SWEDEN: BRIEFING PAPER FOR THE SECRETARY OF DEFENSE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00287R001001550001-1
• Release Decision: RIPPUB
• Original Classification: T
• Document Page Count: 6
• Document Creation Date: December 22, 2016
• Document Release Date: September 21, 2010
• Sequence Number: 1
• Publication Date: March 1, 1984
• Content Type: REPORT

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. Memorandum for:
This memorandum was prepared for
the Secretary of Defense in pre-
paration for his meeting with the
Swedish Defense Minister on
5 March 1984.
EURA
Office of European Analysis
Directorate of Intelligence
Addressee
DDI
ADDI
OD/EURA
EURA Production Staff
IMC/CB
Branch File
Division File
Author
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1 March 1984
Sweden: Briefing Paper for the Secretary of Defense
The State of the Government
The Social Democratic government of Olof Palme holds a
fairly strong parliamentary position, despite having only 167 of
the 349 seats. The Prime Minister's popularity has dropped since
the national election of 1982, however, primarily because of such
economic policies as the controversial wage earner investment
fund scheme and an unemployment rate of 3.7 percent -- high by
Swedish standards. The wage earner funds, to be financed from a
new corporate profit tax and payroll levy, are intended to give
workers, through their unions, a share in.the ownership of
privately-held companies. The next scheduled election in 1985
probably will be fought over the wage earner funds; the
opposition parties have vowed to discontinue the program should
they take office.
-- The conservative Moderate Party is the stronqest
opposition party and the one most likely to attack Palme
on various domestic a-nd foreign policy issues. It drew
about 29.5 percent of the votes in recent opinion
polls. With the system thus polarized between strong
parties on the right and left, the parties in the middle
-- the Center and Liberal parties -- command the least
amount of support and seats. The Liberals, however, are
regaining some ground, due to the popularity of their
new leader, Bengt Westerberg.
The Economy
A 16-percent devaluation in late 1982 has helped the export
sector to recover significantly,' allowing Sweden to post a
positive trade balance based on preliminary 1983 figures.
Industrial production rose a substantial 4.4 percent last year,
in part due to a revival of demand from West Germany, France, and
other major Swedish foreign trading partners. For the first time
since 1976 Sweden registered a current account surplus with the
United States.
-- These favorable foreign payments trends are expected to
continue through 1984, enabling GNP, which grew by
almost 2 percent last year, to rise by 2.6 percent this
year. Domestic demand is forecast to remain weak,
however, and the unemployment rate is likely to stay
high by Swedish standards. Cony? w
EUR M 84 - 10040C
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-- Inflation was held to less than 9 percent measured
between annual averages. To maintain the economy's
competitive edge, the government aims to bring inflation
down to 4 percent by the end of this year, but this will
depend on a moderate wage settlement in negotiations set
for the spring.
Since coming into office, the Palme government has been
assailed by the opposition for not bringing about structural
reforms necessary for longer term growth.
- Social spending has not been reduced significantly and
is aggravating the already huge government deficit.
However, through a proposed tighter fiscal policy which
,.aims to deindex various public expenditures and transfer
payments, and eliminate many industrial subsidies, the
government hopes to reduce the deficit and
simultaneously bring inflation down.
-- A government-proposed 4-percent nominal increase in
defense spending over the next five years is intended to
quiet opposition demands for decreases in dearly-held
social democratic welfare programs.
Security Issues
When the Conference on Disarmament in Europe opened in
Stockholm in mid-January, Foreign Ministry officials stressed
that Sweden would support a nuclear weapons-free zone proposal
for the Nordic and Central European areas -- a cause that Palme
strongly supports -- if another country brought it up. Many
observers expected Sweden itself to propose the issue;. Palme's
continuing high level of interest in the concept leads us to
believe that Stockholm may still do so.
The nuclear weapons free zone concept is unlikely to
fade away in the near future because support for it has
increased in Scandinavia since the deployment of INF
missiles began in the UK and West Germany last year.
-- The other Scandinavian countries -- especially Denmark
-- could push the NNWFZ idea to the forefront in NATO
and other forums if they came under increased pressure
from public opinion and opposition social
democratic/labor parties.
In the search for arms control, the Swedes recently have
been at odds with the United States and some other Allies.
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Swedish-Soviet Relations
Relations between Stockholm and Moscow have been abnormally
cool since late 1981 when a Soviet submarine ran aground in the
southern Swedish archipelago. Suspected Soviet submarine
intrusions in the Karlskrona naval base area since early February
have added to tensions stemming from other issues, such as the
Swedish expulsion in December of three Soviets for espionage and
a Soviet decision to reject a Swedish firm's bid in a Tallinn
port expansion project.
Palme has said that until it can be confirmed that
submarine or other territorial violations have ceased,
relations with the Soviets will not improve
significantly. Even a guarantee from visiting Foreign
Minister Gromyko in January that the Soviets have
continued to respect Swedish neutrality and territorial
integrity has not swayed Stockholm.
Relations with Washington
The only fundamental disagreement in Swedish-US relations is
the Palme government's view of Central America. The recently-
resolved diversion case of high technology transfer to the East
Bloc through Sweden, and the coincident cooperation between the
Swedish and US customs authorities, helped to improve bilateral
relations overall.
On Central America, the Palme government continues to
stress that problems in the area are of socio-economic
origin, and it tends to take conciliatory gestures made
by Nicaragua in past months at face value. Palme
recently completed a swing through the region and viewed
his discussions with Sandinist leaders on elections next
year as especially successful.
The technology transfer case which began last November
has prompted the Swedish government to tighten its
export control laws on items of military as well as
civil.ian application. Stockholm will probably propose a
plan for sharing defense technology with the US over the
next decade or longer, and attempt to gain clearer
guidance for Swedish industry where dual-use technology
is concerned.
Sweden's cooperative efforts in protecting US technology
are motivated partially by its reliance on US know-
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how. For example, Swedish firms currently are
developing a new multirole combat aircraft considered
crucial for Swedish defense in the 1990s and beyond.
Thirty percent of the aircraft's components will be
manufactured in the US or built in Sweden under US
license.
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