EUROPEAN REVIEW

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T01184R000301230002-6
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 23
• Document Creation Date: December 22, 2016
• Document Release Date: December 14, 2010
• Sequence Number: 2
• Publication Date: July 17, 1985
• Content Type: REPORT

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European Review
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EUR ER 85-016
17 July 1985
452
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t
European Review
Weapons-Free Zone
West Germany-East Germany: Model Agreement for a Chemical- 1
West Germany: Post-Bitburg Polls
Bulgaria: Coping With Energy Problems
Poland: Cardinal Glemp Meets Exiled Leaders
Sweden: Improving Command and Contro
Belgium: Playing the Linguistic Card L_
Netherlands: Van Mierlo's Return
against Pretoria.
Several West European allies who have often condemned apartheid
are now sorting out whether they will emulate the United States if
Washington invokes economic sanctions. The British have long
doubted the efficacy of sanctions. France appears more interested in
rhetoric-perhaps designed to curry favor with nonaligned
countries-than in action. The Dutch support sanctions in principle,
but have not imposed them. West Germany has not yet taken up
debate. Norway, on the other hand, has already implemented action
Portugal: Reconciling Counterterrorism and Civil Liberties
1974 revolution.
Concerned about the limited intelligence and resources available to
combat terrorism and to control the activities of foreign agents, the
Portuguese Assembly last fall gave preliminary endorsement to two
security bills. One sets up new intelligence services and the other
establishes procedures for internal security. Legislation is subject to
debate and modification after a referendum and the internal
security bill is still being revised in committee. President Eanes,
however, signed enabling legislation last month spelling out the
specifics of the country's first civilian intelligence service since the
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Eastern Europe: Uncertain Economic Recovery
early 1970s~
East European economic performance improved in 1984, but the
likelihood of a sustained recovery is not great. Most of the growth
resulted from large gains in agricultural output due to good weather,
not a surge in industrial production. Although the region seems to be
recovering from the harsh winter weather, growth rates probably
will fall below last year's level. Over the long term, external
constraints and systemic weaknesses will make it difficult for the
region to return to the generally good economic performance of the
authors,
will be designated as uncoordinated views. Comments may be directed to the
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
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1982.
The President's Bitburg visit apparently improved West German public views of
the United States, at least temporarily. Elisabeth Noelle-Neumann, head of the
Allensbach polling firm and a frequent adviser to Chancellor Kohl, wrote recently
that the President's popularity in West Germany had increased dramatically. The
percentage of respondents who say they like Americans and favor close
cooperation with the United States also rose after declining significantly since
9-point lead over the CDU/CSU
We doubt, however, that the changes will be deep or lasting. The President's
popularity in West Germany also rose after his Bundestag address in early 1982,
only to fall sharply within about six months. Further, the percentage of
respondents who favor close cooperation with Washington still is lower than in the
late 1970s and early 1980s. The presidential visit apparently had no impact on
Chancellor Kohl's sagging popularity: an Infratest survey published in early July
gave Kohl the worst personal popularity rating of any chancellor since the firm
began polling in 1970. The same survey showed the Social Democrats with a
West Germany- Model Agreement for a Chemical-Weapons-Free Zonel 25X1
East Germany
commission would work was left for future negotiations
After more than a year of discussion, West Germany's opposition Social
Democrats and East Germany's Communist party have concluded a model
agreement for a chemical-weapons-free zone in Central Europe. The document-
which the parties intend to submit to their respective governments-proposes
prohibiting the production and stationing of chemical weapons in an area
encompassing, ideally, those states defined at the MBFR talks, or at least the two
Germanys and Czechoslovakia. Verification would be conducted by an
international commission composed of treaty signatories; details of how this
By displaying an ability to work with the East Germans on a sensitive topic, the
Social Democrats almost certainly hoped to capitalize on the popular aversion to
chemical weapons in West Germany, as well as the absence of movement on arms
control and intra-German affairs. The Kohl government continues to support
NATO's policy of working toward a verifiable global chemical weapons ban at the
Conference on Disarmament in Geneva, and Bonn has had relatively little success
in its talks with East Berlin this year on cultural, legal, scientific, and
environmental matters. As yet, however, there has been surprisingly little public
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West Germany Post-Bitburg Polls
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position on chemical weapons. The SPD has not given up though
response, and government officials have confided to US diplomats that they do not
believe the agreement will generate much public pressure on Bonn to alter its
a party delegation will initiate talks soon on a nuclear-
weapons-free zone with the East German Communists
likely next spring.
Hans Van Mierlo's apparent return to politics will probably boost the fortunes of
the Democrats 66 party and may even enhance INF prospects. D'66, only four
years ago riding a crest of popularity, into its first participation in a government
coalition, has seen its standing sag badly as the party yawed between the Liberals
on the right and Labor on the left. D'66 leaders desperately wanted Van Mierlo,
one of the party's founders and a charismatic leader by Dutch standards, to return
to the leadership as the most immediate way to recoup lost ground. Van Mierlo left
politics in 1982 largely due to personal problems, but has said he is willing to be
D'66 "list leader" (that is, the party's candidate for the premiership or, more
likely, for a major cabinet post should it enter the government) for the election
INF deployment
Van Mierlo's popularity, according to Embassy reporting, could add two to five
seats to the six currently held by D'66 in the 150-member Second Chamber. While
this number is small compared to Labor, the Christian Democrats, and the
Liberals, D'66 could prove vital to putting together a new government, especially
because polls show that majorities are unlikely for either a renewed center-right
Christian Democratic-Liberal coalition or a Labor-led "progressive bloc" of
leftwing parties. Van Mierlo's stand could be especially important in maintaining
support for a positive INF decision; D'66 rank-and-file sentiment is strongly
against INF, but, while Defense Minister in 1982, Van Mierlo became more
sympathetic to the program and consented to preliminary basing preparations. In
the past, Van Mierlo has expressed distaste for participation in a center-right
government, but, given D'66's need for his leadership, he would have a strong hand
should he decide to join the Christian Democrats and Liberals-and go along with
Belgium Playing the Linguistic Card
Belgian politicians are busily engaged in portraying themselves as stalwart
defenders of their respective regions as the national election approaches. The
opening salvos occurred in Wallonia last month, with the Walloon Social
Christians, smallest party in the center-right coalition, threatening to bring down
the Cabinet this fall by rejecting constitutional amendments to give regional
authorities more power over education. Party leaders argue that decentralizing
would place Catholic education at the mercy of the Walloon Socialists, who
dominate politics in Francophone Belgium. Just as important a motive is the desire
to use the emotional "school issue" to mobilize Catholic voters in the election, due
by December.
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The opposition Walloon Socialists, who would rather fight "Flemish imperialism"
than the Social Christians, have countered by putting together an economic
agreement with the French-language element of the socialist trade union
confederation (the last major institution in Belgium not formally split into Flemish
and Walloon branches). Walloon Socialist leader Guy Spitaels almost certainly
realizes that some of the provisions on restoring social spending cuts and creating
jobs are unrealistic and probably could not be implemented should the Socialists
reenter a coalition cabinet after elections. Economic logic and sound policy,
however, take second place to the electoral need fora united "Walloon front"-a
lesson likely to apply equally to Flemish politics in the weeks ahead.
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Swedish armed forces continue to suffer command and control problems at the
brigade and divisional level due to poor procedures and inadequate training.
he Swedes recently 25X1
implemented changes in their training doctrine and operational procedures after
several visits by ranking Swedish officers to US Army Europe Headquarters
(USAREUR) and to the United States and West Germany to observe large-scale
maneuvers. Other Swedish personnel have recently sought US assistance in
developing computer-assisted war games for the Swedish Armed Forces Staff
College. The objective is to complement field training, although the Swedes do not
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Better training and new procedures may help alleviate command and control
problems evident at the "East Coast" exercise in the fall of 1983, when poor
coordination between ground and air command elements reportedly resulted in
12-to-14-hour delays before units were airlifted to designated drop zones.
Increased reliance on US military assistance and cooperation also could broaden
coordination between the US-Swedish military commands. Nevertheless,
Sweden-as a nonmember of NATO-will continue to highlight its political and
military neutrality as evidenced during the recent "Western Border" exercise
where Swedish forces deployed to repel a hypothetical Western effort to seize
airfields during an "East-West" conflict.
Jozef Cardinal Glemp took the unusual step of holding several meetings with
leaders of the Polish Government-in-Exile in London during his 11-day visit to the
United Kingdom in early March. Glemp visited various institutions tied to the
London-based government and attended an official dinner where the main address
was delivered by the exile premier. During a meeting with the aged Count Edward
Raczynski, the president of the exile government, Glemp reportedly discussed the
political situation in Poland, the problems of Polish emigres, and the difficulties of
the Church program for aiding private agriculture. Before his return home, Glemp
publicly referred to Raczynski as "Mr. President" and paid tribute to his
intelligence and experience.
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Some contact with exile politicians was probably unavoidable, but Glemp seems to
have gone beyond what was necessary. He may have felt compelled to turn his stay
in London into a virtual state visit to defuse criticism of his stewardship of the
Polish Church by the emigre community in Western Europe-a subject he is
reportedly sensitive on. In that sense, the event brought immediate results: an
article in London's leading Polish newspaper attacking Glemp as being too
accommodating to the regime was retracted with an apology after a stream of
protest letters from irate readers. Glemp may also have calculated that paying
homage to Raczynski would encourage Poles in the United Kingdom to press
Britain to drop its opposition to West European funding for the agricultural fund.
Glemp thus far has escaped criticism by the government-controlled media in
Poland. Warsaw regularly ridicules the remnants of the prewar government as
part of Western subversion of Poland, but remains highly suspicious of even
unofficial contacts that question its sovereignty. A ceremony last spring in which
Lech Walesa and his adviser, Father Henryk Jankowski, were awarded medals by
the London government, provoked sharp attacks in the official Polish and Soviet
press.
Bulgaria Coping With Energy Problems
Bulgaria's recently created Ministry of Energy is giving high priority to upgrading
energy production facilities to prevent a recurrence of last winter's energy
shortage, according to the US Embassy in Sofia. Energy Minister Todoriev has
been involved in talks with Western firms specializing in energy-related
technology, and, according to some Western businessmen, large hard currency
outlays have been approved for modernization and construction of energy
production facilities.
The need to increase imports of Western machinery and equipment is implicit in
Bulgaria's investment plans, which emphasize energy efficiency and development
of domestic energy sources. The ministry's action may reduce some of the
bureaucratic inertia that has slowed major energy development projects.
the drawn-out negotiations on
purchasing US technology for an anthracite mining project reflect a reluctance by
decisionmakers to accept responsibility if the project is unprofitable. Nonetheless,
Western imports will not solve the construction delays and shortages that have
plagued large nuclear power and coal projects, nor enable Bulgaria to reduce
significantly its dependence on the USSR for energy supplies.
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Western Europe-South Africa:
Attitudes on US Sanctions
Several West European allies that have often
condemned apartheid are now sorting out whether
they will emulate the United States if Washington
invokes economic sanctions against South Africa
interested in rhetoric-perhaps designed to curry
favor with nonaligned countries-than in action. The
Dutch support sanctions in principle but have not
imposed them. West Germany has not yet had any
role in the debate. Norway, on the other hand, has
already implemented action against Pretoria.
Annoyance With South African Actions
Allied leaders, through public statements and private
demarches, have expressed irritation with the abortive
South African raid against oilfields in Cabinda on
21 May and the attack against African National
Congress personnel in Gaborone on 14 June. The
British, in particular, believed that this adventurous
behavior hurt London's efforts at diplomatic dialogue
with Mozambique and Angola. In addition, one
Canadian official drew the attention of US diplomats
to the fact that Foreign Minister Clark condemned
South African actions twice in an 18 June statement.
West European members of the UN Security Council
participated in a 15-0 approval of a resolution
condemning the raid on Cabinda, although the British
diplomats stated that their government believed
calling it an "act of aggression" was too harsh. The
British-but not the French-joined Washington in
abstaining on another resolution, which passed the
previous day 13-0-2, calling for a list of "appropriate
voluntary measures," including "stopping of new
investments" and prohibitions of Krugerrand sales.
During the debate the Canadian Ambassador
criticized South Africa more strongly than his
colleagues, causing the British-according to US
diplomats at the United Nations-to consider a
demarche to Ottawa.
But Reluctance To Apply Sanctions
While West European governments are willing to
censure South Africa, the passage of sanctions
legislation by both houses of Congress has forced
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Allied governments to reexamine their willingness to
take stronger action against Pretoria. The Allies
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sanctions if Washington adopts a tougher policy.
Some officials already have expressed their opposition
to sanctions during private discussions with US
officials and others
British Political and Economic Concerns. The US
Embassy in London reports that the British are
dismayed with South Africa's evident intention to
resort increasingly to military action in disregard of
Western political interests. Nevertheless, Prime
Minister Thatcher remains opposed to sanctions and
determined to protect highly profitable British
investment and commercial ties to South Africa.
The British worry that Washington's policy will make
it difficult for them to resist pressure to apply
sanctions from parliamentary opponents and
Commonwealth countries-which hold a summit in
October. According to the US Embassy in London,
Social Democratic leader David Owen is considering
introducing a bill that would force Parliament to
consider sanctions. Such action could lead to a
divisive debate between antiapartheid and probusiness
Tories.
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British officials are attempting to reinforce US
awareness of the disadvantages of sanctions. For
example, London reportedly agreed with Ambassador
Walters that disinvestment would hurt South African
blacks, damage neighboring states, and enable South
African hardliners to block progress toward
dismantling apartheid
Disingenuous French Diplomacy. French policy has
mixed public affirmation of a willingness to consider
sanctions with private hope that the issue will go
away. Prime Minister Fabius told a Paris human
rights rally on 31 May-after Cabinda but before
Gaborone-that France stands ready to curtail
investment in South Africa if the latter does not
ameliorate the apartheid system within 18 months.
Fabius also declared-in principle-his willingness to
upgrade relations with the South-West Africa
People's Organization (SWAPO). France had
previously given SWAPO an official status and an
office in Paris. In July, Paris announced that it would
not support export by French firms to South Africa of
containers for nuclear waste and other nonsensitive
items.
In addition, the French adopted an anti-South
African diplomatic posture for the benefit of non-
aligned delegations at the United Nations. During the
maneuvering that preceded the recent Security
Council resolutions, French diplomats told US
officials that Paris could accept stronger language on
sanctions than Washington or London wanted. US
diplomats reported that the French distanced
themselves from other Western delegations and gave
every indication of trying to "cut their own deal" with
nonaligned delegations. The French reportedly did not
coordinate their policies or tactics with other Western
delegations until the last moment.
Privately, however, the French take a more cautious
line. Foreign Ministry officials told Ambassador
Walters on 4 June that they considered sanctions
unlikely and hoped the issue could be avoided.
newspaper Trouw was arrested briefly by South
African police on 25 June after spending a morning in
a black township. The attack on Gaborone coincided
with the completion of a Dutch Government report
supporting in principle multilateral investment
sanctions, but rejecting them in practice because they
have insufficient international backing. The
government, which presented the report to parliament
on 18 June, promised to maximize the "stimulating
effect" of international investment on the
emancipation of black workers. In addition, it called
for legislation making it mandatory for Dutch firms to
comply with the EC Code of Conduct regarding their
investments in South Africa
The report denied the possibility of immediate
unilateral sanctions. Parliament had asked the
government to consider restrictions on petroleum
exports to, and coal imports from, South Africa, but
the report stated that such action is prohibited by
GATT, EC regulations, and a bilateral agreement
with Pretoria. The government claimed that it had
lobbied hard in the United Nations for a mandatory
oil embargo, but complained that Security Council
action appeared unlikely. While government
spokesmen implied that they might stiffen their
position if the US Congress approved economic
sanctions, differences within the ruling coalition and
between the government and opposition parties-
according to the US Embassy in The Hague-blocked
agreement to join US measures.
Nevertheless, continued South African aggressiveness
might provoke harsher Dutch reaction. South African
authorities apparently violated Dutch Embassy
grounds while arresting an escaped prisoner-a Dutch
anthropologist-on 10 July. South African officials
told US diplomats that the fugitive is a terrorist; press
sources suggest that The Hague might recall its
ambassador from South Africa over the incident.
So Are the Canadians. Canada announced on 6 July a
series of relatively moderate measures, including
abrogation of the Canada-South Africa double
The Dutch Are Cautious. The Hague has been put in
an awkward position because at least one Dutch
national reportedly was killed during the South
African raid on Gaborone, and the editor of the Dutch
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taxation agreements. According to the US Embassy
in Ottawa, these steps are meant to signal Canada's
moral position while avoiding stronger economic
sanctions. Predictably, at least one opposition
spokesman has called Ottawa's action "a joke." Press
commentary also has portrayed it as weak.
Norwegians Taking Action. Norway has sanctions in
place and, in contrast to its Allies, was preparing for
further action even before the Gaborone raid. On
7 June, the parliament approved a government white
paper toughening the following restrictions:
? An embargo on export of Norwegian oil.
? No nuclear cooperation.
? No bilateral sports contacts.
? No Norwegian Government approval of capital
exports for investment in South Africa.
? Visa requirements for South African nationals
seeking to visit Norway.
? Humanitarian aid for some liberation movements
and refugees.
? Direct Norwegian funding of projects designed to
reduce other countries' dependence on South Africa.
In addition, parliament condemned the "politically
illegitimate" South African Government and directed
the cabinet to evaluate a wide spectrum of additional
sanctions. These include banning imports of South
African military equipment into Norway and
forbidding the export of materials to South Africa
that could be used militarily. While supporting UN
trade sanctions against South Africa, parliament
recognized that such restrictions lack adequate
international support.
On 26 June, Norway, Sweden, and Denmark
announced cancellation of their air traffic agreement
with South Africa. Scandinavian Airlines System's
flights to South Africa-which airline officials
describe as relatively unprofitable-will halt within
six months, according to press sources.
Outlook
Pretoria's military policies and the resulting debate in
the US Congress are forcing West European
governments to face the contradictions in their policy
toward South Africa. Allied governments-and
particularly the British-are concerned that they may
no longer be able to deflect antiapartheid activists and
Third World governments with pleas that West
Europeans can do little by themselves to constrain
South Africa. Prime Minister Thatcher-despite her
dislike of South African leaders-will continue to
protect British economic interests by seeking to avoid
sanctions legislation, but could face major
embarrassment if London takes an isolated action in
blocking sanctions.
The French probably will continue to support
sanctions verbally-largely for the benefit of
nonaligned countries-but are unlikely to take any
direct action until after Washington clarifies its
stance. The Dutch, who almost point to Washington
as the necessary element in any future international
sanctions regime, will face increased domestic
pressure to stiffen its antiapartheid policies if the
United States invokes sanctions. No other ally
currently appears ready to follow the Norwegian lead,
and all will probably protect their particular economic
ties to South Africa unless and until international
trade restrictions come into force.
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Portugal:
Reconciling Counterterrorism
and Civil Liberties
Concerned about the limited intelligence and
resources available to combat terrorism and to control
the activities of foreign agents, the Portuguese
Assembly last fall gave preliminary endorsement to
two security bills. One sets up new intelligence
services and the other establishes procedures for
internal security. Legislation in Portugal is subject to
debate and modification after passage by referendum
and the internal security bill is still being revised in
committee. President Eanes, however, signed enabling
legislation last month spelling out the specifics of the
country's first civilian intelligence service since the
1974 revolution.
Until recently, memories of the internal security
service ' of the Salazar-Caetano dictatorships and the
economic problems faced by a succession of weak
governments prevented serious attention being given
to intelligence. The need for an intelligence apparatus,
however, became increasingly apparent as domestic
and foreign terrorists grew more active. The principal
indigenous group known as the Popular Forces of
25 April (FP-25), a relatively small faction with
limited goals, appeared on the scene in 1980. The
FP-25 carried out bombings and robberies while
claiming to defend the rights of workers and farmers
against the government and capitalist institutions.
The real impetus for legislation, however, came from
foreign terrorist attacks. In 1983, the assassination of
PLO leader Isam Sartawi at a Socialist International
congress in April and an Armenian assault on the
Turkish Embassy in July alarmed the Portuguese
Government and forcibly demonstrated the need for
security legislation
' The secret police in Portugal were known as the PIDE
(International Police for the Defense of the State) from 1945-69
under Salazar, and as the DGS (General Security Directorate) from
1969 until abolished in 1974. Never large in numbers, the PIDE
relied on informers-said at one time to be one person in 90-and
on rumors of its omnipresence to uncover and control any group
threatening the status quo. While the myth of its efficiency
exceeded the reality, it employed various forms of psychological
and physical torture and sent hundreds of regime opponents to
Signs on a wall on Alexandre Herculano Street
point out the headquarters of the intelligence
services. The signs on the wall say: "The new
PIDE already has a headquarters " and "No to
Ghost of the PIDE
The government intended to pass the internal security
and the intelligence service bills in tandem as a
comprehensive package of security legislation. The
outlook for both bills initially seemed promising as the
Socialist-Social Democratic government of 1983 was
the first coalition since the revolution with a solid
majority in the Assembly. There was also public
support. A poll taken by a Lisbon newspaper in May
1984 showed about half of those interviewed
expressed agreement with the need to create an
intelligence service. An overwhelming majority,
however, rejected such activities as opening of mail
(90 percent against) or telephone taps (86 percent
against).
The Internal Security Legislation
The government's original bill went far beyond what
the public could accept. It gave the Minister of
Internal Administration widespread authority to
conduct searches and seizures, institute wiretaps, open
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mail, and prohibit public gatherings-all without
judicial approval. Public reaction was immediate and
extremely negative. The Communists were quick to
draw parallels with PIDE powers. Even Socialists
such as Sottomayor Cardia, a close colleague of Prime
Minister Soares, saw it as an infringement on civil
liberties.
Nevertheless, the internal security bill passed on
27 July by a vote of 138 to 79 with two absentions, but
seven Socialists broke ranks and voted against the bill,
some 25 of the PSD deputies who voted for it
demanded changes in committee, and President Eanes
threatened to veto it. Extensive revisions of the bill
have since been made in committee and judicial
oversight provisions have been included, but the
recent government crisis may ultimately delay final
approval of the law.
The Intelligence Services
The final voting on the intelligence services legislation
last July went almost unnoticed after the more heated
discussions on the internal security bill. As a
safeguard against concentration of power, three
separate services were created: a Strategic Defense
Intelligence Service (SIED), a Military Intelligence
Service (MIS), and the Security Intelligence Service
(SIS). The SIED is charged with the collection,
evaluation, and dissemination of intelligence related
to internal security, while the MIS will produce the
intelligence necessary for the national defense. The
SIS, under the Ministry of Internal Administration,
has primary responsibility for collecting foreign
The SIS has primary responsibility for collecting and
evaluating foreign intelligence and preventing
sabotage, terrorism, espionage, and other acts against
the state. It operates under the Ministry of Internal
intelligence and preventing sabotage, terrorism, the Republican National Guard (GNR), the Public
espionage, and other acts against the state.
Coordination supposedly will be provided by a
Superior Intelligence Council, assisted by a Technical
Commission, but this group is so large it probably will
only be used in an advisory capacity. There will also
be an Oversight Council of three citizens elected by
the National Assembly to monitor intelligence
activities.
Colleagues or Rivals?
Creation of the services will not immediately solve
Portugal's intelligence collection problems. Initially,
all of the services will suffer from a lack of trained
professionals and equipment. Poor coordination,
decentralization, and duplication of effort already
hamper the efficiency of such local security forces as
Security Police (PSP), and the Judiciary Police (PJ).
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Public Security Police (PSP). National police force
under the Ministry of Internal Administration
charged with law enforcement in urban areas and
airport and VIP security. Its Intervention Corps (CI)
is a paramilitary force used primarily for crowd
Special Operations Group (GOE). Reserve unit of the
PSP that takes action only upon direction of the
National Crisis Cabinet.a Its primary mission is
hostage rescue in terrorist situations.
Republican National Guard (GNR). Responsible for
maintaining order in rural areas, protection of gov-
ernment facilities, highway police functions, and
some protection of dignitaries. The GNR is composed
of 16,000 volunteers who have completed military
service. Reasonably efficient, the GNR can handle
minor disturbances.
Judiciary Police (PJ). Under the Justice Ministry.
The PJ deals with crimes against the state, bombings,
kidnaping, drug trafficking, and other similar crimes.
It investigates following terrorist acts,
a The National Crisis Cabinet is composed of senior government
officials responsible for all policy decisions in a terrorist situation.
Nor can ingrained distrust between the military and
civilian politicians be easily overcome. Over the past
decade the question of who would control an
intelligence apparatus has been a major stumbling-
block facing the series of study groups that wrestled
with the problem. Having separate military and
civilian services may allay some apprehensions, but
coordination among them is likely to prove
cumbersome.
Justice, Portuguese Style
The intelligence services are also likely to be
demoralized by judicial laxity and Lisbon's poor
record in prosecuting terrorist cases. The police claim
the judiciary is subject to political pressure and
vulnerable to terrorist threats. In one case, the FP-25
member arrested for murder was released,
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In another, the killer of PLO leader 25X1
was acquitted of major
charges and sentenced to three years for possessing a
false passport. Although the verdict was annulled on
technical grounds, the government again failed to
prove its case in a second trial and the defendant,
having already served most of a three-year sentence,
may well be paroled and expelled from Portugal.
concessions.
Even if jailed, terrorists may not languish for long. In
1982, the Assembly twice rejected an amnesty law
freeing members of the far-left Proletarian
Revolutionary Party, prompting several of the
prisoners to go on a prolonged hunger strike. The
public, responding to the deterioration in their
physical condition and accepting the argument that
their bank robberies were politically motivated,
pressured the Balsemao government into making
Counterterrorist Outlook
While able to provide protection or mount an
intervention operation, the Portuguese at present have
no established counterterrorist policies and lack the
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manpower, financial resources, and experience to
counter most terrorist threats in an effective manner.
The SIS has moved into its new Lisbon headquarters
but any real intelligence
capability is still several years away. Foreign agents
can continue to penetrate Portugal's porous borders,
and terrorist groups can attack low-risk targets with
relative impunity.
Passage of the intelligence legislation is only a step in
the right direction. Now the Portuguese must
overcome internecine rivalries and force or cajole
civilian and military services to share information and
work together. The directors Z heading up the services
will need considerable political skill to smooth over
the inevitable strains between the services and the
government. Furthermore, the services must cope with
public suspicion inherited from PIDE and face close
scrutiny at first; any scandal or abuse of power will
erode public support. The Portuguese, while
acknowledging that a state must defend itself against
terrorism, are determined to preserve personal
freedoms
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Eastern Europe: Uncertain
Economic Recove
East European economic performance improved in
1984, but the likelihood of a sustained recovery is not
great. Most of the growth resulted from large gains in
agricultural output due to good weather, not a surge
in industrial production. Although the region seems to
be recovering from the harsh winter weather, growth
rates probably will fall below last year's level. Over
the long term, external constraints and systemic
weaknesses will make it difficult for the region to
return to the generally good economic performance of
the early 1970s.
Growth in 1984
Eastern Europe's economic growth in 1984
accelerated for the second consecutive year. The
CEMA 6' achieved a 3.1-percent growth rate in
GNP, up from 1.6 percent in 1983. Growth ranged
from Poland's 3.4 percent to Hungary's 1.3 percent.'
Yugoslavia's economic performance also improved
with a 1.7-percent growth in GNP, a significant
recovery from the previous year's 1.3-percent decline.
Although the region's overall performance was the
best in this decade, growth rates are still well below
the relatively high levels of the early 1970s.
Last year's economic gains resulted largely from good
weather that helped push agricultural production to
record levels in most of the region. Every country
except Bulgaria harvested a record grain crop 3 but
Bulgaria's crop was still a substantial improvement
over its 1983 results. The increase in grain
production-following two years of above-average
harvests-and improved output of many nongrain
crops supported strong growth in livestock production.
As a result, CEMA 6 agricultural output grew 6.2
percent and Yugoslav production was up 1.1 percent.
Hungary, Poland, and Romania.
' We estimate Romanian GNP growth at 4.3 percent, but, because
of the large distortion in the underlying official indexes, we have
less confidence in this estimate than in those for the other countries.
' Romania has reported a harvest of 23.6 million metric tons, but
we estimate that actual output was closer to 18.1 million metric
Although industry's gains lagged agriculture's, East
European industry continued to recover from its 1981-
82 downturn. CEMA 6 industrial output grew 2.9
percent last year, up slightly from 1983's 2.6-percent
growth, while Yugoslavia's industrial growth rate rose
from 1.4 percent to 1.8 percent. Hungary and
Czechoslovakia, which had the poorest performance
in 1983, recorded the largest improvements last year.
Poland led the region in industrial growth for the
second consecutive year, even though the rate of
increase slowed from 5.2 percent in 1983 to 4.1 25X1
percent last year. Poland's high rate of growth is
largely a rebound from the severe depression of 1980-
82 when industrial production fell slightly over 15
percent.
Some easing of external problems as well as
adjustment to reduced Western imports and Soviet oil
deliveries underlie the modest revival of East
European industry. Economic recovery in the West
helped boost hard currency exports 7 percent in dollar
terms. This increase in sales and a greater availability
of trade financing allowed all of the regimes, except
Hungary, to ease import restraints imposed during the
1981-83 financial crisis. Although hard currency
imports remained well below their 1980 peak, last
year's small increase probably improved domestic
supplies of key raw materials and manufactured
goods, helping to ease bottlenecks and support the
upturn in industrial production. Planners also have
probably shifted production and distribution patterns
somewhat, enabling the East European economies to
substitute domestic production for goods previously
imported from the West and to conserve on the use of
materials. Moreover, East Germany, and to a lesser
extent Hungary and Czechoslovakia, which suffered
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achieved some success in energy conservation and
substitution.
The consumer, whom most East European regimes
had already favored over investment in adjusting to
financial problems, benefited further from last year's
pickup in economic growth. Poland recorded the
Secret
EUR ER 85-016
17 July 1985
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Table I
Eastern Europe: GNP Growth
1983
Bulgaria b
Total GNP
4.7
1.0
2.9
-1.6_
3.1
Agriculture
2.2
-3.4
5.2
-12.4
7.5
Industry
5.7
3.4
Other
5.7
1.6
1.2
Czechoslovakia c
Total GNP
3.4
2.2
0.7
1.0
2.3
Agriculture
2.4
1.4
- 0.4
1.7
4.2
3.9
1.4
0.9
2.5
0.4
0.8
1.4
East Germany b
Total GNP
3.5
2.3
0.8
1.6
3.3
Agriculture
2.8
0.8
3.1
10.0
Industry
3.4
3.0
1.7
1.9
2.0
Other
3.7
2.2
0.8
2.6
Hungary d
Total GNP
3.3
2.0
2.2
-1.2
1.3
Agriculture
3.9
1.6
5.8
- 5.8
2.1
Industry
2.6
1.6
1.0
Other
3.5
0.7
-0.3_
Poland
Total GNP
6.5
0.6
-3.2
4.6
Agriculture
1.1
- 1.0
4.4
4.7
Industry
7.6
0.6
10.0
- 3.9
4.2
2.7
Romania C
Total GNP
3.9
1.5
0.2
4.3
Agriculture
3.2
11.4
Industry
3.1
3.8
Other
5.4
-2.6
- 1.2
fastest growth rate in private consumption-5.1
percent-as the government backed away for the
second consecutive year from stringent austerity
measures in order to curry popular support and to
show progress in resolving the country's economic
problems. East Germany and Czechoslovakia
recorded increases in consumption on a par with those
of the 1970s while Hungary at least recouped 1983's
losses. Only Yugoslavia showed a statistical decline in
personal consumption, although the Romanian
population probably in fact suffered a far worse fall in
living standards. Although private consumption was
up for the region as a whole, imbalances continued in
consumer markets resulting in shortages, price hikes,
and-in Poland and Romania-rationing of some
food and consumer goods.
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Table 1 (continued)
Total GNP
4.9
1.9
0.0
1.6
Agriculture
2.5
0.4
3.5
0.6
6.2
Industry
2.6
2.9
Other
5.7
2.2
-0.9
1.3
1.6
-1.3
-1.8
Industry
5.8
7.2
1.0
1.4
Other
7.6
5.8
-0.3
e Preliminary.
b At 1975 adjusted factor cost.
c At 1977 adjusted factor cost.
d At 1976 adjusted factor cost.
At constant 1984 dollars.
Note: Caution must be used when viewing the rates of growth for
total GNP and by sector of origin for the CEMA 6. While they are
useful in illustrating individual country differences from the "aver-
age," their primary shortcoming stems from the fact that they are
an artificial measure that is the combination of individual countries
measured in different factor costs. This difference in factor costs
means that a dollar's worth of output in one country (say Bulgaria)
is not equal to a dollar's worth of output in another country (say
Czechoslovakia).
Growth rates for investment were much more mixed
than those of consumption. Although tight control on
investment since 1980 has raised concern in Eastern
Europe about long-term growth, East Germany,
Hungary, Bulgaria, and Yugoslavia continued to
limit, if not reduce, investment to free up output for
export and consumption. Poland, Romania, and
Czechoslovakia accelerated investment, but much of
this spending went to reviving large, heavy industrial
projects that will probably have little, if any, payoff.
Many of these projects were ill conceived from the
outset and due to the long leadtime for completion
will be technologically obsolete.
1985: Recovering From a Bad Start
Last year's economic upturn probably will not carry
over to 1985 for most of the East European countries.
The region was hit by extremely harsh winter weather
that led to energy shortages, disruptions in
transportation and production, poor hard currency
trade performance, and damage to winter grain crops
in Bulgaria and parts of Romania)
he region generally is recovering from
the first-quarter losses in production and trade, but
the more hard-hit and fragile economies are still
struggling:
? Romania is unlikely to match last year's growth
rates. Lack of energy reserves may have cut
industrial production as much as 7 percent 25X1
compared with first quarter 1984, and worsening
payment problems have led the regime to slash
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Comparing Official and Reconstructed
Growth in Eastern Europe
Understanding the methods used to measure East
European economic growth is essential to
understanding the region's economic performance.
The two measures used most frequently are the
official national income produced (NIP) used in
Marxist national income accounts and gross national
product (GNP) as conventionally measured in
Western practice.
These two measures of economic growth, NIP and
GNP, differ in three ways: services, prices, and
depreciation. Marxist national income accounts-
unlike GNP measures-exclude as nonproductive
most services, including housing, education,
government administration, and consumer services.
Prices also distort Marxist national income accounts.
Goods are valued in purchasers' prices that include
turnover taxes-taxes on sales to consumers which
vary from item to item. Western-style GNP accounts,
on the other hand, value goods and services at factor
cost-the value of labor and capital services used in
their production. A change in turnover taxes will,
therefore, affect Marxist national income, but not
Western-style GNP. NIP measures also suffer an
upward bias resulting from underestimation of price
increases in official indexes. This upward bias is due
to two factors: (1) the declining quality of goods while
their prices remain the same and (2) the introduction
of new products whose prices are set excessively high,
although the new product may be in reality an older
product with some insignificant alteration. The
difference in the third area is that GNP measures do
not deduct depreciation from gross fixed capital
formation while Marxist national income measures
do.
As a result of these accounting differences, growth
rates measured in Western-style GNP terms differ
markedly from growth rates expressed in Marxist
national income terms. Movement in Western-style
GNP growth measures tends to be less extreme than
their Marxist counterparts because services,
excluded from Marxist accounting practices, usually
are more stable on a year-to-year basis than the other
components of production.
Bulgaria
3.1
4.6
Czechoslovakia
2.3
2.8
East Germany
3.3
5.5
Hungary
1.3
2.8 to 3.0
Poland
3.4
5.1
Romania
4.3
7.7
already sparse imports and redouble its export drive.
Because of weather problems and shortages of
inputs, the outlook for agricultural production is
mediocre.
? Poland's economy had its worst start since 1982.
Data for the first quarter indicate industrial
production stagnated and the hard currency trade
surplus fell to $250 million for $360 million in the
same period last year. While results from April and
May show growth in industrial production, Polish
officials are pessimistic about this year as a whole.
? Bulgaria seems likely to turn in one of its poorest
economic performances in years. The regime's effort
to make up for weather-related production losses
through a six-day workweek does not seem to be
yielding encouraging results. Agricultural
performance will likely suffer due to continuing
drought and low reservoir levels.
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Table 2
Eastern Europe:
Private Consumption
Average annual
percentage growth
Table 3
Eastern Europe:
Gross Fixed Investment
Average annual
percentage growth
Bulgaria 8.6
6.1
6.1
0.4
1.0
Czechoslovakia
2.7
Czechoslovakia 8.3
3.0
-3.5
0.6
4.4
East Germany
3.9
2.0
0.2
0.5
3.7
East Germany
4.8
3.4
-1.3
0.0
0.0
Hungary
3.3
2.2
1.3
-0.8
1.0
Hungary
7.0
2.4
-3.7
-2.7
-1.0
Poland
5.5
2.4
-5.6
5.2
5.1
Poland
18.5
-3.0
-17.5
9.4
8.0
Romania
5.1
4.7
0.4
-1.9
NA a
8.5
-5.5
2.9
6.1
5.5
a The Romanian Statistical Office has ceased publication of key
data necessary for the calculation of private consumption.
? Yugoslavia's goal of recording major gains over
1984 has been dashed, although some growth is
likely. Industrial production slumped during the
first quarter while a falloff in exports and an
increase in imports produced a hard currency
account deficit of $359 million through April in
contrast to a $31 million surplus in the same period
of 1984.
? Czechoslovakia, East Germany, and Hungary will
probably come close to matching last year's
economic performance. Although all of these
economies were affected by the harsh weather,
overtime and other administrative measures have
helped overcome the first-quarter deficiencies.
Prospects
Although this year's downturn is largely related to the
unusually harsh winter, external factors and systemic
weaknesses will limit economic growth for the rest of
the decade. We doubt that the region can sustain
GNP growth of more than 2 percent annually over the
next few years, far below the growth rates obtained
during the 1970s:
? The East Europeans will face strains in their
economic relations with both the West and the
USSR. Large hard currency debt service
requirements and caution among Western creditors
over new lending to some countries will continue to
limit imports and require improved export
performance. At the same time, the East Europeans
can no longer count on Soviet economic largess in
the form of large price subsidies and ruble trade
deficits. To bring the economic relationship into
closer balance, Moscow is insisting that the East
Europeans provide more and better quality goods,
along with investment resources, in return for
energy and raw material exports.
? Growth of inputs needed to sustain economic growth
will be slow. In all the countries except Romania,
the rate of growth in the labor supply will decline
during 1986-90. Because of external constraints and
unease over reductions in domestic consumption,
most regimes will probably keep investment rates 25X1
below historical levels, limiting improvements in
productivity. Moreover, none of the East European
economies has addressed the problems of sectoral
misallocation of investment and excessive
inventories resulting from negative real interest
rates, distorted prices, lack of financial sanctions on
inefficient operations, and the desire to hoard
resources to meet plan targets.
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? Most of the countries suffer from low energy
reserves and inefficient energy-intensive industries,
and the possibility of more reductions in Soviet oil
deliveries is always present.
? While most of the regimes recognize the inefficiency
of their economic systems, only Hungary has
undertaken meaningful' action to decentralize
decisionmaking, rationalize prices, or increase the
role of market forces in the economy. Hungary's
economic performance, however, is not an
unequivocal testament to the success of reform.
Although the Soviets are pressing the East
Europeans for greater economic efficiency, most
regimes appear uncertain about the degree of
reform Moscow is willing to permit and are unlikely
to do more than tinker with their existing systems.
Given this outlook, the East European regimes will
face tough decisions allocating the limited growth of
output between the competing uses of investment,
consumption, defense, and exports.
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Recovery in energy trade balance gave Britain a trade
account surplus in May for the first time since
February 1984 ... stronger trade performance plus
healthy invisibles earnings will likely push 1985
current account surplus above last year's $833
million, but still well below the $6.8 billion surplus in
1982-83 ... might enhance investors' confidence in
the British economy and lead to a further
strengthening in the pound.
Prime Minister Thatcher stated on 8 July more
spending cuts may be necessary so tax cuts can be
made ... falling oil prices, rising inflation, and high
public-sector wage settlements threatening to
postpone tax cuts ... London is under increasing
pressure to deliver on promised cuts to help alleviate
the unemployment problem.
Almost three times as many new French high-tech
businesses succeeded as failed between 1980 and 1983,
compared to a ratio of about 1.7 for non-high-tech
firms, according to the Small and Medium-Sized
Business Equipment Bank ... during that period the
number of high-tech firms increased by 76
percent ... most new firms are in Paris or in the south
and southwest
Ankara eliminated foreign exchange restrictions on
commercial banks at end of June ... previously, banks
could buy and sell foreign exchange only within a 6-
percent band around the Central Bank's official
rate ... move is another step toward convertibility of
the lira and is aimed at dampening money growth by
reducing pressure on the Central Bank to buy foreign
exchange.
Hungary considering creating automobile
industry ... only CEMA country without production
capability ... present stock of cars aging with this
year's supply expected to be nearly 40 percent below
demand ... shortage of hard currency and difficulties
with CEMA suppliers prevent increase of imports.
Bulgaria has arranged its first syndicated credit since 25X1
1979... seven-year loan offered originally for $100
million, but Western banks responded so eagerly that
the amount was raised to $200 million ... Sofia
enjoys a good standing with bankers because of small
debt and reputation for financial conservatism.
Secret
EUR ER 85-016
17 July 1985
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