes, textiles,
agricultural products, clothing-can help ease chronic
shortages of food and consumer goods in Eastern
Europe.
East European regimes have their own interest in
cultivating Beijing. East Germany, for example, sees
this as enhancing its international prestige while the
reform-minded Hungarians want to build relations
with a similarly inclined socialist state. Outside the
Bloc, Albania and Yugoslavia probably want to
improve their relations with another nonaligned
Communist country. Albania's recent agreement to a
five-year trade pact with China may indicate that the
successors to the late party boss Enver Hoxha want to
modify his xenophobic and autarkic external policies.
Political motives also have figured in the recent moves
to expand economic relations. The upswing in trade
discussions has coincided with a revival of other
contacts. The Chinese probably see trade as a lever to
increase their influence in Eastern Europe and
partially offset current Soviet efforts at closer CEMA
integration. For their part, the East Europeans
apparently have concluded that closer economic links
are now acceptable given the warming of Sino-Soviet
relations, particularly the signing of a Sino-Soviet
five-year trade accord earlier this year. Moreover, the
Outlook
The recent bilateral trade and cooperation agreements
set the stage for growth in trade between the two
regions through the rest of the decade. Nonetheless,
several factors will prevent the trade flow from
acquiring major significance:
? Eastern Europe lacks sufficient production capacity
to meet a large share of China's total demand for
manufactured goods.
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? China's main foreign needs are products embodying
higher levels of technology available only in the
industrial West.
? Eastern Europe's need to satisfy increasing Soviet
demands for more and higher quality exports will
limit the amount of goods available to support trade
with China.
? Each side's need to maximize hard currency
earnings means the Sino-East European barter
connection will receive only secondary attention.
? The inflexibility of a barter system will restrict
trade to the extent that each has only a limited need
for the products of the other.
We believe that political developments will continue
to influence the growth of East European-Chinese
trade. The East Europeans will watch closely the
evolution of Sino-Soviet relations in deciding how to
approach their commercial dealings with Beijing.
While the Chinese will assign a small role to Eastern
Europe in their trade as long as they continue to
expand relations with the West, this could change if
political or economic considerations forced Beijing to
curtail trade with the West.
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Portugal:
Prospects for Instability
The presidential election, an almost certain two-round
affair in late January and early February, will
probably continue the major political realignment in
Portugal that began with the parliamentary election
on 6 October. The shakeup may undermine political
stability, help the Communists reduce their political
isolation, and accelerate the trend toward less warm
relations with the United States.
Potential Destabilizing Factors
Increased fragmentation of the party system
evidenced in the parliamentary election provides the
clearest signal of an upheaval in the political
landscape. The emergence of the leftwing Democratic
Renewal Party (PRD}-a new group backed by
President Eanes-increases the number of major
parties to five and raises from two to three the number
that could be necessary to produce a government with
a parliamentary majority. Personality and policy
conflicts among the key political leaders, moreover,
are probably greater now than at any time since the
revolution of 1974-75 and will increase the difficulty
of forming stable governments. Indeed, the center-
right Social Democratic government of Prime
Minister Anibal Cavaco Silva enjoys support from
only his party's 88 deputies in the 250-member
Assembly of the Republic, and it may not last long
into the new year.
Portuguese politics are becoming more polarized as
well. Cavaco Silva believes that the centrist-oriented
politics of much of the past decade favored the center-
left Socialist Party at his party's expense, and he is
trying hard to generate a sharp split between left and
right. He hopes that most voters will opt for a right-
of-center government led by the PSD rather than take
a chance on a leftist coalition, which could be
dependent on at least indirect Communist support. If
Cavaco Silva pushes ahead with this strategy, he
almost certainly would succeed in rousing anxiety
among many centrist and conservative voters about
Nonetheless, the Communists may still expand their
influence, since the Portuguese left is simply too
strong to be excluded from power for any extended
period. In addition, the PRD appears more open to
dialogue with the Communists than the strongly anti-
Communist Socialists have been during the past
decade.
Next Milestone: The Presidential Election
The presidential election appears likely to reinforce
the political trends that emerged in the parliamentary
race. Of the four principal candidates, only former
Prime Minister and long-time Socialist chief Mario
Soares appears likely to push Portuguese politics back
in a centrist direction, and he is a decided underdog.
The odds favor former leftwing Socialist dissident
Salgado Zenha, who is running with PRD backing,
or-somewhat less likely-independent Catholic
leftist Maria Lourdes Pintasilgo. The election of
either would weaken the Socialist Party which stands
in the middle of the country's five-party political
spectrum and would probably tilt that party to the
left. Those developments, in turn, could reinforce the
trend toward polarization in Portuguese politics and
expand opportunities for cooperation among the
Communists, the Socialists, and the PRD, though, in
the near to medium term the democratic Portuguese
left will probably remain suspicious of Communist
intention. In the somewhat less probable event that
the conservative candidate, Diogo Freitas do Amaral,
became president, he would be overtly anti-
Communist, but there is also a good chance that he
would support Cavaco Silva and thereby help weaken
the Socialist Party and polarize Portuguese politics-
developments that would help the Communists
expand their influence.
Communist participation in government
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Implications for the United States
The weaker governments that are likely to take shape
in the short to medium term will not be in the US
interest. Even right-of-center governments of that sort
would be more vulnerable to Communist pressure
tactics, and left-of-center cabinets in which the PRD
participated would be even more susceptible to
Communist influence. Such developments would
strengthen the existing trend away from an
American-oriented diplomacy to a more independent
and European-oriented approach. Although Portugal
almost certainly will remain a firm member of the
Western camp, it is likely to become more prickly and
demanding as a US ally.
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Turkey: Recent Political
Trends and Prospects
Despite a recent merger of the principal leftist parties,
some gains in support for a rival party on the right,
and apparent slippage in the government's popularity,
Prime Minister Ozal's ruling center-right Motherland
Party (ANAP) is unlikely to be challenged seriously
by next summer's byelections for vacancies in
Turkey's parliament. Only seven or eight seats will be
contested, and Ozal's party presently holds 208 of the
400 parliamentary seats compared to 86 by its chief
opposition-the newly formed Social Democratic
Populist Party. Looking ahead to the next general
elections in 1988, however, Ozal may face stronger
opposition if he fails to demonstrate some success in
coping with economic problems.
Party Merger on the Left
Two leftist parties, the Populist Party (PP) and the
Social Democracy Party (SODEP), merged into the
Social Democratic Populist Party (SDPP) on 3
November. The Social Democrats, who had shown
their strength by garnering 24 percent of the vote in
local elections in 1984, had been barred from
participation in the 1983 national elections and were
not represented at the national level. The Populists
were represented, having won 114 seats and finishing
second to the center-right party in the 1983 elections,
but had been in decline since their poor showing
relative to the Social Democrats in local elections the
following year. On the eve of the merger, the number
of Populist deputies in parliament had shrunk to 100
as a result of desertions to independent status.
Resignations have continued, and with a recent death
the new Social Democratic Populist Party had only 86
deputies by the end of November, versus 46
independents.
Four of those independents who were recent
Populist/Social Democratic Populist defectors
became founding members of another new party, the
Democratic Left Party (DLP), which finally came into
being on 14 November after a number of false starts.
The Democratic Left has elected Rahsan Ecevit, wife
of former left-of-center Prime Minister Bulent Ecevit,
as its leader. Mrs. Ecevit is acting as her husband's
proxy: under a provision of the 1982 Constitution he is
banned from politics until 1992 along with his rightist
rival, Suleyman Demirel, and other party leaders in
power before the 1980 military coup.
The nearly simultaneous formation of the Social
Democratic Populist Party and Democratic Left
Party illustrates the depth of divisions which still
plague Turkey's left. Earlier negotiations between
Mrs. Ecevit and the Populist leader, Aydin Guven
Gurkan, about the possibility of a
Populist-Democratic Left union, had collapsed
because the Ecevits found the Populists lacking in
"true" social democratic spirit. The Ecevits regard the
Social Democratic Populists as similarly wanting. The
real problem appears to have been the unwillingness
of the Populists-and now the Social Democratic
Populists-to acknowledge Bulent Ecevit's de facto
leadership of the left and work toward his eventual
return to active politics. It is not surprising that the
current leftist political leaders are unwilling to defer
to Ecevit, but there is also some cost to the left as a
whole in this-no one else has Ecevit's stature in
bodies like the Socialist International.
Given the existence of the Social Democratic Populist
Party, the future of the Democratic Left seems rather
dim. In fact, the Democratic Left Party appears a bit
unsure of itself. There are rumors that it might forgo
next summer's byelections for fear of a poor showing.
Were it to compete, however, the new party might be
able to siphon enough votes from the Social
Democratic Populists to undermine them as an
effective opposition party. A recent poll by a left-
leaning magazine showed that among leftist voters
one-fifth would prefer the Democratic Left, leaving
80 percent for the Social Democratic Populists. Even
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Turkey: Election Results and Public Opinion Surveys
Political General Local
Parties Elections Elections
6 Nov 1983 24 Mar 1984
a Columns do not sum to 100 because data excludes eligible voters
who did not vote in the elections and persons who expressed no
opinion in the surveys.
b Affluence Party (conservative, religiously oriented).
c Parties did not participate in the elections.
the Democratic Left's failure to participate could
affect the outcome by leading to the abstention of a
significant number of disaffected leftist voters.
Maneuvering on the Right
The Motherland Party's competition on the right is
also in disarray, though it too retains some capacity
for a spoiling role. Late in October, the Correct Way
Party (CWP), indirectly controlled by former right-of-
center Prime Minister Demirel, entered merger
discussions with the Nationalist Democracy Party
(NDP), the former military government's favorite in
the 1983 elections. After a month, however, the
merger talks collapsed over the seemingly minor issue
of which party's name was to grace the new
organization.
What the Correct Way had to gain from merging
with the faltering Nationalist Democrats is not clear.
The latter garnered only 71 seats in 1983 despite
strong military backing and have since lost much of
their remaining support. Their parliamentary group
has shrunk to 53. This is apparently not enough to
lure the Correct Way, which was barred from
participating in the 1983 general elections but gained
a respectable 13 percent of the vote in local elections
in 1984.
The Correct Way seems to believe it will fare better in
future elections if it is unencumbered by any ties to
the Nationalist Democrats. It enjoys the dominant,
though unofficial, influence of Demirel, who retains
considerable popular support-even among members
of Ozal's party who once belonged to his now banned
Justice Party. The Correct Way seems capable of
cutting into Motherland support but hardly appears
likely to overturn Motherland as the dominant right-
of-center party in the near future. The Correct Way's
prospects could receive a dramatic boost, however, in
the event of a sudden change for the worst in Ozal's
health
Outlook
With the return to a more normal political
environment in Turkey and the persistence of
economic problems resolvable only in the long term,
the ruling Motherland Party has dropped sharply in
public opinion polls-especially in comparison with its
performance in the 1983 elections-to the apparent
benefit of the combined left (Populists plus Social
Democrats) and the Correct Way. However, adding
separate Populist and Social Democratic support
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together may not be indicative of the combined leftist
party's actual standing. More important, there is
often a difference between public attitudes in a survey
and attitudes on election day, when the public's
choices have real consequences. The opposition has
yet to surface any leader of real stature.
Eventually, however, the Motherland Party will face
consolidated opposition on the left and coherent
competition on the right, the combined effect of which
could pose a serious challenge to the continuation of
its parliamentary majority. In the absence of
perceived short-term economic progress, that
challenge will be all the more severe. Ozal clearly
recognizes this and is looking to the US for help in the
form of "more trade instead of more aid," as he
repeatedly has phrased it.
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Belgium's
New Defense Minister
The appointment of Walloon Liberal Francois Xavier
de Donnea to the Defense portfolio in Prime Minister
Martens's reelected Social Christian-Liberal
coalition testifies both to the influence of Walloon
Liberal leader Jean Gol and to de Donnea's success in
Belgian politics
US Embassy officers reported that several prominent
Belgian politicians, including the chairman of
Martens's Flemish Social Christian party and Gol
himself, were interested in the Defense post.
Appointment of 44-year-old de Donnea, a rising star
in Liberal politics, restores the traditional Cabinet
balance on security affairs-a Fleming (Leo
Tindemans) at the Foreign Ministry and a Walloon at
Defense. More important, de Donnea is an ambitious
protege of Gol, whose patronage should increase de
Donnea's clout within the Cabinet.
According to US diplomats, de Donnea may give the
Defense job a higher profile than in the past. The
Defense job has often been considered a second-class
appointment, and de Donnea's predecessor was a
political lightweight. De Donnea presumably plans to
change this in order to enhance his future prospects.
The Belgian press speculated that de Donnea's
aggressiveness as a junior minister in reshaping
Belgium's foreign aid policy aroused the ire of
Foreign Minister Tindemans. While we expect de
Donnea and Tindemans to be in accord on major
issues, a more assertive voice at the Defense Ministry
could create new conflicts with the Foreign Minister.
Tindemans and Gol are rivals in Belgian politics and
after four years of almost unchallenged primacy on
foreign policy decisions, Tindemans would probably
resent any intrusion on his prerogatives. The fact that
Tindemans is a Fleming and de Donnea a Walloon
may add an acerbic note to any "jurisdictional"
disputes.
We expect the new Defense Minister to maintain
staunch support for INF deployment and perhaps
even argue for speeding up the next round of
Minister of Defense Francois X.
de Donnea
deployments-not due until late 1987 under current
policy guidelines. Maintaining current levels of
defense spending may be harder to achieve, given the
new government's mandate to cut the budget deficit
and Liberal success in avoiding new taxes in the
coalition agreement.
De Donnea, like Gol, will probably be sympathetic to
US concerns on technology transfer issues and on
nuclear cooperation with Libya. Like Gol, however,
we expect de Donnea to be a vigorous defender of
Wallonia's economic interests
IDe Donnea's
economic background-he holds an MBA from the
University of California and was once a member of
the Board of Directors of Wallonia's troubled
Cockerill-Sambre steel complex-probably makes
him especially conscious of the economic impact of
defense decisions.
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Economic News in Brief
Western Europe West Germany's 1986 budget calls for 2.2-percent
increase in expenditures to $105 billion ... further fall
Austria's largest government-owned company, in deficit to $9.5 billion, or 1.2 percent of GNP.
steelmaker Voest-Alpine, suffered record losses in
1985... new management to break up firm into
smaller units ... other changes in policies toward Eastern Europe
nationalized industry likely, but sales to public not
under consideration.
Canada's sale of government-owned de Havilland
aircraft corporation to Boeing part of divestiture
program ... Tories under fire in parliament for
allowing control of high-tech firm to go to foreign
concern.
Portugal's current account recorded first surplus since
1979... reached $94 billion through August, in
contrast to $504 billion deficit in 1984... reflects 40-
percent decline in trade deficit and 12-percent drop in
services deficit ... likely to be temporary in view of
new government's expansive policies and Lisbon's
entry into EC next month.
Denmark planning austerity package to reduce
persistent current account deficit ... includes
government spending cuts, consumer lending
restrictions, higher energy taxes ... defense spending
maintained ... other measures may be needed next
year.
Yugoslav parliament approved long-awaited laws on
foreign exchange and credit ... to provide incentives
for export while tightening borrowing practices ...
will give central government greater say in allocating
scarce foreign exchange.
31 Secret
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Looking Ahead
January/February
Western Europe Spanish Premier Gonzalez has set 4 February for long-delayed parliamentary
debate on foreign policy ... date represents his deadline for deciding whether to
call an early national election rather than the promised referendum on
membership in NATO.
First round of Portuguese presidential election scheduled for 26 January ... if no
candidate wins majority, as is likely, a runoff will held within three weeks.
33 Secret
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