EUROPEAN REVIEW

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP87T00289R000301110001-3
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 30
• Document Creation Date: December 22, 2016
• Document Release Date: May 16, 2011
• Sequence Number: 1
• Publication Date: June 20, 1986
• Content Type: REPORT

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Directorate of
Intelligence
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European Review
EUR ER 86-014
20 June 1986
Copy '`r `t 7
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European Reviev~
Pa e
Briefs United Kingdom: Economic Prospects Questioned 0 1
France-Libya: Bad Debts
France-Central America: Not a French Problem
Greece: KKE-Interior Party Congress
Portugal: New Central Bank Governor
West Germany: The SPD and Nicaragua
While the Social Democratic Party has become more critical of the
Sandinistas, it remains unwilling to disavow them altogether. The party
almost certainly will continue to focus its criticism on US policy toward
Nicaragua, especially because the rank and file apparently remains
France: Starting Positions in the Presidential Race
With the March legislative election behind them, French politicians
are looking ahead to the presidential election, which must be held by
May 1988. At this early stage, they are watching closely how public
opinion is shaping up on the major issues and personalities. Each of the
top candidates hopes to establish a commanding lead in the polls
quickly because President Mitterrand can force an election at any time.
Secret
EUR ER 86-014
20 June 1986
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Portugal-China: Negotiations Over Macau
The Chinese may envision an agreement similar to that worked out for
Hong Kong in negotiations late this month on the future of Macau, but
the Portuguese have made it clear they consider Macau a separate
issue requiring a separate solution. Lisbon's bargaining position is
weak, but we believe Beijing's desire to be seen in both Hong Kong and
Taiwan as reasonable will lead to the granting of several concessions.
Turkey: The Political Left Divided
In its first national convention since being organized in a merger of the
leftist opposition parties last fall, the Social Democratic Populist Party
evinced disunity on a scale that may undermine its ability to convert its
consistently high standing in public opinion polls into effective political
power.~~
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
e desi nated as uncoordinated views.
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United Kingdom Economic Prospects Questioned
Britain's independent National Institute of Economic and Social Research
(NIESR) blames government policies for the slower economic growth predicted for
1986 in its latest forecast. The NIESR is forecasting GDP to rise 1.9 percent,
more than a full point below the Treasury's forecast. The institute argues that
London's deliberate efforts to keep interest rates high to protect sterling are
damaging the economy. Although Britain's base lending rates are now at their
lowest level since the sterling crisis of January 1985, they remain high by
international standards. The NIESR expects the rates and the sharp drop in North
Sea investment caused by low oil prices to slow overall investment growth to only
0.1 percent this year. In addition, the institute believes the government's fiscal
policy is too restrictive.
The NIESR's forecast probably is more realistic than the government's because
preliminary estimates of GDP growth in the first quarter showed an increase of
only 0.5 percent. London remains hopeful that the falling oil prices will spur higher
growth in the second half of the year, but the benefits of lower oil prices will be
insufficient to stimulate the economy at the government's predicted rate. The best
hope for a pickup in economic growth later in 1986 will come from consumer
spending, which is expected to accelerate as the effects of two recent mortgage-
rate cuts and a lower inflation increase real incomes. Nonetheless, overall growth
will not be enough to significantly lower Britain's 13.3-percent unemployment
rate
Secret
EUR ER 86-0/4
20 June 1986
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France-Libya Bad Debts
effort failed.
The French Communist Party will robably try to maintain its ties to the Libyan
Government despite recent strains. French
Communists have resisted Libyan pressure to repay a loan that was used to finance
some party commercial operations, including purchases of Soviet oil. Libya
reportedly also put pressure on Communist leaders to organize pro-Qadhafi
demonstrations in the wake of the US raid in April and was disappointed when the
The financially strapped French party cannot afford to close off sources of loans
and is therefore unlikely to break its ties to Tripoli. Even more important, from the
perspective of the French Communists, is the fact that support for Libya will curry
favor with Moscow.l
French Prime Minister Chirac redefined French interest in Central America along
more familiar Gaullist lines in his recent speech before the Diplomatic Press
Association in Paris. According to Chirac, France "does not have many interests,
or much responsibility" in Central America, and the fighting in Nicaragua is "the
Chirac himself highlighted
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the chill in relations between Managua and Paris by declining to receive
Nicaraguan Vice President Ramirez during the Sandinista leader's recent swing
through Paris
neighboring states, notably Honduras and El Salvador.
Paris will almost certainly meet its current obligations to Managua-mostly food
aid and development assistance for agricultural and energy projects-but is
unlikely to offer new assistance at anywhere near present levels. Nor is the current
French Government likely to continue its predecessor's efforts to assist mediation
of the dispute between Nicaragua and Costa Rica over cross-border operations by
anti-Sandinista Contras. Although decisions have not yet been made, Paris
appears inclined also to shift some of the aid presently earmarked for Nicaragua to
At last month's congress, the Greek Eurocommunist Party (KKE-Interior) almost
split over whether or not to give up its Communist identity, the US Embassy
reports. The chief proponent of change was party President Leonidas Kyrkos, who
wants to widen the party's voter appeal by turning it into anon-Communist party
of the "broader left." In the final vote, a compromise was reached whereby the
party would keep its Communist title but replace its "Marxist-Leninist"
orientation with a new emphasis on "democratic socialism." Kyrkos's principal
opponent, Secretary General Yannis Banias, however, gave up his party post.
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KKE-Interior was created in the aftermath of the 1968 Soviet invasion of
Czechoslovakia when Greece's Communist Party split into two wings, one
remaining faithful to Moscow and the other taking a Eurocommunist line. The
Eurocommunist wing has never won more than 3 percent of the vote in a national
election and currently has only one seat in Greece's 300-member Parliament.
Kyrkos has evidently made some progress in changing the party's orientation, but,
without a clear mandate, he is not likely to take any votes away from Prime
Minister Papandreou's PASOK party in this fall's municipal elections.
Portugal New Central Bank Governor
Prime Minister Cavaco Silva's appointment of Jose Tavares Moreira as Governor
of the Bank of Portugal undoubtedly will enhance the Prime Minister's control
over economic policy. The new governor is expected to focus primarily on the
bank's role in financial market development and leave macromanagement of the
economy in the hands of Cavaco Silva and Finance Minister Cadilhe. The bank is
likely to take a less independent stance-probably giving up some of the autonomy
and authority it gained under the previous governor-and we expect it to back
fully the government's program to revitalize the economy by reducing inflation,
increasing private investment, and dismantling the public sector.
Tavares Moreira replaces Vitor Constancio, who stepped down in April to run for
the leadership of the opposition Socialist Party. Tavares Moreira is a highly
regarded banker, former Secretary of State for the Treasury, and has been active
in reforming the antiquated Portuguese capital market and banking sector. In his
new post, he is expected to continue these efforts, moving even more vigorously
than Constancio in creating new financial instruments and opening up the tightly
controlled, nationalized banking sector. ~~
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West Germany:
The SPD and Nicaragua
The Social Democratic Party (SPD) has become more
critical of the Sandinistas, but it remains unwilling to
disavow them altogether. In public, party leaders note
human rights abuses in Nicaragua, in part to refute
Christian Democratic charges that they ignore
repression by leftwing dictatorships. But the SPD
almost certainly will continue to focus its criticism on
US policy toward Nicaragua, especially because the
rank and file apparently remains strongly pro-
Sandinista.
Background
Like other West European leftists, the Social
Democrats initially supported the Nicaraguan
revolution enthusiastically, and until recently they
dismissed Sandinista human rights violations as mere
"mistakes." SPD leaders believed that Nicaragua was
choosing the "third way" between capitalism and
Communism they long had recommended for the
Third World. The SPD contended that Western
isolation of the Sandinistas would make them
dependent on the Soviets. At the same time, criticism
of US policy in Central America became another way
of demonstrating West European independence and
moral superority vis-a-vis the United States. ~~
Nonetheless, some Social Democrats soon began to
voice concern in private about the Sandinistas' failure
to implement the proclaimed objectives of the 1979
revolution: political pluralism, a mixed economy, and
nonalignment.
SPD foreign policy experts complained
to a Sandinista National Liberation Front
representative in May 1982 that Daniel Ortega, a
member of its national directorate and coordinator of
the ruling junta, had agreed in Moscow to a joint
communique so one-sided that even Castro would not
have signed it. According to the US Embassy in
Managua, SPD Latin American expert Hans-Juergen
Wischnewski told the Sandinistas in May 1983 that
the Social Democrats' continued support would
depend on the degree to which uluralism and
nonalignment were achieved.
In public, however, the Social Democrats continued to
defend the Sandinistas. In February 1984, for
instance, Wischnewski told the Bundestag that
Managua was improving its human rights
performance despite past mistakes. And the Social
Democrats have vehemently attacked US economic
measures against Nicaragua, mining of Nicaraguan
harbors, and arming of the Contras-policies also
criticized, although less stridently, by leading
public statements by the Social Democrats cited US
assistance to the Contras as a major reason for
repression by the Sandinistas.
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Recent Criticism
Last February, a commission of the SPD Bundestag
group led by former Hamburg Mayor Hans-Ulrich
Klose issued the first systematic Social Democratic
criticism of the Sandinistas. Its report-based on a 25X1
factfinding mission to Nicaragua in November and
December--catalogued a series of repressive practices
including:
? The creation of neighborhood "Sandinista Defense
Committees" with the potential of spying and
informing on dissidents.
? Forced resettlement of Miskito Indians in 1981-82
along with continuing attempts to resettle peasants
from war zones, in part to keep them from
supporting Contra forces.
? "Popular tribunals" independent of the regular
judiciary system and with looser rules of evidence.
? Detention of an unknown number of political
prisoners.
The commission urged the SPD to criticize human
rights violations in Nicaragua, even though it claimed
that those in El Salvador were much more serious.
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Secret
EUR ER 86-014
20 June 1986
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But the report also recommended that the Social
Democrats continue to seek dialogue with Managua,
promote economic development in Nicaragua, and
condemn US policy in the region. ~~
Wischnewski expressed similar opinions following a
12-day tour of Central America for the Socialist
International in February. He reported to the SPD
Executive Committee that the human rights situation
had deterioriated considerably since his last visit to
Nicaragua in early 1985,
He accused the Sandinistas of disen-
franchising the other parties, fostering the split with
the Catholic Church, and disregarding domestic and
international criticism. Wischnewski repeated many
of his charges to the press, although he also deplored
US economic sanctions against Managua and
assistance to the Contras.
Finally, the SPD has decided not to hold an
international conference on Nicaragua that it long
had planned to cosponsor with Algeria
Little Change in Policy
Despite increasing criticism of the Sandinistas, the
Social Democratic leadership has not changed its
basic stance toward Nicaragua. In March, party
Chairman Brandt issued a statement strongly
condemning US assistance to the Contras, criticizing
Bonn's suspension of development aid to Nicaragua,
and endorsing the Contadora process. The statement
acknowledged that the goals of the Sandinista
revolution "have not always been pursued resolutely,"
but it laid the blame primarily on external
intervention. Brandt also claimed that Nicaraguan
President Ortega had assured him that Managua
would pursue dialogue with the unarmed opposition
and investigate alleged human rights violations.
Other Social Democrats also have continued to voice
general support for the Sandinistas. The SPD-Green
majority in the Hessen state parliament, for instance,
voted in April to initiate educational, scientific, and
economic cooperation programs with a region of
Nicaragua. Wischnewski, despite his criticism of the
Sandinistas, claimed in a recent press release that
they were sincerely seeking national reconciliation.
After helping in June to arrange the release of eight
West German leftist volunteers captured by insurgent
forces, Wischnewski publicly defended the
Sandinista's handling of the incident and urged Bonn
to improve relations with Managua. In March, Social
Democratic members of the Bundestag publicly urged
the US Congress to refuse assistance to the Contras,
whom the party press continues to portray as
Somozistas.l
Further, one Social Democrat's acerbic public
criticism of the Sandinistas recently led to his
resignation from the party. Cologne University
international law professor Martin Kriele, a long-
time SPD member who defended the Brandt
administration's treaties with Eastern Europe against
constitutional challenges in the early 1970s,
repeatedly has argued that the Sandinistas are Soviet-
and Cuban-style totalitarians. He also has charged
SPD leaders with whitewashing Nicaraguan abuses,
and his most recent book expressed sympathy for the
Contras. Kriele's statements prompted his local Social
Democratic organization to recommend his expulsion.
Kriele probably could have won an appeal to higher
party organs, according to press reports, but he
resigned last March in order to avoid lengthy
proceedings and further embarrassment to the SPD
during an electoral campaign. ~~
Prospects
The Social Democrats almost certainly will continue
to blame the United States more frequently than the
Sandinistas for instability in Central America. Even
moderate party leaders believe that US assistance to
the Contras hinders chances for a peace settlement
and at least partly explains repression by the
Sandinistas. Although some leaders-particularly
chancellor-candidate Johannes Rau-may tone down
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or avoid criticism of US policy toward Nicaragua in
order to undercut Christian Democratic charges of
anti-Americanism, not all party members are likely to
The SPD may play down its views on Nicaragua
during the electoral campaign, in part to avoid
exposing its internal differences. Party leaders can
point to their recent criticism of the Sandinistas to
counter Christian Democratic charges that they
ignore human rights abuses by leftwing dictatorships.
But they are likely to avoid harsher attacks on
Managua's human rights abuses, which probably
would provoke open dissent by party leftists.
The Social Democrats are even less likely to criticize
Managua's ties to Moscow and Havana, a topic they
have avoided in recent years. The SPD probably
reasons that such criticism would run counter to its
general emphasis on East-West detente and raise
questions among the electorate about its previous
uncritical support for the Sandinistas.
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France: Starting
Positions in the
Presidential Race
With the March legislative election behind them,
French politicians are now turning their attention to
the presidential election, which must be held by May
1988. At this early stage the most closely watched
aspect of the race is how public opinion is shaping up
on the important issues and personalities. Each of the
top candidates hopes to establish an unbeatable lead
in the polls quickly because President Francois
Mitterrand can force an election any time he wants.
Focus on the Presidential Election
Under the 1958 constitution of the Fifth Republic, a
strong presidency is the centerpiece of the political
system. The strength of the president's position
depends, however, on support from parliament, and
the conservative victory in March undermined
Socialist President Mitterrand's status by forcing him
to share power with a prime minister from the
opposition-Jacques Chirac. Although power sharing
has gone fairly smoothly so far, it is beginning to fray
around the edges, and most pundits in France do not
expect that it will last until Mitterrand's seven-year
term expires in 1988. Mitterrand is on record as
favoring afive-year term, and there has been
considerable speculation that he might try to bring
the awkward "cohabitation" to an end by forcing an
early presidential election. Under this scenario he
would resign at a favorable moment and then either
run for reelection himself or throw his weight behind
a Socialist candidate.
At present, such calculations are considerably ahead
of public opinion. According to opinion polls, most
people believe that cooperation between a president
and a prime minister from opposing political parties is
working and that this manifestation of national unity
should continue. In the public mind, dealing
effectively with real and pressing problems-such as
reducing taxes and unemployment and providing
more resources to help the police deal with crime and
terrorism-is more important than political
maneuvering. The election results, as well as polling
data, seem to indicate that the public wants a
(right) with Laurent Fabius
measured implementation of the conservatives'
program of reducing taxes, expenditures, and
government controls (but without dismantling the
social welfare system). Politicians assume that the
electorate will penalize whoever brings down the
system of power sharing; or as one politican says, "It's
like a shootout, except whoever fires first loses."
Preparations on the Left
Even though the Socialists lost control of parliament
in March, the real prize-the presidency-remains
theirs and could be won again. As long as Mitterrand
remains president, he can use his office to boost the
party. In addition, with 31 percent of the vote in the
legislative election, the Socialists are still the largest
single party in the country and command an
impressive electoral machine. They hope to collect
voters from a declining Communist Party as well as
moderates who become disenchanted with Chirac.
Three senior Socialists are the leading contenders for
their party's nomination, and each is watching the
polls closely and making his own plans:
? Mitterrand is getting the best ratings since early
1983. Until recently he seemed ready to step down
after his current term is finished, but now he shows
signs of preparing to run again. He may simply be
maneuvering to keep the Socialists united and
mobilized, but he could decide to try for a second
term if his ratings stay high, if Chirac stumbles, or
Secret
EUR ER 86-014
20 June 1986
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Secret
APPROVAL RATINGS FOR
SOCIALIST LEADERS
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FEB
MAR
DRTE
MRY
if it looks like a battle to succeed him would weaken
the Socialist Party. Mitterrand will be trying to
protect his good standing in the polls, not only for
ammunition as he maneuvers to establish dominance
over Chirac as they share power, but also to leave his
options open for the presidential election. If the
election takes place within a year, it is more likely
Mitterrand would run again because no successor has
been prepared.
? Laurent Fabius, who was prime minister from July
1984 to March 1986, has slipped from an impressive
position in the polls, but he is still the most likely
heir apparent. So far, however, he has failed to gain
control of the Socialist Party so that he can use it as
a vehicle in the presidential race. His main method
will probably be to present himself as the candidate
who best exemplifies the moderate and pragmatic
approach that can appeal to a wide electorate.
? Michel Rocard, long a darling of the polls, is
Fabius's chief rival for leadership of the moderates
in the Socialist Party and the public at large. Unlike
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Fabius, who would defer to the President, he may
present himself as a candidate even if Mitterrand
decides to run. His experience as a leader is not as
impressive as Fabius's, however, and he does not
have as a wide following in the party or as close a
relationship with Mitterrand. Rocard's task will be
to turn his popularity into concrete assets that can
improve his chances for the presidency, and he, too,
will be trying to take over the Socialist Party.
Preparations on the Right
The conservatives, like the Socialists, have not yet
settled on one candidate for the presidential contest.
Internal rivalries divided the rightwing vote in 1981,
helping to throw the election to Mitterrand, and
conservative leaders hope to avoid a similar disaster
the next time around. Chirac has an iron grip on his
party, the Rally for the Republic (RPR), which
dominates the governing coalition, but he faces
ambitious rivals-Francois Leotard and Raymond
Barre-in the junior member of the coalition, the
Union for French Democracy (UDF):
? Chirac has jumped ahead of other conservative
leaders in the ratings since becoming Prime
Minister. This success in the polls is only a recent
development, thou h
Being Prime Minister
gives him important assets, such as patronage and
media exposure, but it will also magnify his
Pictorial Parade
Francois Leotard n Raymond Barre
mistakes-and his rivals will be waiting to pick up
the pieces.
? Leotard, the Minister of Culture and
Communications, is one of the bright young stars of
the right. He is the focus of considerable attention
as the implementer of the government's first effort
at privatization: the controversial sale of one of the
three state-owned television channels. At 46,
Leotard, is probably too young to be a serious
presidential candidate in the next few years. His
best hope is to win a more senior cabinet post and
try to establish himself as the leader of the next
generation.
? Barre has slid precipitously in the polls since the
March election. He does not have a strong
organization, the candidates he backed did not do
well, and his criticism of power sharing between a
leftist President and conservative Prime Minister
goes against the current public mood. If power
sharing dissolves in acrimony, however, he will be in
the best position to benefit, since he is the only
national leader of stature who rejected cohabitation
all along. His popularity could soar again, especially
if Chirac appeared to be responsible for
cohabitation's collapse.
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APPROVAL RATINGS FOR
CONSERVATIVE LEADERS
Outlook
Public opinion in France appears to be moving away
from ideological confrontation, and politicians who
want to be successful will have to take this into
consideration. The March election-in which both the
Communists on the extreme left and the National
Front on the extreme right each got only about 10
percent of the vote-appeared to confirm that
political preferences are shifting toward a broad
center. The public's favorable view of power sharing
and preoccupation with everyday problems of jobs,
taxes, and crime, rather than abrupt change in the
social or political system, is another indicator of this
trend. Small wonder that all of the leading contenders
for the presidency are basically moderates who stress
pragmatic solutions to these problems and who do not
differ greatly in their approaches. In sum,
personalities and public image are becoming more
important as subjects of political debate, and elections
are less and less a choice between radically different
visions of society.
In these early days, there are few certainties, but it
seems safe to say that no radical politician from either
the left or right has much of a chance. There may well
be a new President of France within the next couple of
years, but there will probably not be quick or
important changes in policy.
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Portugal-China:
Negotiations Over Macau
While the Chinese may envision an agreement similar
to that established for Hong Kong in negotiations on
the future of Macau-slated to begin the last week in
June-the Portuguese have made it clear
hat they consider Macau a separate
issue requiring a separate solution. Lisbon's
bargaining position is weak, but we believe Beijing's
desire to be seen in both Hong Kong and Taiwan as
reasonable will lead to the granting of several
concessions. China's hopes of developing the territory
economically and the special problems it will confront
in Macau should result in some specific agreements
on the territory as well as the retention of private
enterprise and the liberal degree of personal freedom
granted to Hong Kong in the Sino-British agreement.
Deputy Foreign Minister Zhou Nan, who negotiated
terms for the eventual. return of Hong Kong to China,
will head the Beijing delegation. Lisbon is sending
Rui Medina, a career diplomat and former
ambassador to the United Nations, as its chief
negotiator. ~~
The Special Problems of Macau
Macaws geographical closeness to China has caused
problems for Beijing's interests in the territory. After
1979, Portugal removed immigration controls at the
border and took a nonchalant attitude toward the flow
of Chinese labor into Macau. The Macau labor
unions, which are basically pro-Chinese, found their
members being forced out of jobs as a result of the
huge influx of cheap manpower. Only after strenuous
objection by the unions did the government step in
and reestablish immigration controls. Similarly, when
the PRC last year relaxed some of its controls on the
peasant economy and free markets sprang up all along
Macaws borders, Macau housewives simply crossed
the border to do their grocery shopping. The sales
volume for foodstuffs in Macau fell by 25 percent,
and many pro-Chinese foodstuffs firms found
themselves faced with bankruptcy. Once again, the
Portuguese were forced to react-this time by
instituting health controls and duty-free limits to stem
the flow of produce from across the border.
Portugal's approach to governing the colony has
created other problems for the transfer of sovereignty
to China. The Macanese-the 3 percent of the
population who are of mixed Chinese-Portuguese
blood and are employed almost exclusively in the civil
service-hold nearly all middle-level government
posts. Senior posts are generally filled by Portuguese.
Unlike Hong Kong, where Chinese has been an
official language with English for more than 10 years,
Portuguese is the only official language in Macau.
Few of the colony's Chinese speak Portuguese or are
educated enough to take over the administration
during a transition period. As a consequence, the
cooperation of the Macanese must be secured by both
Lisbon and Beijing if the transfer of power is to be
carried out smoothly. Furthermore-unlike the
British, who have made it clear that Hong Kong
residents will not be welcome in Britain-the
Portuguese have granted all Chinese born in Macau
by 1980, and any resident of Macau who is able to
speak Portuguese and be self-supporting, automatic
eligibility for citizenship with no limitations on travel
to or residence in Portugal. Though there has been no
indication of a mass exodus from Macau, both
governments must consider this factor in negotiating
any settlement.
Macau diverges from Hong Kong in certain economic
and social features as well. Unlike Hong Kong,
Macaws factories, specializing in rather mundane
textiles, toys, and plastic products, will be of little
benefit to China and may in fact compete with
Chinese products. Its gambling industry-which
attracts more than 4 million visitors a year, accounts
for 20 percent of GDP, and provides half the
government's revenue-could be a problem for a
puritan Communist government, even if gambling is
an age-old Chinese passion. Finally, the officially
atheist government of China will have to contend with
the strong role the Catholic Church plays in Macau,
especially in educational matters.~~
Secret
EUR ER 86-014
20 June 1986
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Dahenygin
Oao
il7
t
DaLn - ~ at..l~^ (Por~J
COIOan ~ llama de Co Dane Youjiawei
Daq
Zhuhai SRecial
Economic 7.one
t}1 Macau
\
l/h
i
d
T
g
t
pa
a
e
a
t - Macau
Boundary representation is
not necessarily authoritative.
International boundary
Railroad
Road
Special economic zone
Built?up area
0 Y5 Kilometera
i ~ ~ t t
0 15 Statute Miles
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Macau already maintains strong economic ties to the
People's Republic oJ'China, due in part to its
geographical location. The territory-the oldest
European settlement in the Far East-consists of the
mainland peninsula of Macau and nearby islands,
located 25 kilometers west orHong Kong at the
mouth of the Xijiang (West RiverJ. The Xijiang is one
of China's great trade arteries, and thus Macau is
linked to the major economic centers along the river.
Since the establishment in 1979 of the China's
Zhuhai Special Economic Zone adjacent to Macau,
the level of activity between the colony and its
neighbor has increased considerably. Though China
is the colony's fourth-largest market gjter the United
States, Hong Kong, and France, Macaws imports
from China jar exceed its exports. Likewise, Macau
businessmen have been a steady source of investment
capital for Chinese projects since 1978, when China's
open-door policy began.
As in Hong Kong, the PRC keeps awell-developed
commercial presence-which also serves as its avenue
for political irt/luence-in the colony. PRC entities in
Macau include branches of state-owned firms, the
Beijing-controlled Macau Daily, and the China
Travel Service. The Nam Kwong Company serves as
China's representative organization, issuing visas and
performing other official functions. A large group of
private firms also act as distributors and agents for
PRC products and services. These firms belong to
and are guided by the Chinese Chamber of Commerce
in Macau as well as other guilds sympathetic to
China. The Macao Federation of Trade Unions is
linked to China and includes the vast majority of
Macaws workers as members.
Portugal's Negotiating Strategy
The Portuguese have long acknowledged Macau as
Chinese territory and have repeatedly expressed a
willingness to return the colony. In recent months,
however, they have indicated, apparently out of
concern for the population with whom they have been
associated for more than 400 years and out of national
pride, that they do not want China to dictate the
terms of the settlement. Portuguese Prime Minister
Cavaco Silva reportedly has stated that Portugal and
China should have-or should at least appear to
have-equal footing during the talks; thus,
negotiations should be held in Lisbon as well as
Beijing. He also opposes imposing on Macau the same
formula as that established for Hong Kong's future.
Portuguese Ambassador to Beijing, Octavio Valerio,
further confirmed Lisbon's determination to
differentiate the Macau negotiations from the Sino-
UK talks on Hong Kon
According to Valerio, the Portuguese
Government chose Medina rather than himself to
head the negotiating team on British advice because
the UK Ambassador to Beijing, as leader of the
British team during the Hong Kong talks, was unable
to bypass his counterpart and appeal to higher
Chinese authorities in crucial situations. Valerio also
stated that Portugal and the Vatican are discussing
the future relationship of the Catholic Church in
Macau to the highly nationalistic Catholic Church in
China. Lisbon does not want the independence of the
Macanese church compromised. According to the
Ambassador, Portugal also will insist on continued
instruction of the Portuguese language in Macaws
schools in order to keep intact Macaws Portuguese
character. ~~
The Chinese Perspective
Beijing is open to negotiation on most of
the issues relating to the future of Macau, though
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Macau: Historical Background
1557-1887 Portuguese occupy Macau.
China's Manchu government reluctantly agrees to recognize Portugal's
"occupation" of Macau in the Protocol of Lisbon. In return, Portugal agrees not to
change the status of Macau without China's consent.
1941-45 Macau remains politically neutral under Portuguese control during the war,
serving as a haven for many refugees from Hong Kong and China.
1966 Riots inspired by the Cultural Revolution cause Lisbon and Beijing to begin
regular, informal consultations in Macau.
1974 New military regime in Portugal offers to return Macau to China in accordance
with the 1887 Protocol, but China refuses to countenance any change in status.
May 1979 Portugal and China establish diplomatic links and agree that Macau is "Chinese
territory under temporary Portugese administration," to be returned to China at
the appropriate time.
1982-84 Speculation abounds that China intends to merge Macau into the Hong Kong
Special Administrative Region in 1997.
June 1985 China announces plans to establish a separate special adminstrative region for
Macau. Portugal's President Ramalho Eanes visits China and Macau. Chinese
surprise Portuguese officials by calling for negotiations on the future of the
territory. Negotiations are officially to begin in 1986.
March 1986 Press reports state that negotiations on Macau will begin in late May.
S May 1986 Portuguese President Alberto Mario Soares issues a decree naming a close
political supporter, Professor Joachim Pinto Machado, as the new Governor of
Macau.
Portuguese Foreign Ministry spokesman announces that talks on Macao will begin
the last week in June.
some general principles have already been formulated.
the Chinese have not made
any firm decisions on the duration of the transition
period, the organization of the educational system, the
role of the Portuguese language, and Macanese
officials after the transition.
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Press sources have reported that Chinese authorities
expect the settlement on Macau to mirror that
reached for Hong Kong, which would allow for the
retention of a great deal of freedom under the Chinese
principle of "one country, two systems." The Chinese
have announced plans to establish Macau as a special
administrative region of the People's Republic of
China-the model used for Hong Kong. If the
agreement on Macau is patterned after the 1984 Joint
Declaration with Britain on Hong Kong, the territory
could expect to govern itself under its own legal and
judicial system. Beijing authorities, however, would
take over responsibility for foreign and defense
affairs.
The Chinese hope that the "one country, two
systems" philosophy will eventually be applied to the
reunification of Taiwan to the mainland. According to
US diplomats in Lisbon, Vice Minister of Foreign
Affairs Zhou Nan told the Portuguese Government
during his visit in March that the Chinese hope to
have completed negotiations on the reincorporation of
the territories of Hong Kong, Macau, and Taiwan by
the year 2000, suggesting that the Chinese are
tailoring arrangements for Hong Kong and Macau in
anticipation of subsequent negotiations with Taiwan.
Outlook and Implications
We believe the Portugese-in contrast to their
apparent indifference about Macau in the past-will
try to drive a relatively hard bargain with Beijing,
both out of concern for the Macanese and for
Portugal's national image. They are still demanding
that the second round of talks be held in Lisbon and
have further irritated the Chinese by withholding
their list of delegates until the last minute.
the
Chinese had sent a list of requirements for the new
Portuguese Governor of Macau, which included
requests that he be familiar with the territory's
situation and be detached from internal Portuguese
politics. President Soares's subsequent selection of
Joaquim Pinto Machado, a close political ally with no
background in Macanese affairs, seems to indicate
Lisbon's willingness to stand up against Chinese
demands.
In our judgment, the Chinese will be willing to grant a
number of concessions during the Macau
negotiations-despite the weak Portuguese
bargaining position-because of their long-term,
larger goals. The special geographic, linguistic, and
legal situation of Macau presents problems for the
Chinese that should make the continued presence of
the Portuguese during the transition period attractive.
We also believe they will not want to frighten
potential Western investors in the territory. Finally,
and most important, the Chinese no doubt perceive
that a rocky transition in Macau might alarm
residents in Hong Kong, thus endangering a smooth
transfer of sovereignty there. We judge that this
concern will dictate the timing of the transfer of
sovereignty, with the Chinese wanting to take
possession of Macau not before and possibly after the
return of Hong Kong. Since China's long-term goal is
the recovery of Taiwan, we think they will be willing
to make concessions on the less important issue of
Macau in order to secure tranquility in the region and
demonstrate the workability of "one country, two
systems" to the Taiwanese.
The settlement established between Portugal and
China could have long-term implications for Western
investors seeking to expand their business with China.
Although the United States is the single largest
foreign importer of Macanese products, little of the
foreign investment that has poured into Hong Kong
exists in Macau. But as China's economy grows,
regional business centers are likely to emerge around
areas of the country with flourishing economies and
substantial foreign exchange reserves. Macau,
bordering on one of China's new economic zones, has
the necessary ingredients to become such a regional
center. Initial efforts to penetrate the Xijiang market
were made in 1984, when a delegation from Hong
Kong's American Chamber of Commerce contacted
Macaws Chinese Chamber of Commerce. According
to press reports, both sides agreed that foreign firms
will not be able to effectively market products solely
through Hong Kong and that Macau offers
advantages to businesses taking "territory-specific"
approaches to the Chinese market.)
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Turkey: The Political
Left Divided
The first national convention of the opposition leftist
Social Democratic Populist Party (SDPP) in late May
turned out to be a somewhat raucous affair that called
into question the effectiveness of its organization and
leadership. In a startling violation of traditional
Turkish hospitality to guests, a number of
ambassadors attending the opening session of the
convention were loudly booed. These included the US,
Greek, British, Israeli, Chilean, and Bulgarian
envoys. In contrast, the Soviet, Chinese, Cuban,
Afghan, Polish, and Yugoslav representatives were
thunderously applauded. This display of bad form
shocked party officials and the press, both of whom
roundly condemned it.
Revival of Factionalism Threatens
The incident emphasized the enormity of the
challenge faced by the new party's leadership under
Erdal Inonu, former chairman of the Social
Democratic Party. It will have to act quickly to avoid
a resurgence of the factionalism and extremism that
tends to be all too common on the Turkish left. The
leftist agitation at the national convention apparently
was the product of a deal between the head of the
Istanbul branch of the SDPP and extreme leftist
elements associated with the banned Dev Sol
(Revolutionary Left) movement.
provmcia c airman gave t e e tists 30 to 40 percent
representation of the Istanbul delegation to the
national convention as well as a seat on the provincial
executive committee in return for their support.
these
maneuvers were part o amore far-reaching Dev Sol
plan to gain influence over a legitimate polit)cal
party-while not necessaril forswearing terrorism.
the principal broker of
the Istanbul deal was Abdullah Basturk, former
president of the banned leftist labor confederation
DISK, who remains a defendant in an ongoing trial of
the confederation leadership for fomenting violence
before the 1980 miltary takeover. It was probably no
coincidence that Basturk received the loudest and
longest ovation of any of the personalities formally
introduced during the opening session of the national
convention. Basturk's involvement was also consistent
with broader leftist labor activism, as evidenced by
the disruption of a February rally held by the
government-recognized TURK-IS labor
confederation
Increased leftist activity probably does not indicate
that Marxist or Communist oriented elements are in a 25X1
position to seize control of the SDPP. It is in some
ways a manifestation of normal political currents
released by Turkey's continuing progress toward fully
democratic procedures and a confirmation of the
SDPP's standing as the main opposition to the ruling
Motherland Party of Prime Minister Ozal.~~ 25X1
Declining Popular Appeal in Prospect
For the moment the confusion the radical leftists have
caused in the SDPP serves primarily to reduce the
party's prospects for eventually translating its
consistent lead over the Motherland Party in public
opinion polls into eventual control of the government.
Indeed, the most recent poll in mid-May showed the
party's lead over Motherland declining from 9 to 5
percentage points and the undecided swelling to
nearly a quarter of those polled. ~~
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The smart money will stay on Motherland in 11
byelections expected this fall and in general elections 25X1
some time in the next two years. The ruling party
already has strengthened its parliamentary majority
by garnering a sizable number of the former members
of a dissolved rightwing competitor party. It now can
almost certainly count on gaining the adherence of
some of the moderate SDPP deputies alarmed by
radical leftist actions at the convention. Five SDPP
deputies already have assumed independent status
amid rumors that one will ultimately join
Secret
EUR ER 86-014
20 June 1986
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Another two of the new independents are said to be
planning to join the Democratic Left Party (DLP), the
only other leftist party represented in parliament. It
remains to be seen, however, if there is any chance
that DLP can grow from its current total of six
deputies to the minimum 20 needed to establish a
formally recognized legislative group.
Secret 24
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France is pushing for a tough EC response to US
measures in farm trade dispute planned for 1 July
...threatening to delay new GATT round ...other
EC members favor more flexible negotiating position.
Italian manufacturers association has renegotiated
agreement with Libya to take oil for much of $700
million owned Italian firms ...payments suspended in
January because of world oil price drop ...first
delivery expected this month.~~
US Embassy reports tentative agreement for
Norwegian offshore gas sales to West European
customers ...calls for deliveries of 20 billion cubic
meters annually beginning in mid-1990s ...could
curb potential Soviet sales to continent.
Finland to boost Soviet energy imports by $40 million
in effort to reduce its growing bilateral trade surplus
...Helsinki imports mostly oil under the balanced
trade agreement, but low prices sharply reducing total
value of Finland's imports ...new measure
inadequate to halt growth in surplus and indicates
lack of alternative proposals to meet agreement's
requirements ...Helsinki concerned it may have to
cut some exports next year.
Poland and Western banks have agreed to reschedule
about $1.7 billion in principal due this year and next
...banks to lower interest rates ... no new loans
offered ...financing gap for 1986 remains $1 billion.
Secret
EUR ER 86-0/4
20 June 1986
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