EUROPEAN REVIEW

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP87T00289R000301140001-0
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 36
• Document Creation Date: December 27, 2016
• Document Release Date: May 16, 2011
• Sequence Number: 1
• Publication Date: July 18, 1986
• Content Type: REPORT

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European Review
EUR ER 86-017
18 July 1986
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European Review
Briefs United Kingdom: Defense Budget Continues Decline
Canada-Norway: Military Reinforcement Exercise F__L
Denmark: Posturing on Wartime Nuclear Deployment
Eastern Europe: Economies Still Struggling
Romania: Requiem for a Heavyweight? =
Yugoslavia: Focus on Private Agriculture~_7
Articles NATO: Reactions to US SALT II Decision
West European leaders have reacted negatively to Washington's
announcement in late May that it will no longer abide by the SALT
II Treaty, voicing fears that the decision will complicate Allied
efforts to counter recent Soviet arms control proposals. Even if they
accepted US findings on Soviet noncompliance, anti-US attitudes of
their constituents on the issues would prevent them from openly
endorsing the decision. Initial negative reactions, however, could
diminish if West Europeans come to believe that Washington and
Moscow are moving closer to new agreements and that a second US-
Soviet summit is still possible. F__]
United Kingdom: The Unemployment Quagmire
High unemployment will remain a major liability for Prime
Minister Thatcher in the runup to the next election, which must be
held by June 1988. Because a marked improvement is unlikely, she
will be forced to continue arguing that the government has no short-
term solution to the problem-an argument that may be wearing
thin. Thatcher's best option is to stress her success in curbing
inflation and union power and reviving economic growth while
attempting to persuade voters that the opposition Labor Party lacks
a credible alternative program.
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EUR ER 86-017
18 July 1986
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other, more important privatization ventures.
France's hottest political row of the summer and its first major clash
of cohabitation between left and right is shaping up over an
unexpected sleeper issue-privatization of television. The conflict
centers on the conservative government's announced plan to sell off
its premier network, TF1, and to reorganize the government
authority that polices media standards and practices. The Socialists
have organized impressive opposition, but the government is likely to
get its way in a contest that almost certainly will have important
implications for both power sharing in France and the success of its
Yugoslavia: The 13th Party Congress
was correct but showed that Gorbachev has other priorities.
The Communist Party Congress in late June was one of the liveliest
in recent Yugoslav history but offered few new solutions to the
country's pressing economic, ethnic, and political problems. The
congress reaffirmed Belgrade's nonaligned foreign policy and
directed a few barbs at the United States. Moscow's participation
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Some articles are preliminary views of a subject or speculative, but the contents
normally will be coordinated as appropriate with other offices within CIA.
Occasionally an article will represent the views of a single analyst; these items
will be designated as uncoordinated views.
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European Review) 25X1
United Kingdom Defense Budget Continues Decline
order of Harrier reconnaissance aircraft for the RAF.
London has announced new defense budget cuts of 1.5 percent-or $431 million-
in each of the next three years, according to a recent press report. The Ministry of
Defense has softened its previously firm commitment to a 50-warship navy and
canceled plans to fit its Type 22 frigates with new antisubmarine warfare
equipment. London will reduce its orders for landmine systems and postpone plans
for a new generation of light antiarmor weapons. The Royal Air Force (RAF) will
be forced to delay its acquisition of Tornado reconnaissance aircraft to meet
foreign aircraft orders, and the Defense Ministry is considering a cut in its second
These new cuts follow closely London's recent decision to abandon the NATO goal
of 3-percent annual real growth in defense spending and increase the risk that the
operational capability of British forces will be affected by continued equipment
cutbacks. The Defense Ministry's delay in orders for new aircraft and ship orders
in particular will impair Britain's capability to carry out its NATO commitments.
The continued backslide in British conventional forces is likely to prompt yet
another call by the Labor Party for a defense review in light of the Thatcher
government's insistance on continuing with the $12.6 billion Trident submarine
program.
Canada-Norway
Military Reinforcement Exercise I 25X1
Canada will undertake its largest movement of armed forces to Europe since
World War II this September as part of NATO exercise Brave Lion, 25X1
Canada will dispatch by air and sea more than 5,500 25X1
troops and 15,000 tons of equipment to Norway. The exercise is designed to test
NATO's plans for joint operations by the Canadian Air Sea Transportable
Brigade Group and rapid reinforcement squadrons of the Canadian Air
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of Canadian strategic air and sea lift operations
The brigade group's mission is to provide rapid reinforcement of NATO's northern
flank (Norway) in time of crisis. Individual units in the group have gained
experience in Norway during previous military maneuvers with the Allied
Command Europe Mobile Force,-and the two air squadrons have participated in
exercises in Norway in alternate years, but this.will mark the first time the entire
force will be deployed overseas together. Exercise Brave Lion is designed to assess
potential shortcomings in the brigade group's training status and in the adequacy
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EUR ER 86-017
18 July 1986
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Posturing on Wartime Nuclear Deployment
In mid-June Social Democratic Party Chairman and former Prime Minister
Anker Jorgensen spoke against allowing nuclear weapons on Danish soil in
wartime. If implemented, such a policy would undermine NATO reinforcements
agreements considered vital to participation in the Alliance. Prime Minister Poul
Schlueter's pro-NATO government reacted to Jorgensen's statement by
threatening to call an early election if a resolution against wartime deployment
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came before parliament. Encouraged by the discussion of banning nuclear
weapons, weakening Denmark's role in NATO, and calling an early election, the
Socialist People's Party indicated its willingness to introduce such a resolution and
cooperate in a socialist coalition government. Jorgensen, realizing the significance
of his statement, then said that he had been misinterpreted. Social Democratic
Deputy Chairman Svend Auken insisted that his party remained opposed to
unilateral Danish statements on wartime nuclear deployment.
The Social Democrats have long rejected the formation of a coalition with the
Socialist People's Party because of the latter's anti-NATO stance. Although
Jorgensen's initial statement may have been just a tactical error, it probably
reflects his personal views on nuclear weapons and his willingness to seek a
compromise with the-Socialist People's Party- on security policy. The mixed signals
also reflect a debate within the Social Democratic Party over whether a shift to the
left would stabilize its declining position or relinquish leadership of the left to the
Socialist People's Party. Meanwhile, Jorgensen's outspoken posturing has left
many in the party leadership increasingly disenchanted with their chairman.
Recently released data show Eastern Europe's economic performance in the first
quarter of 1986 improved little over last year's poor showing. First-quarter
industrial growth fell below the annual rate for 1985. Encouraged by a relatively
moderate winter this year, East European regimes hoped for stronger showings as
they began new five-year plans. Official criticism of inertia in the Czechoslovak
economy has been unusually harsh, and a Hungarian economist recently told a US
diplomat that Hungary's GNP might not increase at all in 1986.F___1
The hard currency deficit for the region was an estimated $900 million as
increases in imports, especially from the West, outstripped export growth; in
contrast, there had been a slight surplus in the first quarter of 1985. The trade
deterioration was particularly evident for Hungary, Bulgaria, and Czechoslovakia.
Officials in several countries have expressed disappointment with the trade figures,
especially because economic plans had stressed reducing hard currency imports
and expanding exports.
Prospects for these economies over the rest of the year are not bright. Declining oil
prices in the West have cut demand for the region's refined oil products and
reduced the ability of Third World oil producers to buy from Eastern Europe.
Tourism and food exports to Western Europe have also suffered since the
Chernobyl accident. The slow industrial growth and the decline in hard currency
trade balances indicate that the region's recovery from the economic stagnation
and financial problems of the early 1980s is running out of steam. Further poor
trade results may make bankers more cautious in lending to Eastern Europe. With
the Soviets pushing the regimes to increase economic growth and poor 1986 results
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already apparently throwing the new five-year plans off schedule, East European
leaders will come under increasing pressure to take stronger actions in addressing
economic problems.
Romania Requiem for a Heavyweight?
The transfer last month of Minister of Mines The Verdet to chairman of the
Communist Party's Central Auditing Commission was but the latest in a series of
demotions that have removed the former Prime Minister and protege of President
Ceausescu from the center of power and may have dimmed his succession
prospects. In his new position, generally considered a sinecure for political has-
beens, Verdet was required by statute to give up his membership-in-the Party's
Central Committee, the Political Executive Committee, and the elite Permanent
Bureau of the latter. No reason was given for Verdet's latest downgrading, but his
failure to achieve dramatic-and unrealistic-coal production increases demanded
by Ceausescu to alleviate Romania's energy shortage was probably a major factor.
Verdet, originally a coal miner himself, first achieved political prominence in the
mid-1960s as one of a group of young administrators brought into the leadership
by then newly elected party leader Ceausescu. He served in a number of influential
party and government posts before being appointed Prime Minister in 1979. His
decline began with his reassignment in 1982 as Party Secretary for economic
affairs, a position he had held earlier, amid rumors of disagreement with some of
Ceausescu's policies. He fell still further last winter, when he was appointed
Minister of Mines simultaneously with Ceausescu's reorganization of the energy
secto d artial militarization of the mining and electrical generation industries.
Verdet's new appointment isolates him from the policymaking process and could
spell his political demise. While we doubt that this move has seriously discredited
Verdet, who was widely respected for his competence and moderation, his absence
from the leadership over time probably will eventually move him further back in
consideration as a potential successor to Ceausescu. It is possible that Ceausescu
will return Verdet to a responsible role after a time in the political wilderness. But
the Romanian President's increasing tendency to favor the advice of family
intimates and sycophants over that of the pragmatists symbolized by Verdet
suggests the former Prime Minister's decline is less a fluke than a portent of a
further hardening of Ceausescu's personal rule.
The new government of Premier Mikulic has announced that it will devote special
attention to stimulating output and productivity of Yugoslavia's private farms,
including the possibility of increasing their maximum size and improving
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incentives for private farmers to join voluntary agricultural cooperatives. Belgrade
views improvement in the private-farm sector as a prerequisite to increasing total
agricultural output and exports-key elements in Mikulic's program for economic
recovery.F_~
Private farms occupy roughly 83 percent of Yugoslavia's cultivated land and
produce nearly 75 percent of gross agricultural output. Crop yields on private
farms, however, often average only 50 to 60 percent of those obtained on the much
larger socially organized farms and cooperatives. The average size of private farms
is between 3.5 and 3.8 hectares and typically consists of six or seven scattered
parcels, generally unsuited for modern agriculture. Farm plots have been limited
since 1953 to a maximum of 10 hectares, and Yugoslavia's unique inheritance laws
have encouraged the breaking of land into increasingly smaller units. Moreover,
because of the increase in rural migration to urban areas in recent years, roughly
10 percent of all arable land is being used for nonagricultural purposes, often
either lying idle or used for such purposes as weekend homes
In calling for concrete steps to increase the maximum land holding, Mikulic has
stressed that land is a common and productive asset and not a form of property or
wealth. While reaffirming the right of private ownership, Mikulic noted that land
should be in the hands of those persons who actively and successfully earn a living
from farming. Of Yugoslavia's 2.7 million private farms in 1981, only 865,000
reported farming as their permanent and sole means of support. The number is
probably much less today.
If Belgrade follows through on its consolidation plans it would probably rely on a
combination of direct subsidies and tax and interest rate policies. Under republic
and provincial legislation, powers now exist to consolidate and incorporate private
land holdings into social farms, but they have not been widely used in recent years
because of rising land prices and the lack of funding.
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NATO: Reactions to
US SALT II Decision
West European leaders reacted negatively to
Washington's announcement that it will no longer
abide by the SALT II Treaty, voicing fears that the
decision will complicate Allied efforts to counter
recent Soviet arms control proposals. Even if
Europeans accepted US findings on Soviet
noncompliance, political considerations would prevent
them from publicly endorsing the decision. British and
West German leaders are especially concerned that
their citizens-who favor continued US compliance in
spite of Soviet behavior-will blame the United
States and NATO for the lack of progress on arms
control. Public opinion data tend to support the view
that the people do not accept US arguments regarding
Soviet violations. Initial negative reactions, however,
could diminish if West Europeans come to believe
that Washington and Moscow are moving closer to
new agreements and that a second US-Soviet summit
is still possible.
Washington's Decision on SALT II
President Reagan announced on 27 May that the
United States will no longer continue its policy of
abiding by the terms of the unratified and expired
SALT II Treaty that the Soviets had repeatedly
violated. Future decisions on strategic forces will be
based on the nature and magnitude of the Soviet
threat rather than on standards contained in SALT
agreements, which had been observed unilaterally by
the United States.
The President also decided to retire two older
nuclear-armed Poseidon submarines as the eighth
Trident submarine begins sea trials. In effect, the
United States will remain in technical observance of
SALT for some months, giving the Soviet Union more
time to take constructive steps. The President
indicated that he will take any Soviet efforts to do so
Initial Negative Reactions
NATO leaders have voiced considerable concern
about the US announcement that it would remain in
technical observance of the SALT II Treaty for the
next several months but would no longer allow the
treaty to constrain future strategic modernization
programs. The Allies are also somewhat confused by
the US announcement that it will dismantle two 20-
year-old Poseidon SSBNs. They had assumed that
decommissioning the two submarines reflected
Washington's willingness to continue its.earlier policy
of interim restraint. Thus, West Europeans expressed
surprise at the President's explanation that military
and economic factors-not arms control
imperatives-had led him to make the decisions.
into account.
During Allied consultations in April, West German
and British officials had emphasized the importance
of US adherence to the treaty, despite Soviet
noncompliance. Along with the Dutch and the
Italians, they had stressed that a US decision not to
adhere to SALT II would damage the Allies' public
diplomacy efforts to counter the recent Soviet nuclear
disarmament proposals. The French, whose public is
supportive of its nuclear deterrent, also favored
continued US adherence to SALT II, believing that
its constraints on US and Soviet forces help maintain
the credibility of the smaller French nuclear arsenal.
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EUR ER 86-017
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British officials have been the most critical of the
President's action and expressed shock that
Washington chose to announce its decision in May,
because the United States would not in any case take
action breaching the SALT II limits until the end of
the year. London apparently still holds out some hope
that Washington will reverse its decision. According
to press reports, Defense Minister Younger
emphasized during his visit to Washington in late
June that the United States should allow the Soviets
as much time as possible to come into compliance with
the treaty.
Although avoiding any public criticism of US actions,
French arms control officials told US diplomats that
the President's decision was tougher than Paris had
expected. The French also questioned why the United
States had decided to abandon the treaty now, when a
decision had not been expected until the fall. Dutch
Foreign Ministry officials, according to the US
Embassy, also told senior US officials that they were
concerned that Washington seemed to believe that the
treaty was so fatally flawed that it would be discarded
regardless of Soviet compliance behavior. The Hague
has publicly supported the US decision to scrap the
two Poseidon submarines and thereby stay within the
treaty limits. However, the Dutch also emphasized
that SALT should be observed pending a new
agreement at Geneva and that a "definite" US
decision on compliance should not be made until after
further Allied consultations later this year. While
Italian officials have applauded the dismantlement of
the submarines, they have publicly expressed their
hope that Washington will fashion responses to Soviet
noncompliance that would not place the United States
outside the SALT II limits.
Sensitivity to Public Opinion
Initial Allied objections to the SALT II decision were
heavily influenced by political leaders' fears that their
constituents will not understand US actions and will
blame them for not exerting more pressure on
Washington. West German and British officials in
particular have argued that the United States must
maintain the "moral high ground" to counter General
Secretary Gorbachev's nuclear disarmament
proposals.
the West German
public now blames the United States for "everything
that is going wrong" and 0 the United States
increasingly is taking the brunt of the blame for the
lack of progress on security issues-even within the
Chancellery.
the public sees Gorbachev making what
appear to be very reasonable proposals to lessen
tensions, while the United States talks only about
Soviet violations and fails to put forward arms control
proposals of its own.
British officials also have stressed to US diplomats
that Washington must improve its image by proposing
arms control initiatives. Foreign Ministry officials
said in April that Gorbachev had won a series of
propaganda victories with his arms control initiatives.
In contrast, they believed that a Presidential decision
to "break out" from the SALT Treaty at the end of
the year would look highly unattractive to the
Europeans.
A USIA poll in France, Britain, and West Germany
in June tends to support West European leaders'
beliefs that the United States is losing the public
relations battle over SALT II. Public views on Soviet
violations have not changed in the past several years.
According to the poll, less than a majority in these
countries believe the Soviets are in violation and the
proportion is declining in Britain. Moreover, public
sentiment has grown that the United States is also
violating arms accords:
? Only about one-quarter of the British and just under
one-half of the French and West Germans believe
the Soviets have violated existing agreements.
Furthermore, only one-fifth or less in each country
believe the Soviets have both violated agreements
and gained important military advantages by
violating them.
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Figure 1
Arms Control Agreement Violations
Soviet Union
Germany
United States
Germany
Question: As for as you know, has the [Soviet Union/United States]
observed existing agreements on arms control or has it violated
these agreements, or haven't you heard enough to say?
Source: USIA poll
Legend
Ml Violated.
? Observed
O Haven't heard enough to say
Figure 2
What Should Be Done With SALT II?
Question: If the Soviet Union has violated existing arms
control agreements, what do you think the U.S. should do -
continue to observe the agreements, observe only parts of
the agreements, or stop observing the agreements entirely?
Those with an opinion...
Legend
0 Continue to observe
? Observe only parts
M Stop observing
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? Even if they believed the Soviets are in violation of
the SALT II Treaty, a majority of West Germans
and pluralities of the British and French think the
United States should continue to abide by the
treaty.
? About 30 to 40 percent in each country believe the
United States is in violation of existing agreements.
The proportions of British, French, and West
Germans who think the Soviets have observed or
violated arms agreements are nearly the same as
those who think the United States has observed or
violated the same agreements. Furthermore, the
image of the United States as a violator is not
simply a matter of a disinterested general public
lumping the United States and the Soviet Union
into the same category. A USIA poll in 1985 found
that the better educated in Western Europe were
more likely to think Washington was in violation of
arms agreements than was the sample as a whole.
Leadership Views of Compliance Issues
Few NATO leaders have publicly supported the US
case for Soviet violations.
violations may well have occurred, but they believe
that maintaining the arms control process far
outweighs the importance of Soviet infractions:
senior
West German Chancellery officials believe that the
Soviets are violating SALT II by encoding
telemetry data and that the SS-25 missile-which
Washington considers a second new ICBM in
violation of SALT II-might be viewed either as a
new system or a further development of an older
system. Nonetheless, they think the United States
should continue discussing SALT II with the
Soviets.
have said
hat, while the US decision makes more
sense than "blind compliance," public opinion and
the election next January make it impossible for any
government official to support the US position.
These officials criticized the United States for not
publicizing Soviet violations when they first
occurred instead of waiting to highlight them
now-which made them appear as an excuse for
US violations of SALT II.
Even if the Allies were to accept US technical and
legal arguments, domestic political considerations will
still hinder many of them from publicly supporting
US actions to abandon SALT II.
Implications for US Interests
Even though the Allies are disappointed with the
President's decision to abandon SALT II limits, they
probably are encouraged by the US commitment to
exercise restraint in pursuing its strategic
modernization effort so longas- the Soviet military
threat does not increase. In particular, they appear
ready to press Washington for further consultations
on SALT II and may hope to persuade the United
States to remain in technical observance of the SALT
II limits as long as possible. The British and the West
Germans will probably view Moscow's call for a
special July meeting of the Special Consultative
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Committee to discuss SALT II as another opportunity
for the United States to press Moscow to improve its
compliance record
At the same time, the Allies will voice their growing
concerns that the US SALT decision foreshadows
Washington's intentions to pursue SDI research
beyond the limits of the 1972 ABM Treaty. We
believe that London is especially concerned that the
US SALT decision reflects Washington's belief that
defense needs will now take precedence over arms
control treaties and that the fate of the ABM Treaty
is in doubt. Partly because of this concern with the
ABM Treaty, London and other Allies probably will
encourage Washington to consider Moscow's latest
nuclear arms control offer-calling for deep
reductions in strategic offensive weapons in exchange
for an extension of the ABM Treaty's withdrawal
period to 15 to 20 years. At a minimum, the Allies
will stress to US officials that Washington and
Moscow must now strive toward new agreements to
replace the SALT framework.
In the meantime, West European governments are
likely to propose Allied consideration of new arms
control initiatives to regain the moral "high ground"
in the public diplomacy arena. In our view, the West
Germans and the British are likely to lead the Allies
in pressing Washington to consider new proposals for
chemical weapons bans, nuclear testing limits, and
conventional arms reductions. Such a strategy,
however, will not alter basic public attitudes toward
arms control compliance issues. Without a greater
effort by Allied leaders to differentiate between the
US and Soviet actions, there is likely to be no change
in public attitudes that tend to place both the US and
Soviet compliance record on a par.
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United Kingdom:
The Unemployment Quagmire
High unemployment will remain a major liability for
Prime Minister Thatcher in the runup to the next
election, which must be held by June 1988. Because a
marked improvement is unlikely, Thatcher will be
forced to continue arguing that there is no short-term
solution to the problem-an argument that may be
wearing thin. Her best option is to stress her success
in curbing inflation and union power and reviving
economic growth while persuading voters that the
opposition Labor Party has no credible alternative
program.
Scale of the Problem
According to recent government statistics, seasonally
adjusted unemployment rose in May for the sixth
consecutive month, and the trend is continuing. The
latest figures show that 3.2 million people-13.3
percent of the work force-are out of work. Moreover,
the consensus view of 23 economic forecasting groups
reported in the Financial Times is that Britain's
unemployment rate will remain more than 13 percent
for at least the next 18 months, despite expected
economic growth of 2.5 percent in 1986 and 1987.
The breakdown of these figures by age, region, and
industry carries even more disturbing social and
political implications. More than 20 percent of 20- to
34-year-olds are out of a job, and in parts of northern
England, Scotland, and Wales unemployment exceeds
40 percent. The number of manufacturing jobs,
especially in heavy industrial sectors, continues to
decline, yet in May the government announced more
than 15,000 new job cuts in the nationalized
shipbuilding, rail, and coal mining industries.
Government Actions
Despite the political risk of appearing unconcerned
about the plight of the unemployed, the Thatcher
government continues to argue that job creation must
come primarily from the private sector and that the
government's primary role is to lay the foundation for
sustained economic growth. London has limited its
direct actions to job training and counseling programs
for the long-term unemployed. In addition, a variety
of relatively minor employment schemes provide
subsidies to individuals who accept low-paying jobs,
loans to those interested in starting their own small
businesses, and community service jobs of up to one
year's duration. These programs, however, have been
attacked by opposition as well as Tory critics as too
little and too late, yielding only mediocre success in
attracting applicants
The government is concentrating its long-term efforts
on rigidities in the labor market-particularly
reducing real wage costs-which it believes are the
main obstacles to increasing the demand for labor and
enhancing Britain's competitiveness on world
markets. It recently introduced the second of three
planned Parliamentary bills aimed at deregulating
industry that include measures such as removing
youth from minimum wage controls, limiting the
scope of off-the-job union activities for which workers
receive their regular wages, and raising the number of
hours part-time employees must work to qualify for
employment benefits. At the same time, London is
taking steps to make it less attractive for the
unemployed to remain on the dole. Legislation now
pending in Parliament would reduce social security
benefits for youth and other unemployed groups who
are unwilling to accept low-wage jobs; it also would
restrict unemployment benefits for workers who
voluntarily leave jobs or are dismissed for misconduct.
In a move we believe is at least partly intended to
make unemployment figures look less grim, London
has also recently begun revising its methods of
compiling and reporting the data. The first merely
technical change introduced in March has already
reduced reported unemployment by about 50,000
people. Another revision to be introduced this month
Secret
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United Kingdom:
Percent Unemployment, March 1986 a
Double-digit unemployment has had less political
impact than many observers expected because of
the sharp disparity between economic problems and
relative party strength. Unemployment is highest in
regions traditionally dominated by the Labor Party.
In the 1983 national election, for example, 99 out of
the 100 constituencies with highest unemployment
a seasonally adjusted.
United Kingdom: Selected Economic Indicators
Real GDP Growth Trends in Unemployment and Inflations
4 Percent 20 Percent
1979 80 81 82 83 84 85 861 87b
Seasonally adjusted.
b Projected.
Average
unemployment
I I rate I I I I I I I
1979 80 81 82 83 84 85 86b 87b
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will redefine the unemployment rate as a percentage
of the total labor force, including the self-employed
and the armed forces; this is expected to show a rate
about 1.5 percentage points lower than would the
previous definition, which counted only the civilian
labor force.
Tory Party Debate
The potential impact of unemployment on the next
election has provoked controversies between
Thatcher's close supporters and Tory moderates who
advocate programs to create more jobs. Debate is
focused on the mix of tax cuts and increased
government spending in the 1987-88 budget.
Thatcher and her supporters, with an eye on the
Tories' traditional constituency, are duplicating their
strategy from the election in 1983 by concentrating
their attention on the employed middle class, which is
benefiting from robust consumer spending, low
inflation, and falling mortgage taxes.
Recent polls showing the Tories trailing Labor by 6
percentage points, however, suggest that this
approach may be losing its appeal. Responding to
public opinion, several senior Cabinet ministers have
come out against Chancellor of the Exchequer
Lawson's priority of lowering the basic income tax
rate from 29 to 25 percent, preferring instead to
increase spending for health, education, and
employment programs.
Possible Impact on the Election
Labor Party leaders are counting on the
unemployment crisis to return them to power in the
next election. In the coming months, they will
undoubtedly intensify attacks on Tory policies,
pointing out that promised tax cuts will mainly
benefit the wealthy but provide little in the way of
new jobs, that deregulation hurts employee and union
rights, and that the sale of nationalized industries to
private-particularly foreign-interests results in
more worker displacement.
This strategy, however, is weakened by Labor's lack
of a credible alternative to Thatcher's economic
program. Its prescriptions-including increased
spending on infrastructure and social services and
creating a national investment bank to finance
industrial restructuring-are vulnerable to attack as a
rehash of failed policies of the 1960s and 1970s.
Thatcher remains convinced that voters are not
prepared to accept the higher taxes and inflation that
almost certainly would accompany Labor's policies.
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France: Don't Switch
That Channel
I offer the Elysee to [the one] who will offer me
French television.
Press baron Robert Hersant to
conservative presidential hopefuls
longstanding pledge to begin privatizing French TV.'
The eventual choice of TF1 was apparently dictated
by a mixture of commercial and political motives,
notably that TF1 ran $12 million in the red last year
and that Prime Minister Chirac's cabinet could not
agree on the sale of Atenne 2 or the regional network,
Quite unexpectedly, France's hottest political row of
the summer and its first major clash of cohabitation
between left and right is shaping up over a sleeper
issue-privatization of television. The conflict centers
on the conservative government's announced plan to
sell off its premier network, TF1, and to reorganize
the government authority that polices media
standards and practices.
Ironically, the opposition Socialists, who are
mobilizing antiprivatization forces, paraded last year
as the champion liberators of French media and
touted their record of having introduced private
radiobroadcasting, pay cable and satellite television,
and a hotly criticized contract for a commercial
television network. The Socialists have organized
impressive opposition, but the government is likely to
get its way in a contest that will almost certainly have
important implications for both the balance of power
sharing in France and the success of its other, more
important privatization ventures.
The Stakes
The Chirac government proposes to sell France's
oldest, biggest, and most popular state-owned
television network. TF1 also has considerable real
estate holdings, a large stock of valuable film assets,
and a successful television production company.
Critics of the plan-many of them journalists and
television-oriented intellectuals-point to the network
as a premier cultural asset-the venerable "Voice of
France" and part of France's modern national
patrimony.
According to both press and US Embassy reports, the
government agonized over selecting a test case of its
FR3.
Estimates of TF1's value vary largely, but experts
appear to agree that it is worth at least $350 million
including real estate valued at about $40 million, and
a stock of programs worth another $70 million. One
prospective buyer, the large Bouygues construction
group, appears to value the network at about $425
million, while one respected financial daily cites
guesstimates as high as $850 million. Most analysts
appear to believe that TF1 is worth more than its
balance sheet suggests, largely because the network's
deficits appear to be due to its bloated work force.
In tandem with disposing of TF1, the government has
also promised to restructure the authority that polices
French broadcasting. The proposed new governing
body, the National Communications and Liberties
Commission (CNCL), would be constituted in much
the same way as the present High Authority for
Audiovisual Communication, but its role would
change dramatically. Above all else, it will be
required to see that licensees operate in the public
' The issue of how to fulfill the governing coalition's election pledge
to privatize TV reportedly sparked a heated row between those-
led by Culture Minister Leotard-who saw this as an opportunity
to begin widespread denationalization and those-mostly old-line
Gaullists-who reportedly take a jaundiced view of privatization in
general and who argued for restraint. Finance Minister Balladur
apparently settled the dispute, and Leotard was forced to accept
half a loaf, at least from the standpoint of tactics. Most important,
however, although no final resolution to these conflicting views was
achieved, the conservative coalition did manage to hammer out a
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TFI was the first of three channels created by the
government, and its experience is checkered with
uncertainty about its mission, heavyhanded
ministerial interference, roller coaster ratings,
overmanagement, waste, and staff featherbedding. Its
style is to emphasize French programming, with
heavy doses of artistic and intellectual themes.
Accused of being dull even by the standards of French
television, TFI lost viewers to the second channel
until recently turning itself around, most notably by
producing more entertaining dramatic programs
(clearly based on American models) and by breezing
up its news presentations (a la Antenne 2).
Antenne 2 is reputedly the most Americanized of the
networks, with solid emphasis on entertainment,
heavy selections of US retreads-both films and
series-and spiffy American-style news
programming. Until a year ago, A2 was also reputed
as most resistant to government meddling and even
cultivated a reputation for criticizing the government
when warranted. For a while the undisputed leader of
the ratings game, A2 has recently surrendered first
place to TFI, but not by much. Its claim to
distinction lies in that fact that it turned a small
profit last year.
FR3 was created to service a regional niche, with
programming directed to various localities. Heavy on
public affairs themes, FR3 also broadcasts
documentaries and sporting events. The third channel
has long been considered the most politicized of the
government-owned networks, with strong leftist input
interest. 'CNCL will have full power to pull the plug
on channels that fail to meet certain general
standards, but will not have power to make high-level
management appointments in a privatized TFI, nor to
meddle in programming decisions-two practices that
mark and discredit the High Authority.
The Plan and the Players
The proposal tabled by Culture and Communications
Minister Leotard is almost certain to pass legislative
to management. FR3 has also been most wrecked by
internal disputes. It is widely assumed to also be
bound for the auction block.
Canal Plus was chartered under the Socialist
government as France's first and only privately
controlled cable network, offering second-run films
(many of them American). A hefty 42 percent of its
stock is owned by the government's Havas public
relations agency. Canal Plus reportedly lost money
early on but now appears headed toward the break-
even mark.
La '5' is France's new private commercial channel,
owned by a consortium that includes Italian TV
magnate Silvio Berlusconi. Controversial from its
very inception-seen by many as a natural agent of
Americanization-the fifth channel has lived up to
its expectation, with a mix of movies and game
shows, many of them foreign and unabashedly
designed for decidedly lowbrow tastes. Mitterrand
personally decided the contract for TV5, and the
decision was castigated liberally by conservatives for
being based on political considerations. Chirac has
promised to nullify the contract.
TV6-the music channel-is owned by the same
syndicate as La Cinq. It has yet to establish a
reputation and broadcasts only four hours per day.
muster and will probably be presented for
Mitterrand's signature in July. It calls for total
government divestiture of TF1, with 50 percent of the
stock earmarked for private investors who will operate
the network, 40 percent to the public on the exchange,
and 10 percent to network employees. No single
person will be allowed to own more than 30 percent of
the stock, and the new governing authority will select
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among bidders for the 50-percent "operator" share on
the basis of both economic and cultural criteria.
According to the plan, the plum will go to the high
bidder-probably a consortium-who offers the
highest "quality programming," a phrase that is
assumed to include restraints on advertising, public-
service obligations, and a commitment to broadcast a
certain proportion of French-made programs.
Only a few French entrepreneurs can play in the
multibillion-franc league, and ego has clearly become
a big factor in assembling the cast of moguls for the
privatization melodrama. Rightwing press baron
Robert Hersant announced early on that he intends to
add a television network to his collection of
newspapers and magazines. A former Vichy official
and bete noir of the left, Hersant's highly politicized
media empire includes Le Figaro and France Soir
newspapers and numerous regional dailies. It has
waxed even larger in recent months as Hersant
flaunted his violations of longstanding laws aimed at
limiting press monopolies by buying up hard-pressed
regional dailies. TF1 would be the jewel in Hersant's
crown, and he has made it clear that if Chirac wants
his support for a run at the presidency in 1988 the
price will be one television network.
Hersant's chief rival is Jean-Luc Lagardere,
chairman of the Hachette publishing group who
recently acquired Europe 1 Radio. Francis Bouygues,
founder and chairman of the construction firm that
bears his name, recently tossed his hat into the ring
and pledged almost $70 million to the task of
outflanking Hersant and Lagardere. Bouygues
probably calculates that his tender will buy about 30
percent of any operating consortium. The
Luxembourg-based broadcasting group CLT
(Compagnie Luxembougeoise de Telediffusion) could
become a junior partner to any of the contenders.
Each player brings different assets to the game.
Hersant has political clout that he proved recently by
getting at least eight disciples, including his son,
elected to the National Assembly. In Chirac's paper-
thin, two-vote majority, Hersant's deputies constitute
a powerful lobby, and Chirac may be unable to resist
such pressure. Lagardere and Bouygues have better
images in banking circles, while CLT has plenty of
broadcasting experience. No one knows how the
"operator" slice of the TV pie will be cut, but
Bouygues and CLT are probably inclined to join
Hersant in an irresistible bid. Lagardere is likely to
try to put together an anti-Hersant syndicate, or
failing this, would probably opt to sit out the TF1
privatization in favor of the government's possible
denationalization of the third network, FR3, and the
redistribution of the existing private channels.
The Risks
Apart from the political hoopla surrounding the
selloff of TF1, France's financial community will be
watching the issue closely this summer as an early
example of how the Chirac government will tackle
privatization. Because of the political sensitivity of the
state's transferring control of such a powerful
broadcasting vehicle, TF1 privatization is in many
respects a special, emotionally, and politically charged
case. Nevertheless, the way in which the government
approaches the TF1 issue is likely to give important
clues to how it will set about privatizing banks and
industrial companies.
Given the importance of this issue, the government is
almost certain to make passage of the bill a matter of
confidence. There is, therefore, little doubt it will
pass, but there is still plenty of room for botching the
public relations side of it. If there is a widespread
public perception that the government has made a
poor show of its maiden voyage into privatization, if it
appears that the sale is being rigged in Hersant's
favor for political gain, or if the new network's
programming flops with viewers it will almost
certainly set back the government's overall
denationalization scheme-at a time of building
indications that Chirac's program is languishing and
of mounting evidence that the French economy is not
performing as well as the right had predicted.
Alternatively, if denationalization of TF1 is widely
perceived as having been a success, this would almost
certainly give the government's economic policy a
much-needed boost and would encourage Chirac to
press ahead boldly with privatization.
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The mechanisms the government has adopted for
privatizing TF1-including how it has apportioned
holdings among various types of investors-may also
be a model for future denationalizations. Many
details of the TF1 privatization have to be worked out,
and the government has been honing its strategy and
altering some of its plans as it has gone, along. The
original plan, for example, called for the state to keep
a 1-percent holding in the network, but this
apparently has been dropped. One of the question
marks in Chirac's privatization program is whether
the state will hold on to a piece of the denationalized
companies, possibly akin to the British "golden share"
system. Chirac reportedly opposes this approach, and,
if the current approach to privatizing television is an
indication, his government will divest itself entirely of
denationalized companies and rely on other
regulatory and supervisory mechanisms-for
instance, the CNCL-to maintain a measure of
control.
Some problems have already surfaced. Media labor
unions are up in arms, largely out of fear that new
operators will streamline management and cut
presently bloated staffs. The government also faces a
mounting challenge from other bastions of organized
labor over the question of denationalization, and the
TF1 episode could become the dreadful little preface
to a "hot autumn" of industrial actions that offer to
complicate and possibly set back the conservatives'
privatization plans. The experience with TFI-
especially since it will be played out with
exceptionally high visibility-may also teach the
opposition a few tricks and add to their panoply of
tactics for obstructing future denationalizations.
Chirac also faces tough slogging in public opinion.
Powerful critics-including luminaries of the previous
government, the academic community, and
representatives of broadcasting and the arts-charge
that the move is strictly political, aimed at creating
media allies for Chirac's swing for the brass ring in
1988. Others predict that privatization will further
debase (read Americanize) French civilization,
introducing still more pathogens of "Coca-Cola
culture" to complement the insidious effects of the
already popular Dallas, Bruce Springsteen, and the
looming catastrophe of the century-Disney World in
Divided Public Opinion a
Percent
Against
No opinion
56 40 80
15 15 8
a Based on a national sample of 800 adults, surveyed on 28 May
1986 by IPSOS-Le Point.
Recent public opinion surveys suggest that critics are
carrying the day with voters. Fifty-six percent of a
national sample opposed privatization of TF1, with
conservatives among them about evenly divided and
leftists overwhelmingly opposed. A clear majority also
disapproved of Chirac's recent criticisms of the
political bias of television journalists, and again
conservatives split evenly on the issue.
Political careers are also clearly on the line; none
more than that of Culture and Communications
Minister Leotard-the boy wonder of reborn French
liberalism and an aspiring presidential hopeful.
Leotard's southern charm (a la Francaise), squeaky
clean athleticism, and youthful "Ali shucks" approach
to politics play brilliantly on the medium he is eager
to privatize. Despite some reverses in his original
plans and the apparent unpopularity of privatization,
his public approval ratings are still high, having fallen
less than those of other conservative politicians. Some
accounts even suggest that his personal campaign to
sell privatization of TV is turning public attitudes
around. If successful in this and if viewers ultimately
agree that privatized television has better
programming, Leotard's claim to conservative
leadership and a potential presidential candidacy will
be enhanced.
the shadow of Notre Dame.
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Yugoslavia: The 13th
Party Congress F
The Communist Party Congress in late June was one
of the liveliest in recent Yugoslav history but offered
few new solutions to the country's pressing economic,
ethnic, and political problems. The congress took a
small step toward checking the flow of power to the
eight dominant regional elites by giving some new
authority to the party center and introducing a few
democratic trappings. It also elected a crop of new,
younger leaders, who may be more pragmatic-but
also more parochial-than their".Tito-era elders. The
congress reaffirmed Belgrade's nonaligned foreign
policy and directed a few barbs at the United States.
Moscow's participation was correct but showed that
Gorbachev has other priorities.
Domestic Issues
Like the last congress in 1982, the agenda of the 13th
Yugoslav Party Congress, held in Belgrade on 25-28
June, was overshadowed by the country's serious
economic problems. In the main congress speech,
outgoing party chief Vidoje Zarkovic candidly
admitted the leadership's lackluster performance in
coping with heavy foreign debts, rampant inflation,
falling living standards, widespread joblessness, and a
growing gap between a richer north and poorer south.
But he offered few solutions beyond removing
regional obstructions to carrying out set policy.
Premier Branko Mikulic, speaking at a commission
session, had even harsher words about flaunting
decisions and urged support for new government
proposals now before parliament. The proposals
garnered support from some delegates, but the
congress took no official stand.
The congress was spared disruptions-but just
barely-by several increasingly vocal public pressure
groups. Shortly before the conclave opened, security
forces in Kosovo Province dispersed hundreds of
ethnic Serbs who were preparing to march on
Belgrade to protest discrimination by ethnic
Albanians. Western press reports said the authorities
curtailed public transit between Kosovo and Belgrade
during the congress, a move that probably did little to
burnish the regime's image of openness.
Nonetheless, Kosovo and other contentious issues
surfaced from the congress floor with a vengeance
unknown in most Communist countries. Several
delegates gave impetus to the country's burgeoning
antinuclear movement, speaking against plans-so far
still on hold-to proceed with several new plants. And
some military officials warned of growing pacifism
among youth in the northern Republic of Slovenia.
Institutional Changes
Perhaps more significant than the rhetoric were some
statutory and procedural changes made at the
congress and at some of the eight regional congresses
leading up to it. The congress adopted a revised party
statute intended to give the party center a few more
tools to deal with recalcitrant regional bosses. It
reportedly strengthened the Leninist principle of
democratic centralism, the linchpin of intraparty
discipline. It also reportedly gave the Central
Committee the right to monitor more closely the
regional Central Committees and call special regional
party congresses when major national decisions are
defied.
Election procedures also were altered at the expense
of regional brokers. In the regional congresses,
competitive multiple candidates elections-optional
under both the old and new statutes-were applied
more widely than at any time since the liberalization
era of the late 1960s, in some cases complicating the
plans of party bosses. And at the national congress, a
statutory change gave the delegates the right, for the
first time in two decades, to reject the regions' choices
for key national posts. While the delegates ended up
Secret
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9
March 1969
10
May 1974
11
June 1978
12
June 1982
13
June 1986
Endorsed and carried forward the process of a
decentralization that began three years
earlier; gave regional parties the right to draw
up own statutes and appoint choices to top
national parties bodies.
Confirmed a partial return to stronger central Politburo and Secretariat member Kirilenko.
party authority, a greater party role in the
political system following the crushing of the
Croatian liberal-nationalist movement in
1971.
Tito's last congress capped several years of Politburo and Secretariat member Kulakov.
political stability, economic progress, and
increased international standing; streamlined
Presidium but made few policy changes.
First congress since Tito's death, reflected Politburo candidate member Kuznetsov.
growing leadership concern, lack of direction
as the country was thrown into economic
crisis.
Took limited organizational steps to Politburo member Aliyev.
strengthen party central authority, ushered in
younger leadership, tolerated more open
airing of competing interests.
a Boycott by CPSU and most Soviet Bloc parties following
Belgrade's denunciation of the invasion of Czechoslovakia the
previous summer.
approving all the regions' choices, tallies varied
widely, with many well-known figures faring
shoddily.'
New Leadership
One of the more pronounced effects of the elections
was generational turnover. The mean age of the 165-
member Central Committee and 23-member
Presidium dropped by nearly 10 years to about 46 and
51, respectively, thus eclipsing the class of leaders
from Tito's partisan generation. In their place is a
diverse new group that appears to be better educated,
more pragmatic and sophisticated-but also more tied
to parochial regional interests-than their
predecessors.
Age factors aside, the backgrounds and reputations of
many of the newly elected leaders suggest that
factional infighting probably will increase on several
key issues:
? Interregional economic relations. Disputes are
likely to sharpen over allocating scarce resources
among the diverse regions. Several of the more Pan-
Yugoslav leaders have retired, and many of the new
members-such as the new titular party head
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Milanko Renovica, of Bosnia, Macedonia's Jakov
Lazaroski, Serbia's Dusan Ckrebic and Slobodan
Milosevic, Slovenia's Franc Setinc, and Vojvodina's
Bosko Krunic-have built their careers on
defending local interests.
? Freedom of expression. The members will probably
be sharply divided over the limits on freedom of
expression and the press. The new Presidium
includes outspoken opponents of liberal dissent such
as Croatia's Stipe Suvar and Ivica Racan, Bosnia's
Ivan Brigic, and Vojvodina's Bosko Krunic. Facing
them will be such probable moderates as the six
Serbian and Slovene delegates and a shaggy young,
US-educated Macedonian, Vasil Tupurkovski.
? Market forces. Differences will probably also
surface over the introduction of more market forces
in the country's unorthodox Communist economy.
The ideologues and traditionalists will probably
favor heavy use of administrative measures-such
as wage and price controls-while several
pragmatists are likely to see market forces as
essential to recovery.
? The Serbia problem. Strains between Serbia and its
autonomous provinces of Kosovo and Vojvodina
over distributing authority in the republic may also
increase because several more moderate
representatives from these regions have been
replaced by staunch advocates of local interests.
Foreign Relations
The congress reaffirmed Belgrade's traditional
nonaligned foreign policy in advance of a Nonaligned
Summit this August and its interest in balancing its
position between the United States and the USSR.
From the US standpoint, the congress's foreign policy
resolution took a disappointingly equivocal stand on
terrorism-criticizing pressures on alleged sponsors of
terrorism as well as attempts to equate liberation
movements with terrorism. Judging from previous,
more positive comments by a Yugoslav official to US
diplomats, the resolution probably was altered after
the US bombing of Libya. Party chief Zarkovic also
took a swipe at the US Administration for statements
on the SALT II accord, reflecting Belgrade's
increasingly skeptical comment on US arms control
policy. And several speakers aired tensions with
neighboring Albania, Bulgaria, and Greece over
longstanding ethnic disputes.
Moscow sent a full Politburo member, Geydar Aliyev,
to the congress. This is a formal upgrading in
representation from the last congress but is still below
the level of Soviet representation at the recent
gatherings in East Germany, Bulgaria, and Poland
and does not involve a heavy hitter on the Politburo.
Most of Moscow's East European allies sent the
equivalent of Politburo/Secretariat members. The
Soviet party greetings to the congress took fewer pains
than in 1982 to endorse Yugoslav principles governing
relations among sovereign states.
parties
Outlook
The statutory amendments-probably the result of an
understanding between southern centralists and
northern conservatives-lay at least the legal
groundwork for a modest revival of central authority.
The leadership may find this right particularly useful
if it feels the need to intervene in such regions as
Kosovo and Serbia to stem growing nationalism. But
implementation, as always, will depend on the will
and issue-oriented alignments of the regional elites,
and the incoming national leadership looks at least as
divided as the previous one. The experiments with
competitive elections will probably continue, albeit
haphazardly, and may mark a partial step toward
renewal of some of the more stultified regional
The relatively harmonious atmosphere at the congress
suggests that the party is becoming increasingly
tolerant of divergent views. This contrasts with the
highly charged atmosphere of less than two years ago,
when some debates over reforming the system grew so
sharp as to seem to call into question the very ability
of the country to hold together. In this sense, the party
is becoming more and more a mirror of the real,
competing interest groups in one of the Communist
world's most fragmented societies. The regional
parties also showed restraint but aired their respective
positions at each of their congresses.
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Despite this hint of increased maturity, the party still
left open the key question of how to exercise a
constructive role in the unorthodox, complex political
system where-unlike in more traditional
authoritarian Communist systems-nonparty bodies
play an important role and the pace of change and
implementation is slow at best. Chances are that the
same question will continue to dog party leaders in the
period ahead and as they prepare for their next
congress four years from now. F-~
25X1
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EC Finance Ministers and the European Parliament
have both approved a revised 1986 EC budget raising
agricultural and regional spending ... EC may still
face a $1.5 billion farm-spending shortfall this
autumn ... revision forced by EC's European Court
ruling invalidating the previous 1986 budget because
the member states and Europarliament had never
finally agreed on its spending levels.
Spanish Government approved new decree liberalizing
foreign investment ... removes restrictions on capital
transferred out of Spain and earnings from dividends
and profits, simplifies regulations on direct
investments, and allows freer portfolio and real estate
investments ... includes such sensitive sectors as
mining, petroleum refining, air transport, and
shipping ... aimed at adapting current norms to EC
requirements
Portuguese parliament approved new law making it
more difficult for firms to withhold salary
payments ... if salaries are more than 30 days
overdue, workers may end labor contracts and are
entitled to compensation ... they may also apply for
unemployment subsidies and will be given priority for
retraining courses ... firms not meeting guidelines
will be subject to penalties.
US Embassy reports Netherlands Government plans 2-
percent real increase in defense spending ... subject to
improvement in economy ... deferred decision on
nuclear capability for 155-mm artillery.
Secret
EUR ER 86-017
18 July 1986
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Secret
Secret
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