EUROPEAN REVIEW

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP87T00289R000200660001-5
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 33
• Document Creation Date: December 27, 2016
• Document Release Date: May 11, 2011
• Sequence Number: 1
• Publication Date: April 11, 1986
• Content Type: REPORT

Declassified in Part - Sanitized Copy Approved for Release 2012/07/11: CIA-RDP87T00289R000200660001-5
Directorate of
Intelligence
European Review
11 April 1986
?Seer et?
EUR ER 86-009
11 April 1986
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European Review
11 April 1986
Secret
Page
Briefs Belgium: Special Powers for Martens
France: Possible Strains Over Third World Assistance
Canada-US: Protecting the Cultural Frontier
Switzerland: Voters Reject UN Membership
East?West Germany: Honecker Visit Unlikely This Year
Yugoslavia: Democratic Protests
Increase in Real Incomes
Articles
Eastern Europe: Potential Gains From US Sanctions Against
Libya
Sanctions by the United States against the Qadhafi regime could
provide most East European countries with opportunities to earn
badly needed hard currency and diversify their sources of oil. But
their potential to capitalize on the sanctions hinges on West
European competition because Libya, for both economic and
political reasons, is likely to view the East Bloc as a second choice.
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Western Europe: The Tornado?A Case Study in International 11
Cooperation
The Tornado aircraft project, largest codevelopment and
coproduction program in recent West European experience,
illustrates both the benefits and difficulties Europeans face when
cooperating on major defense projects. Should their efforts at
continued defense cooperation based on the Tornado model succeed,
the impact on US manufacturers could be costly?they probably
would retain their role as a supplier of components but could lose
most of Western Europe's market for complete aircraft and possibly
some secondary aircraft markets in the Third World.
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Yugoslavia: Party Plans Organizational Reforms
The Yugoslav Communist Party is planning reforms of the post-Tito
political machinery at its 13th congress in June. They include a
modest strengthening of central authority, more democratic
procedures, and a toning down of some of the more extreme features
of the rotational leadership system devised by Tito. The reforms
attempt to reconcile pressures from competing interest groups and
provide a modus vivendi that will help Belgrade maintain a
semblance of stability?at least for the near term.
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Economic News in Brief
29
Looking Ahead
31
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.
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European Review
Briefs
Belgium Special Powers for Martens
Secret
Despite increasing wariness in the Social Christian?Liberal coalition parties and
objections by the Socialists, the Belgian parliament in late March granted Prime
Minister Martens's request for renewed special powers to govern by decree as a
means of improving the economic situation. Most members of the majority, while
uneasy over "parliamentary muzzling," reluctantly supported Martens's request.
The opposition Socialists, however, were against another round of special powers,
questioning whether economic conditions continue to require their use and
worrying that party rule is slipping away in favor of bureaucratic control.
As he has done twice previously between 1982 and 1984 while awaiting special
powers legislation, Martens has allowed economic and social problems to
deteriorate, gambling once again that worsening conditions will dispose the
Belgian public to swallow even tougher austerity measures this year. According to
US Embassy reporting, Martens recently threatened to resign if his coalition
parties do not agree to the budget cuts he plans to implement with the special
powers. Because the government's reelection last fall was due largely to Martens's
personal prestige, neither his Social Christians nor the Liberals are likely to test
the Prime Minister's resolve.
The habit of using special powers to promote government efficiency suggests to
some politicians that a change in the Belgian legislative system may be necessary.
Luc Van den Brande, head of the Flemish Social Christian parliamentary group,
has proposed eliminating jurisdictional overlap, thereby speeding up the leglislative
process and reducing the need for special powers in the future. Under the current
system, the Senate and the Chamber as well as the Flemish and Walloon regional
and community councils (composed of the same parliamentarians in different roles)
discuss and vote on bills; not only is the work duplicative, but some of the
parliamentarians may vote one way in the national parliament and another way in
the regional councils because of greater pressure to protect local linguistic
interests.
France Possible Strains Over Third World Assistance
The Gaullist/Centrist coalition announced before winning the recent legislative
election that it would introduce a fundamental change in France's policy toward
aiding the Third World. The new plan reportedly would break with the
"government-to-government" approach of the past in favor of a policy based on
private initiative that conservative spokesmen defined as "people-to-people."
Coalition spokesmen criticized Socialists for making assistance decisions based on
emotional considerations, such as a sense of "guilt" for France's former
colonialism and implied that conservatives would base such decisions on more
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reasonable economic calculations. According to press reports that describe the
conservative plan only in general terms, it calls for promoting two-way flows of
investment between industrialized countries and the Third World. It also would
encourage immigrant workers to return home with money saved in France by
setting up "home-going savings accounts," presumably based on some as yet
undisclosed incentives.
The plan may be the new conservative government's first attempt to prepare
Paris's Third World allies for substantial reductions in its aid budget. It also
almost certainly presages at least a part of the government's plan to encourage
repatriation of immigrant workers. This plan, which bridges the gap between
budgetary and foreign policy, could become an early test of strength between the
new government and President Mitterrand, who is determined to maintain control
of French foreign affairs. Mitterrand is likely to resist such changes both because
he believes in France's ethnical obligation to assist development in former colonies
and because he sees political advantages in boosting French influence through
direct governmental assistance.
Canada-US Protecting the Cultural Frontier
The desire to safeguard a unique Canadian culture from domination by the United
States, always a latent force in Canadian politics, is now being translated into
policy initiatives. "Cultural policy"?the broad term applied to the arts and media
in Canada?is receiving considerable attention, spearheaded by Minister of
Communications Marcel Masse, and fueling disputes with US interests.
Earlier this year, Masse sponsored?and later appeared to endorse?a study he
claimed showed foreign firms possessing a "hammerlock" on Canadian publishing.
Under Masse's prodding, Ottawa now has enshrined a nationalistic book-
publishing policy by forcing US-owned Gulf and Western to divest control of Ginn
Canada. Ottawa's decision in the Ginn Canada case is the first application of a
policy announced last summer stipulating that acquisition of foreign firms by
Canadian publishers will be approved only if the foreign owner pledges to divest
control to a Canadian company within two years. Masse had tried to impose the
legislation retroactively on Gulf and Western in its acquisition of Prentice-Hall
Canada but apparently was induced to back away from this stand prior to Prime
Minister Mulroney's summit with President Reagan in March
Masse has been largely successful in implementing his proposals to restrict the US
presence in "cultural industries" because he is the most important Cabinet
minister who is from Quebec and the government can ill afford his resignation.
Quebec was a pivotal province for the Tories in the 1984 election, but Tory
popularity in the province has dropped precipitously. Although senior Canadian
officials privately told US officials they dislike Masse's protectionist policy, they
added that an important constituency supports the Communications Minister?
one that Ottawa cannot risk ignoring.
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Switzerland Voters Reject UN Membership
Secret
The UN referendum last month was a resounding defeat for the government, but it
is unlikely to cause major changes in Swiss foreign policy. The ruling Federal
Council, major political parties, and most leading newspapers had supported UN
membership, arguing that it would increase Switzerland's international influence
and promote foreign trade. More than three-quarters of the voters rejected the
proposal, however, apparently because they viewed it as a threat to Switzerland's
traditional neutrality. Polls suggest the vote also reflected opposition to larger
government spending and contempt for the UN itself. Switzerland currently
belongs to specialized UN agencies but has only observer status in the General
Assembly.
The US Embassy in Bern reports the referendum will not affect Switzerland's
bilateral relations with the United States, although it almost certainly will cause
Switzerland to rethink its plans to apply for membership in the World Bank and
IMF. One source told the US Embassy that Bern may increase its foreign aid to
counter the negative reaction to the vote expected from the Third World. The
referendum is a personal defeat for Foreign Minister Aubert, the leading advocate
of UN membership, who already had been under fire for his activist diplomacy.
Aubert is scheduled to assume the rotating Swiss presidency for one year starting
in December, but the UN vote probably will increase parliamentary opposition to
his appointment.
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East?West Germany Honecker Visit Unlikely This Year
The prospects now appear increasingly doubtful for the on-again-off-again visit of
GDR leader Honecker to West Germany?the first ever by an East German party
and state leader.
Alternate euphoria and disappointment have become the norm in planning for a
Honecker visit. Moscow's last-minute veto of the trip first planned for September
1984 shocked both East and West Germans, but expectations for Soviet
acquiescence were again high by the time of the Reagan-Gorbachev summit last
November. More recently, Horst Sindermann, Volkskammer President and
number three in the Politburo, told Kohl during his highly successful visit to Bonn
in February that the Honecker visit was definitely on for this year.
The East German leader's basic problem appears to be that the GDR wants the
visit?for Honecker's own prestige, to boost regime legitimacy, and for the West
German economic benefits that could follow?but the Soviets do not need such a
visit.
Honecker's relatively cool reception at the CPSU Congress?Gorbachev evidently
hectored him about West German "revanchism"?may have been the handwriting
on the wall that his much-desired trip was off for this year too.
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Yugoslavia
Democratic Protestsl
Secret
The most overt public lobbying
effort since Tito's death:
Kosovo Serb demonstrators
were ushered into parliament
last February to air their
grievances.
Citizens' groups are openly questioning the policies of Yugoslav leaders with an
impunity unknown in other Communist states. In recent weeks, a budding
grassroots antinuclear movement has challenged the government's ability to
proceed with plans to build additional nuclear power plants. And, in a lobbying
effort unprecedented in recent years, more than 100 ethnic Serbs from the
southern province of Kosovo visited parliament in late February to protest their
treatment by the region's largely Albanian leadership. Meanwhile, many
journalists, especially from Serbia, are protesting the regime's use of press controls
and expressing sympathy for both the antinuclear groups and the Kosovo Serbs.
Such democratizing tendencies, which have long worried the leadership, hold forth
mixed omens for the country's stability. They could help Belgrade more effectively
address its problems by allowing a more open discussion of issues that was kept to
a small inner circle in Tito's day. But they also could unleash resentments from
some nationalistically minded ethnic groups, notably Serbs, which will lead to
backlash and sharpen tensions in the multinational state. The subtle opening of
Yugoslavia's political institutions, however, over the long term is likely to continue
and stay largely beyond the regime's control.
Increase in Real Incomes
Real incomes in Yugoslavia rose 2.8 percent in 1985 following five years of
continuous declines, representing one of the few bright spots for workers in an
otherwise dismal economic situation. Real incomes had fallen almost 30 percent
between 1979 and 1984 due to runaway inflation and wage controls. Much of the
increase occurred in the last quarter of 1985 as officials increasingly yielded to
workers' demands for higher wages in the face of accelerating inflation. Nominal
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wages rose roughly 78 percent. Despite the increases, last year's real average
monthly wage?about $137?remained roughly 20 percent below the 1979 level of
$170.
The national statistics, however, tend to mask continuing disparities in income
levels among regions and social groups. While real Incomes rose in all but two
republics or provinces, the increases ranged from 3.3 percent in Kosovo to 10.4
percent in Slovenia. In contrast, real incomes declined 3.6 percent and 2.9 percent,
respectively, in the republic of Macedonia and in the Serbian province of
Vojvodina. The highest monthly incomes were earned in Slovenia (roughly $185)
and the lowest in Macedonia (about $100). Professional workers and managers?
many of whose wages are tied to some type of inflationary index?and private
entrepreneurs again fared better relative to pensioners, students, and factory
workers. In addition, some segments of society did better than the official average
because of second economy transactions?part-time jobs, moonlighting, barter,
and black-market transactions.
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Articles
Eastern Europe: Potential
Gains From US Sanctions
Against Libya
US sanctions against Libya could provide most East
European countries with opportunities to earn badly
needed hard currency and diversify their sources of
oil. For example, Bulgaria, Romania, and Hungary
might displace US firms in sales of some technology
and petroleum drilling equipment to the Qadhafi
regime. Likewise, these and other countries in the
region might seek deals for more Libyan petroleum
now that Soviet oil is double the world price.
However, Tripoli's past unreliability in paying many
of its East European suppliers will cause Bloc
countries to weigh carefully any expansion of ties.
Moreover, Eastern Europe's potential to capitalize on
the sanctions hinges on West European competition
because Libya, for both economic and political
reasons, is likely to view the Bloc as a second choice.
Commercial Ties Limited
Libya has played a relatively small role in Eastern
Europe's foreign trade. In 1984, Libya purchased
4 percent of the region's hard currency exports,
accounting for about a tenth of its exports to
developing countries. While Eastern Europe's exports
to Libya have risen less than 2 percent annually since
1980, that rate exceeds the growth of the region's
exports to developing countries as a whole. Hungary
and Bulgaria have seen the most rapid growth of
exports to Libya, while East Germany's sales have
dropped.
Like other developing countries, Libya provides an
outlet for East European arms and manufactured
goods, many of which are not competitive in Western
markets. Czechoslovakia, Yugoslavia, and Bulgaria
have been Libya's major East European arms
suppliers, although all countries in the region have
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sold military goods to Qadhafi's regime. In 1983 and
1984, East European arms deliveries to Libya totaled
$480 million and $350 million, respectively.
Eastern Europe supplies the Libyans with services and
equipment for oil drilling and refining and constructs
large-scale projects such as refineries, factories, power
plants, irrigation systems, agricultural facilities,
housing, roads, and some military-related projects.
Because of the scarcity of skilled professionals and
need for construction crews, Tripoli also employs a
sizable number of East European guest workers and
pays their salaries in hard currency. An estimated
50,000 East Europeans?including 800 military
advisers?currently work in Libya.
Black Gold
Although the USSR provides about 70 percent of
Eastern Europe's oil imports, the region looks to
Libya, along with Iran and Iraq, to supply the balance
of its requirements. East Europeans refine and re-
export a substantial portion of this crude oil to the
West for hard currency. From 1980 to 1985, the
region earned $4-7 billion annually from reexports of
oil. Over the past decade, Libya has delivered 13 to 15
percent of Eastern Europe's non-Soviet oil imports. In
1983, Bulgaria and Hungary relied the most on
Libyan oil, importing more than three-fourths of their
non-Soviet oil from Libya. Poland (60 percent of non-
Soviet oil imports), Yugoslavia (30 percent), and
Romania (10 percent) also counted on Libyan oil.
According to US Embassy reporting, Czechoslovakia
has received substantial amounts of Libyan oil and
resold it on the spot market, although neither country
reports these deals. East Germany imports little, if
any, oil from Tripoli.
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Opportunities for Expanded Ties
East European firms potentially could fill some of the
gaps left by US firms because of the sanctions.
Bulgaria and Romania already have a well-developed
presence in Libya as suppliers of petroleum drilling
and exploration equipment and technicians. These
countries probably could provide additional
equipment and services of sufficient quality and
quantity to maintain Libyan oil production and
exports. Tripoli already is hiring Bulgarian crews to
replace US personnel in conducting seismic studies
and probably will bring in more Bulgarian crews as
needed.
Incentives for East European countries to replace US
firms in Libya include:
? Hard currency. Increased sales of equipment and
services to Libya, specifically in the petroleum
sector, could generate hard currency?either by
direct payment or via reexport of more Libyan oil.
For example, if Eastern Europe sold even half of the
goods and services previously supplied by US firms
in Libya in a single year, it could earn roughly
$300-350 million. Because of the soft oil market,
Eastern Europe may have good bargaining leverage
in striking barter deals with Libya. However, re-
exports by the East Bloc would be an extra drag on
the world market and thus restrain the region's
increases in earnings. Still, even if Eastern Europe
marketed only a fourth of Libyan oil formerly sold
by US companies and prices plunged to $10 per
barrel, the Bloc could earn up to $200 million
annually in hard currency.
Bulgaria most likely is especially eager to fill the
gap. Sofia, which counts on earnings from trade
with developing countries to offset persistent trade
deficits with developed countries, saw its hard
currency trade surplus with this group drop by $350
million last year as exports leveled off. Romanian
authorities, too, despite cooling trade ties to Tripoli
in recent years, probably would welcome expanded
hard currency sales to avoid repeating the 1985
trade shortfalls that forced a return to Western
lending markets and postponement of debt
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repayments early this year. Hungary also may be
interested in increasing trade with Libya. Budapest,
which barely avoided a hard currency trade deficit
last year, may desire to secure more crude oil since
it has earned substantial cash through reexports in
the past.
? Diversification of oil sources. By broadening its
foreign sources of energy, Eastern Europe would
lower the risk of domestic energy shortfalls?a
paramount consideration should the Soviets
decrease their oil exports to the region. The USSR
could redirect some oil exports to the West to
generate hard currency in the wake of falling energy
prices or retain more oil at home to balance supplies
with growing domestic demand. At the same time,
Eastern Europe might look increasingly to Third
World oil producers such as Libya because the price
for Soviet oil is now almost twice the world price. If
world oil prices continue to fall, the region may
calculate that the cost of paying Moscow a price in
soft currency for oil that far exceeds the world level
outweighs the disadvantage of paying non-Soviet
suppliers in scarce hard currency.
The Risks
Despite the potential benefits, expanded commercial
ties to Libya could be financially hazardous for
Eastern Europe. In recent years, several Bloc
countries have encountered difficulty in receiving
payment for exports ranging from military hardware
to construction services. The recent fall in oil prices
and revenues have worsened Tripoli's ability to pay.
Uncertainty about Libya's creditworthiness has
undermined the East Bloc's confidence in Tripoli and
probably restricted the volume of trade.
Libya's cash shortage has forced some of its East
European creditors to accept payment in oil, but even
then Tripoli has been less than dependable in making
deliveries. some East
European firms have had considerable difficulty in
getting Libya to deliver oil to settle debts. Recently,
Romania blamed its inability to meet payments due to
Western banks on Libya's failure to meet its
commitment to deliver oil for resale. Even if this
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accusation is exaggerated, such bad experiences could
induce Romania and other Bloc countries to go slowly
on expanding trade ties.
Outlook
The risks aside, East European countries probably
will try to supply Libya with goods and services
previously furnished by US firms. However, we
believe the region's ability to do so is limited. Soviet
demands for oil and gas equipment, coupled with its
hard currency shortages, could persuade the USSR to
put the arm on its East European allies to replace
Western equipment purchases. If Eastern Europe
increases such exports to Moscow, it could leave little
slack capacity to sell to the Libyans.
Furthermore, competition from West European and
Asian firms also seeking to benefit from US sanctions
will limit any potential East Bloc gains.
US oil service
companies and most US technicians are being
replaced by firms and personnel from the United
Kingdom, France, and West Germany. In addition,
many West European and Asian firms are interested
in?or have actually taken over?previous US
contracts for civil engineering and construction
projects in Libya.
Libyan authorities are likely to continue to favor these
firms over the East Europeans. Not only do Western
firms supply better quality goods and services, but
Qadhafi probably would prefer to employ West
European firms wherever possible to isolate the US
from its West European allies. As long as Eastern
Europe faces such competition, its gains from
increased commercial ties to Libya are likely to be
minimal.
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Western Europe: The Tornado?
A Case Study in
International Cooperation'
The Tornado aircraft project is the largest
codevelopment and coproduction program in recent
West European experience and provides an example
of both the benefits and difficulties Europeans face
when cooperating on major defense projects. With a
total production run that will approach nearly
1,000 aircraft, the project is viewed by Italy, West
Germany, and the United Kingdom as having
preserved their basic capability for developing modern
fighters while providing a valuable lesson for future
cooperative programs. If West Europeans draw upon
the Tornado experience to guide their industrial
defense cooperation, chances are good that they can
maintain an independent aerospace industry able to
provide better military systems and economies of scale
not previously possible. Should their efforts at
continued defense cooperation based on the Tornado
model succeed, the impact on US manufacturers
could be costly?they probably would retain their role
as a supplier of components but could lose most of
Western Europe's market for complete aircraft and
possibly some secondary aircraft markets in the Third
World.
The Military Requirement
The Tornado program grew out of a 1958 NATO
study calling for a new fighter aircraft at a time when
nearly every West European Alliance member was
seeking a replacement aircraft for its aging air forces.
In Britain, the Royal Air Force urgently needed to
find replacements for its Vulcan, Buccaneer, and
Canberra strike/attack aircraft and its Lightning and
Phantom interceptors. Norway, Denmark, West
Germany, the Netherlands, Belgium, and Italy were
using the Lockheed F-104 Starfighter as the
backbone of their air forces, but its service life would
expire by the mid-1980s. None of the countries had
the capability to satisfy its own needs, and even the
United Kingdom?despite its across-the-board
capabilities in aerospace technology?found
codevelopment and coproduction economically and
technologically attractive.
' Information for this article was derived largely from open and
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Tornado Mission Requirements
Role
Interdiction/close
air support
Interdiction/offensive
Counter-air/
strike/attack
Naval air strike/attack
Interception/air defense
Reconnaissance
User
RAF, Luftwaffe,
Italian AF
RAF, Luftwaffe
German Navy
RAF
RAF, Luftwaffe,
Italian AF
At the same time, British, West German, and Italian
military requirements, as well as a desire to maintain
an independent European aircraft development and
production capability, stimulated interest in a
common aircraft. Individual European governments
had found it increasingly difficult to fund new aircraft
for various mission requirements from shrinking
defense budgets. They were also unwilling to purchase
a US aircraft and forego the employment and
technological benefits that would come from domestic
development and production.
Within the lucrative European market, industrial
competition for the "front-line fighter replacement"
aircraft divided the West European countries by
offering various aircraft at either lower cost or with
attractive coproduction/offset arrangements.
Competing with the Tornado were Saab's Viggen, a
French Mirage, and the
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TORNADO SUMMARY DATA
IDS
ADV
Country
Crew
Length (m) (overall)
Span (m)
Max
Min
Max T/O weight (kg)
Max payload (kg)
Internal fuel (kg)
Radar
Engine
Maximum Mach
Combat radius (NM)
(Hi-Lo-Hi)
Italy
West Germany
United Kingdom
2
17.4
13.9
8.6
27,300
9,070
5,015'
IDS
RB199-34R Mk 1032
2.0
6603
United Kingdom
2
18.7
13.9
8.6
27,300
9,070
5,730
Foxhunter
RB199-34R Mk 104
2.05
750k
'Including fin tank on RAF versions.
2Pre-1983 IDS variants use the Mk 101.
3Gun only.
"Estimated based on additional fuel.
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Desired Characteristics for Tornado
Requirement
All weather operation
Transonic speed at low
level
High navigation
accuracy
Accurate weapons
delivery
Subsonic handling at low
level
Rapid data evaluation
Rapid acceleration/rate
of climb
Maximum
maneuverability at all
altitudes
Supersonic cruise
Target
acquisition/identification
Short take-off and
landing
Effective ECM and
ECCM
Terrain-following
capability
Role
All roles
Strike/attack/
interdiction
Close air support/
strike/attack'
interdiction
All roles
Close air support
All roles
Interceptor
All roles
Interceptor
Interceptor
All roles
All roles
Close air support/
strike/attack/
interdiction
Italy, West Germany, and the United Kingdom,
however, combined to develop and produce the
MRCA, redesignated the Tornado in 1977, under a
single West European agency formed exclusively for
this task?the Panavia Aircraft GmbH, based in
Munich.
The Problems of Joint Efforts
The driving force behind Tornado was the inability of
each of the three partner countries to develop a
system unilaterally. Individual national requirements
for aircraft were too small to absorb development and
production costs, and resources allocated for military
research and development, as well as for procurement,
13
were relatively scarce. Thus, high costs and limited
technical competence were the major imperatives for
a joint program. Despite the interest in combining
efforts, some stumbling blocks arose early in the
Tornado project that were related largely to the
diverse national military requirements of the three
partners and the difficulty in distributing work
equitably among them. A longer term problem was
cost escalation.
Mission Requirements. The major problem was the
development of a single system to carry out the
different roles and missions required by the three
countries. These differing mission requirements
forced systems designers to attempt to reconcile
widely differing performance characteristics into a
single set of specifications at a unit cost acceptable to
all. In the end, this challenge was met largely by
producing two variants?an interdiction strike version
(IDS) and an air defense model (ADV)?while
maintaining 80-percent commonality between the
two. The lesson learned was that finding solutions to
competing requirements is not necessarily impossible.
Work Sharing. The problem of distributing work
efforts among participants was another nagging issue.
Each country wanted to maximize technological,
employment, and income benefits from participation
in the Tornado program. In West European
cooperative efforts, however, equity plays an
important role as each partner tries to ensure that the
benefits received are commensurate with its share of
the costs. Thus, in the Tornado program,
workshares?and thus costs and profits?were
allocated on the basis of potential purchases by each:
West Germany's Messerschmidt-Boelkow-Blohm
(MBB) and British Aerospace (BAe) each received a
42.5-percent share while Italy's Aeritalia received
15 percent.
The actual manufacture of Tornado components is
shared so that each participant develops and produces
parts of the complete system and later assembles its
"national" aircraft from components produced in the
three countries. In the case of MBB, for example,
production of the fuselage center section takes place
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at its Augsburg factory and final assembly is done at
its Manching factory, where Italian-built wing
sections and British-built fuselage and tail sections
are all mated together. In all, more than
500 companies employing some 70,000 workers
became involved in this project.
The importance of equity also is evident in the
program's management structure. All national
companies are formally subcontractors to Panavia.
Each of the three major partner firms have been given
an equal voice in management in an effort to reduce
potential problems of status and national pride.
Through this arrangement each firm has access to all
the technology generated in the project.
Cost Escalation. Joint development and production is
a financially costly option for the NATO allies?more
expensive than buying from a single foreign source
(American or European) but less expensive than
undertaking a national program. As development of
new aircraft technologies demands more time and
increased funding, making it more difficult for West
Europeans to advance their present position in high
technology, costs and technical competence will
remain major factors in the future. Nevertheless, the
West Europeans believe joint ventures are essential to
maintaining an indigenous defense industrial
capacity. The Tornado project suffered unusually
high costs, in large measure because of critical
decisions to develop both a new engine (the RB-199)
and a new airframe. Designing a new engine that
incorporated new technology held up flight testing for
nearly 18 months and added at least 20 percent to the
total cost of the aircraft (now approximately
$30 million each).
It was also found that prices rose faster and delays
were longer when equipment was delivered by the
government from government-contracted sources. To
stem rising costs, competitive bidding was introduced
for selected items and components for the aircraft. By
this method, Panavia was able to slow the overall
price increase from 1975 through 1985 to just
10 percent. But,
competitive bidding also opened the door to US
participation; as much as 20 percent of the Tornado,
including its terrain-following radar, is made in the
United States.
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Implications for European Cooperation
Should the West European nations wish to maintain
more than a foothold in the high-technology weapons
arena?particularly aerospace?in the future, their
governments must continue to use organizations like
Panavia to compete with the United States. Neither
Italy, West Germany, nor the United Kingdom were
prepared to develop and produce Tornado alone, yet
each had substantial technological capabilities and
skills to protect and enrich. None wanted to be
relegated to a position of subcontractor, although in
the end each subcontracted equally to the others.
Panavia offered the Europeans the status and pride of
equality in which benefits were roughly proportional
to financial burdens and technology was open to all.
Western Europe's need to end its "ad hoc" pattern of
collaboration for one that is more systematic and
permanent has been recognized for more than a year.
National rivalries and suspicions have hindered
progress in the past and continue to jeopardize future
projects. Still, chances are good that an independent
European aerospace industry can be maintained if the
Tornado experience is drawn upon to guide industrial
defense cooperation. The recent decision directing
Panavia to produce the new European Fighter
Aircraft (EFA) may be a step in the right direction.
These cooperative undertakings should allow the West
Europeans to provide themselves better military
systems and achieve economies of scale not previously
possible. Furthermore, cooperation in defense projects
also provides the potential for major nonmilitary
applications of the new technologies.
Over the longer term, continued success in similar
ventures could hasten the fall of internal trade and
financial barriers and lead to wider intra-European
cooperation in other, non-aviation related, areas?
both military and civil. Additionally, Western
Europe's close trade connections to Asia, the Middle
East, and Africa promise lucrative export markets
and larger production runs so long as the Europeans
are not competing with each other. Expansion of
defense markets through such third country sales and
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integration of procurement and production while
preserving competitiveness and industrial capacity
will be the keys to success.
On the other hand, if future cooperative efforts fail,
Western Europe's defense industry could be
fragmented even further, increasing intra-European
competition and enhancing the position of a strong
US industry in a shrinking global aircraft market.
Furthermore, the failure of cooperative European
defense efforts would further block attempts to
achieve standardization and rationalization of weapon
systems in NATO. Under these circumstances, West
European governments most likely would use defense
budgets to an even greater degree to subsidize their
defense industries. This could only lead to a lessened
ability to upgrade their forces to meet NATO
requirements, creating additional strains in US?West
European relations.
Implications for the United States
The success of West European defense cooperation
efforts similar to the Tornado project could cost the
United States most of the European aircraft market?
and possibly those secondary aircraft markets in the
Third World where established ties give the
Europeans an advantage?but probably not the
market for aircraft components. If, however,
European cooperative efforts fail and individual
countries attempt to develop indigenous defense
industries, the need for sophisticated US-built weapon
systems or components would increase. At the same
time, more opportunities would exist for US firms to
enter into joint or coproduction agreements with
nations working to maintain their defense industrial
momentum but most likely against demands for
100 percent offsets.
In either case, implications for the United States are
tied directly to the US positions on technology
transfer and export licensing.
West European firms already are searching
for non-US suppliers and investigating domestic
production possibilities to avoid US export controls?
particularly involving aviation and composite material
technology?thereby maintaining both markets and
self-sufficiency.
15
Secret
the European 25X1
Parliament has recently and unanimously approved a
resolution opposing certain US export controls.
Because of these West European attitudes,
improvements in US-European cooperative programs
will depend largely on the extent to which US
approaches offer the Europeans equality rather than
junior or subcontractor status in joint projects?
lessons even the West Europeans had to learn from
the Tornado.
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Yugoslavia: Party Plans
Organizational Reforms
The Yugoslav Communist Party is planning reforms
of the post-Tito political machinery at its 13th
Congress in June. The changes, the outlines of which
have emerged at recent Party Central Committee
plenums, include a modest strengthening of central
authority, an emphasis on more democratic
procedures, and a toning down of some of the more
extreme features of the rotational leadership system
devised by Tito. The reforms follow several years of
sharp debate and attempt to reconcile pressures from
competing interest groups. They are likely to provide
the basis of a modus vivendi that will help Belgrade
keep a semblance of stability?at least for the near
term.
The Quest for Change
Organizational change has been a staple theme of the
Yugoslav Communist system since its inception after
World War II as Tito sought to adapt political
structures to shifting needs and policies. Nonetheless,
the 13th Party Congress to be held on 25-28 June?
the second congress since Tito's death in 1980?
follows a debate over institutional reform heated even
by Yugoslav standards. The impetus for changing the
post-Tito system has been the seeming paralysis of the
collective leadership in the face of declining living
standards, a $20 billion hard currency debt, and
sharpened tensions among the many ethnic groups.
The movement for change has been impeded by
overlapping, often conflicting demands by the
country's many political factions. These factions
represent well-entrenched pressure groups motivated
by differing ethnic, economic, and ideological
interests. Centralists from the influential republic of
Serbia have pressed for a return to Belgrade of some
of the power that has devolved to the regions during
the past 20 years. Regionalists have insisted on
keeping the decentralized status quo. But ideological
hardliners among them?mostly from Croatia and
Bosnia-Hercegovina?have called for restoring to the
party some of its lost unity and influence. Meanwhile,
21
Secret
liberal party members have demanded more
intraparty democracy to wrest power from what they
see as a stultified and incompetent elite.
The factions had aired their views?and ended up in a
virtual standoff?both in a stormy nine-month
partywide debate in 1984-85 and in an even lengthier
study specially commissioned by the government,
which produced a book-length document earlier this
year. Despite this stalemate, the regime has begun to
respond ad hoc to many of these pressures. The party
leadership has been asserting itself more forcefully
toward both the federal parliament and some of the
independent-minded regional leaderships. And some
of the regional party and government bodies have
introduced more democratic methods promoted by
liberal reformers.
Reforms at Congress
The party congress this June and the regional
congresses leading up to it are likely to ratify a series
of organizational reforms designed to address the
demands of the various factions. The reforms?most
of them now before the party for debate as statutory
changes?will strengthen somewhat central party
authority, introduce a few democratic trappings, and
make less disruptive the system of rotational
leadership devised by Tito to prevent a sin le person
from accumulating too much power.
Some of the proposed changes have already run into
stiff opposition and even have been revoked. For
example, a party plenum on 31 March overturned a
decision made last December to reduce the Central
Committee at the congress from 165 to 129 members.
The decision could have made the Central Committee
a more manageable and effective counterweight to the
elite 23-member Presidium. But under the Yugoslav
practice of improvisation and consensual politics, the
regions made an abrupt about-face and bowed to the
wishes of one republic, Bosnia. As a result, many of
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The Party Central Committee, shown here during a break at a
plenum in February, will be kept at 165 members. A decision to
streamline it was abruptly canceled, reflecting the often shifting
approach of Yugoslav officials to structural reform.
the regions will now have to add to their lists of
candidates already nominated for membership on the
Central Committee.
Barring any further such turnabouts, the following
are some of the reforms that seem slated for approval
or already have been put into effect:
? Central committee election. The election of Central
Committee members will be changed to reduce at
least nominally the power of regional chieftains. In
past years the congress rubberstamped the regions'
choices for their quotas of slots. This June, by
contrast, the congress will vote by secret ballot on
the regional lists, with candidates failing to achieve
a majority vote being struck off and replaced. The
new procedure may eliminate some of the more
outspoken, parochially oriented regional delegates.
Nonetheless, regional leaders still will control the
choice of replacement candidates and will
horsetrade in advance to ensure that most of their
slates are approved. The six republics each have
20 seats, and the two provinces and the Army party
organization 15 apiece.
Secret
? Special regional congresses. The central party
leadership will be given a new tool to coerce regional
leaderships in implementing unpopular decisions, an
endemic problem in post-Tito Yugoslavia. Under a
proposed statutory change, the Central Committee
will be able to convoke special congresses of regional
party organizations when policy implementation is
blocked. The existing party statute allows only the
regional parties to call such gatherings. If the
change is adopted, the Central Committee probably
will use this new authority only gingerly, partly
because it still lacks means to assure that such a
meeting would adopt the appropriate decisions.
Nonetheless, the change may help reduce minority
obstructionism such as the behavior of the Croatian
and Slovene leaderships last year in a dispute over
allocating foreign exchange.
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? Democratic centralism. The party statute will
probably be amended to strengthen at least formally
democratic centralism, a Leninist precept designed
to ensure implementation of decisions reached by
majority vote in central bodies. The head of the
party Statutory Commission, Budomir Vukasinovic,
said at a plenum in February that the new statute
would be more explicit than the previous one on this
score, although he cautioned that statutory changes
alone would not change behavior.
? Secret balloting. According to Vukasinovic, the
draft party statute now being discussed calls for
elections by secret ballot throughout the party.
Under existing rules, election of the Central
Committee is exempted from this requirement. The
new procedure could promote democratic norms in
the party by freeing delegates from pressures by
their superiors, although past evidence suggests the
party bosses would still dominate the process.
? Multiple candidates. The use of multiple candidates
within the one-party system, another democratic
innovation, will be encouraged in party elections,
although it will probably have only mixed effects.
Nearly all of the eight regions already have put up
lists of multiple candidates for their slates to the
national Party Central Committee?albeit, they
had planned on the reduction of that body to
129 members and will now have to consider adding
candidates. The regional congresses in April and
May will narrow down any expanded lists for
submission to the national congress. However, some
regions have included barely a handful more
nominees than positions, while others?such as
Bosnia?nearly twice as many names as slots, a
factor that probably contributed to Bosnia's push to
keep a large Central Committee. In elections for
other key positions, the use of multiple candidates so
far has also been spotty. In Croatia this March, the
calculations of the party bosses were upset when one
longtime party official, Jure Bilic, lost out to a
relative newcomer, Stipe Suvar, in a competitive
election for the national Party Presidium. But, in
February, Serbia sheepishly decided against using
multiple candidates in choosing its highest positions
once the choices of the republican leadership
became clear. As a result, a senior but controversial
party leader, Dragoslav Markovic, was shut out of a
top job.
23
KAHAVIAATVI
"Candidates": Cartoon in the semiofficial Bel-
grade daily Borba shows the new stress on using
multiple candidates in party elections. The proce-
dure has had some democratizing effects, al-
though much of the sifting is still done by the
powers that be, not the grass roots.
? Longer terms of office. The lower rungs of the party
seem determined to free themselves from the system
of frequent leadership changes now in effect. Tito
had introduced the system in the Presidium in 1978
to prevent any one of his successors from trying to
take charge after his death, and his move was
quickly duplicated down to the lowest levels, often
with disruptive effects. The national party statute
allows the regions to set their own policies. In recent
months, many of them and their governmental
counterparts have begun to pave the way to extend
office terms through their own statutory or
constitutional amendments. There has been little
sentiment, however, to exempt the national party
chief from the current practice of annual rotations.
Despite initial skepticism that such a complex
system could last, most Yugoslays now seem to
agree it has helped keep the peace among the
regions.
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Outlook
The reforms probably will at least marginally modify
the way the political system works. They will
incrementally increase central authority, introduce a
few more democratic elements into the authoritarian
one-party system, and make more rational the
practice of rotational leadership left by Tito. None of
the factions will view the changes as an ideal or
permanent answer to its concerns, and debates will
continue over many of the same issues that dominated
the most recent intercongress period. Nonetheless, the
reforms will provide the basis of a new, if possibly
short-term, modus vivendi that could dampen inter-
regional rivalries and maintain a semblance of
stability.
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Economic News in Brief
Western Europe and Canada
New Swedish Prime Minister Carlsson, Finance
Minister Feldt, pushing for tax relief this year as
Social Democratic government concerned over rise of
"new poverty". . . high marginal tax rates, decreased
housing subsidies as workers' incomes rise prevent
disposable income gains for several hundred thousand
households . . . situation may force Stockholm into
reassessment of welfare state polices.
Sweden proposed 39-percent aid increase for
Nicaragua in 1987, largest jump in development
assistance budget .. . Managua sole Central
American recipient .. . central-right opposition
against $17 million package, may press government to
place portion elsewhere in region.
Alberta Premier Getty angered Canadian federal
officials by recent offer to Saudi oil minister of
symbolic cut in province's output . . . Getty under
pressure to respond to oil price slump . .. probably
frustrated with federal inaction on tax relief for
energy firms and cut in transfer payments to Alberta
and other western provinces.
Eastern Europe
Bulgaria has agreed to provide labor, equipment for
the Soviet Yamburg gas pipeline . . . Sofia to receive
additional gas amounting to 3.8 billion cubic meters
annually by 1992 ... Poland and Romania only East
Bloc countries still to sign final agreements on project.
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Looking Ahead
April/May
Western Europe
Economic Congress of Social Democratic Party in Hamburg 9-10 May will
hammer out economic platform for West German election next January . . . will
emphasize domestic issues, particularly unemployment, social welfare,
environment ... platform to be ratified at main party congress in August.
31 Secret
EUR ER 86-009
11 April 1986
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