EUROPEAN REVIEW

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP87T00289R000200670001-4
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 25
• Document Creation Date: December 22, 2016
• Document Release Date: May 9, 2011
• Sequence Number: 1
• Publication Date: April 25, 1986
• Content Type: REPORT

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Directorate of
Intelligence
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European Review
25 April 1986
EUR ER 86-010
25 April 1986
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European Review
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25 April 1986
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Austria: Presidential Election0
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Belgian Greens: The Identity Dilemma ~
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Spain: Renewal of Export Credits to Nicaragua ~~
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The Netherlands-Suriname: Reaction to Surinamese
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Official's Arrest0
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Western Europe: New Protests Over Afg6anistan~
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West European governments and publics in recent months have
expressed renewed concern about the Soviet presence in
Afghanistan. Though this activity may reflect a growing
dissatisfaction with the Soviet Union in general, we think it also
signals skepticism about recent hints that Moscow may be softening
its policy in anticipation of the resumption of the UN-sponsored
talks on Afghanistan in Geneva next month. We also believe the
Europeans are increasingly aware of the public relations value of the
resistance's cause and may be displaying a willingness to assist in
promoting it.0
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EUR ER 86-010
25 April 1986
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Since Desmond O'Malley and Mary Harney established the
Progressive Democratic Party (PD) in December, the traditional
balance of Irish politics has been upset dramatically. After only four
months of existence, the Progressive Democrats have risen from a
19-percent to a 26-percent approval rating in the polls, putting them
in second place behind Fine Gael, the senior partner of the coalition
government. If the Progressive Democrats can keep approximately
two-thirds of their current support, they could hold the balance of
power after the election due in late 1987.
Portugal: Implications of the Presidential Election
The election in February of pro-US Socialist leader Mario Soarer as
Portugal's first civilian president in 60 years removed the threat of a
surge in Communist influence, but it is unlikely to end the personal
and party differences that have undermined government stability
over the past decade. Other complicating factors are economic
problems that would test the mettle of even a strong, single-party
government and a defiant Communist party supported by nearly one
in six Portuguese voters. Despite the likelihood of continuing
political uncertainty, we think Lisbon's commitment to NATO will
remain strong. Portugal is shifting, however, from a US-oriented
diplomacy to a more independent European approach.~~
Ramiz Alia continues to consolidate his position a year after
succeeding Enver Hoxha as the leader of Europe's most backward
and isolated country, but he faces serious and growing economic
problems that will likely continue to cause tensions in the leadership.
Some articles are preliminary views oja subject or speculative, but the contents
normally will be coordinated as appropriate with other o.~ces within CIA.
Occasionally an article will represent the views of a single analvst: these items
will be designated as uncoordinated views.
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European Review 25X1
Briefs
? Belgian Greens
few percentage points
Accusations of involvement in Nazi wartime atrocities have given a boost to Kurt
Waldheim, the candidate of the conservative Peoples' Party, in the campaign for
Austria's presidential election on 4 May. US Embassy officials reported recently
that Waldheim's standing in the public opinion polls had improved to 42 percent,
versus 34 percent for the Socialist candidate Kurt Steyrer. Just prior to the
publication of the charges against Waldheim, Steyrer had closed the gap to only a
foreign involvement in the campaign.
US diplomats in Vienna have noted that Waldheim, ironically, appears to have
been the beneficiary of the accusations, not Steyrer. Politicians and public alike
have reacted to the charges with indignation, associating them with attempts to
dictate the country's choice of leaders and as an indirect slur on the nation's
reputation. Even such respected and staid journals as Vienna's Die Presse have
covered the issue in emotional terms that refer to "undisguised foreign
interference" and Austrian "dignity" and "honor." The Peoples' Party quickly
reaffirmed its support for Waldheim, seizing the opportunity to build on popular
empathy for a candidate previously seen as too aloof. And the governing Socialists
have been unable to exploit the issue, even finding themselves on the defensive at
times; they have disclaimed responsibility for the accusations and denounced
The other two candidates-rightwing nationalist Otto Scrinzi and
environmentalist Freda Meissner-Blau-have won only negligible support in the
polls and do not appear to be playing much of a role in the campaign. Scrinzi, a
member of the Freedom Party, is running an independent campaign after failing to
secure the support of his own party. The press speculates that former Socialist
Party member Meissner-Blau, nominated by an independent committee of
ecological activists, may win as much as 10 percent of the vote. While neither has
a chance of winning the election, some observers still think the two could take
enough votes to deny either of the major candidates a clear majority and force a
runoff.)
The Identity Dilemma
Belgium's two ecological parties-Agalev in Flanders and Ecolo in Wallonia-
have increased their representation in parliament, but, like other West European
Greens, they remain ambivalent about their relationship to the political system.
According to diplomatic reports, "fundamentalists" in the ecological parties fear
that cooperation with established political groups dilutes the Greens' identity and
alienates their natural constituency among young voters. These ideological purists
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25 April 1986
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believe the Greens pursue their goals most effectively as a pressure group outside
the parliamentary arena. In contrast, Green "realists"-most of whom acquired a
more pragmatic orientation as parliamentary delegates-argue that the movement
can hope to implement its policies only by working inside the political system. To
maximize voter support and influence in parliament, some Agalev and Ecolo
leaders have pleaded for a less radical economic program-a stance the parties'
fundamentalist base has rejected as "elitist." ~~
forming a voting bloc.
Because of this inherent conflict in the Belgian ecological movement, Green
cooperation with other parties has been difficult. In Wallonia, Ecolo has
participated in the Liege city government for the past four years in coalition with
the Walloon Socialists, but this experiment has not worked well. For example, the
Ecolos, defending their "principles," refused to approve new plans for Liege's main
square because the Socialists wanted to include an underground parking area. At
the Walloon regional level, Ecolo has rejected Walloon Socialist overtures for
to advocate antinuclear and pacifist policies likely to have particular appeal in
In the longer term, Belgium's Green parties probably will continue to emphasize
both parliamentary activity and "street action," but fundamental differences over
party organization and the means for achieving goals are likely to impede future
growth. As the mouthpiece for the young, however, Agalev and Ecolo will continue
Catholic Flanders.
Renewal of Export Credits to Nicaragua
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unwillingness to compromise in the Contadora negotiations.
Madrid has renewed a credit guarantee program with Managua that will make
possible additional commercial financing of up to $26 million for Spanish exports.
The new credit program provides for a maximum of $18 million for short-term
financing of consumer goods and spare parts and up to $8 million for medium- and
long-term financing of capital goods, but it still represents a 25-percent cut from a
previous credit line that expired in 1985. We believe the reduction reflects
Madrid's concern over the Sandinistas' restrictions on civil liberties and
Madrid appears to be torn between its desire to maintain economic and political
relations with Managua and its suspicions of the Sandinista government. Officials
are sensitive to Nicaragua's deteriorating image in West European eyes caused by
the expanded state of emergency and the regime's poor human rights record. They
have publicly stated that the aid is for the benefit of the Nicaraguan people and
that it does not imply approval of Sandinista policies. Nonetheless, they believe
that Spanish export credits can help prevent the Sandinistas from becoming more
economically dependent on the Soviet Bloc. Perhaps more importantly, aid to
Managua will please leftist voters, and Prime Minister Gonzalez is attempting to
shore up support from that quarter as he prepares to run for reelection this fall.
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The Netherlands- Reaction to Surinamese Official's Arrest
Suriname
Dutch officials' suspicions about the character of the Bouterese regime have
apparently been confirmed by the arrest of high-ranking Surinamese official
Etienne Boerenveen in Miami on drug trafficking charges. Although government
officials note that this issue must be discussed in the Cabinet, Dutch Foreign
Minister Van den Broek and Development Minister Schoo have suggested that the
case will delay disbursement of the proposed Dutch humanitarian aid package for
Suriname. Parliamentary reaction to the incident was limited because of the
Easter recess; spokesmen for the major parties have indicated, however, that this
incident has jeopardized any further movement in Dutch policy toward its former
colony. ~~
Dutch officials adopted a harsh stand toward Suriname and eliminated aid to the
Bouterse regime when it murdered moderate opposition leaders in 1982. The
proposed humanitarian aid represented an effort to improve relations with
Paramaribo despite strong opposition to such measures among some ruling
coalition members. however, Dutch-Surinamese
relations will again become tense if an investigation reveals that the Surinamese
Government is involved in the narcotics trade. ~~
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Western Europe: New
Protests Over Afghanistan
West European gov~;rnments and publics in recent
months have exprr. sed renewed concern about the
Soviet presence iri .~fghanistan. Though this activity
may reflect dissa'.isfaction with the Soviet Union in
general, :re think it also signals skepticism about
recent hints that Moscow may be softening its policy
in anticipation of the resumption of the UN-sponsored
talks on '~fghanistan in Geneva next month. We also
believe :ie Europeans are increasingly aware of the
public relations value of the resistance's cause and
may be displaying a willingness to assist in promoting
Afghan Resistance Leader Visits Great Britain
Prime Minister Thatcher and Foreign Secretary
Howe extended an official welcome on 12 March to
Afghan rebel leader Abdul Haq. Howe assured Haq
that Britain will press for the withdrawal of Soviet
troops, although direct assistance to the rebels will be
limited to humanitarian aid. In fact, recent US
diplomatic reporting from London indicates that
British officials are now pushing humanitarian aid as
one means of both helping the rebels and marketing
their cause in world forums. Labor Party members of
Parliament criticized the meeting as contrary to the
principle of avoiding contact with political groups
engaged in violent activities. Soviet officials in
London also lodged complaints with the Thatcher
government about holding consultations with a
"known terrorist."
Petitions, Hearings, and Demonstrations
Elsewhere in Europe, the Italian Communist Youth
Confederation (FGCI) unveiled a countrywide petition
campaign against the Soviet presence in Afghanistan
during a 5 March press conference. Within hours of
the announcement, 50,000 signatures had been
collected. The confederation hopes to obtain 300,000
signatures within the next two months, which they
will then deliver to the Soviet Embassy in Rome.
A Norwegian committee, including leading
personalities from the political, educational, and
cultural communities, sponsored an international
hearing from 14 to 16 March on Soviet war crimes in
Afghanistan. Participants heard testimony from
Afghan rebel leaders, a former Soviet soldier, and
civilian war victims. The Counselor of the Soviet
Embassy in Oslo delivered a formal protest to the
Norwegian Government on 12 March, stating that the
last such hearing-held in 1983-was an exercise in
anti-Soviet propaganda. The US Embassy in Oslo
reported the Soviets seemed particularly upset that a
deserter from their own military would be testifying.
The West German Bundestag foreign affairs
committee and the entire Bundestag convened their
own hearings on Afghanistan from 18 to 20 March.
Again, witnesses to the conflict, including scientists,
physicians, journalists, and Afghan rebels, presented
testimony. In addition, several Social Democratic
Party parliamentarians who had visited Pakistan and
Afghanistan from 9 to 15 March recounted their
findings on the state of the resistance movement and
the refugees. The Soviets assailed the Bundestag
debates in both their own and the German media.
Nonetheless, the normally divisive German political
parties demonstrated surprising consensus in their
attacks against Soviet human rights abuses.~~
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EUR ER 86-010
25 April 1986
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Thousands marched in the streets of Stockholm and
across Sweden on 22 March to demand the immediate
withdrawal of Soviet troops from Afghanistan. The
rallies were sponsored by the Swedish Afghanistan
Committee (SAC}-the organization through which
most government aid to the resistance is channeled-
and more than 70 political, labor, and church groups
participated representing all major Swedish parties
and ideologies, including the Communists. Along with
Afghan guerrillas, a crowd of about 9,000 in
Stockholm heard Foreign Minister Under Secretary
Pierre Schori vehemently condemn the Soviets'
"terrorist war." In addition, for the first time
parliamentarians representing every party in the
Riksdag-from conservative to Communist-became
members of the SAC board.
Implications
In some cases this renewed European concern over
Afghanistan may reflect the dissatisfaction of
individual governments over bilateral issues with the
Soviets. This is especially true of the Swedes, who
recently have stepped up criticism of the Soviet Union
on several issues-the Raoul Wallenberg case and the
treatment of Soviet Jews, as well as Afghanistan-no
doubt in anticipation of Prime Minister Carlsson's
trip to Moscow in April. Indeed, Swedish officials
have reportedly encouraged speculation that all this
tough talk is meant to show their government's
unhappiness with Soviet intransigence on maritime
boundary disputes and submarine incursions.
European governments, nevertheless, are concerned
about the humanitarian and political implications of
the Afghanistan conflict and are skeptical of recent
conciliatory rumblings from Moscow. Both publics
and governments are squarely behind the cause of the
resistance and would like to see a negotiated
settlement to the conflict. However, the US Embassy
in London reports that British officials believe the
Soviets are quite capable of conducting atwo-track
policy: Sovietizing the country while working for a
settlement in Geneva that meets Soviet terms.
Reports indicate that Norwegian and West German
officials concur with this interpretation of Soviet
behavior. Furthermore, British officials are convinced
that Moscow will not leave Kabul unless a "reliable"
regime is firmly in power. Some individuals state that
this very fact negates the possibility for a peaceful
solution, as Afghan resentment now cuts so deep that
no pro-Soviet government could survive for long on its
own.
Despite recent pro-Soviet presentations in the British
media by spokesmen for the far left, we think most
West Europeans see this as a public relations contest
that the West could and should win. While the West
must deal with "compassion fatigue" and the
difficulty reporters have in gaining access to the
situation, Europeans are increasingly eager to have
the resistance movement speak for itself. We believe
recent activities indicate that European governments
would be willing to provide venues for rebel leaders to
voice their cause and that such presentations would be
well received by European publics.~~
Previous West European concern that the resistance
not be drowned by perceptions that Afghanistan is
merely a staging ground for East-West conflict seems
to have decreased, but these governments still warn
that the rebels must not be too closely associated with
the United States. For example, the Italian
Government hesitated to support mention of
Afghanistan in a forthcoming UNICEF report on
children in war for fear it would prompt a list of
references identified with Soviet and US interests.
These officials changed their minds only after being
assured that many other countries were to be
specifically cited in the report. Likewise, British
officials have told US diplomats that the
internationalization of aid financing is critical. These
officials said that they sense a reluctance among
Europeans to be associated with American efforts and
they have indicated a willingness to take the lead in
promoting the Afghan rebels' cause both in Europe
and in the Third World.l
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Ireland: Progressive Democrats
Shake Irish Politics
Since Desmond O'Malley and Mary Harney
established the Progressive Democratic Party (PD) in
December, the traditional balance of Irish politics has
been upset dramatically. After only four months of
existence, the Progressive Democrats have risen from
a 19-percent to a 26-percent approval rating in the
polls, putting them in second place behind Fine Gael,
the senior partner of the coalition government. If the
Progressive Democrats can keep approximately two-
thirds of their current support, they could hold the
balance of power after the election due in late 1987.
The early success of the PD suggests widespread
dissatisfaction with the longtime dominance of
Ireland's political scene by the Fianna Fail (FF) and
Fine Gael (FG) parties, and may also indicate a
growing Irish taste for coalition government.
Founding a Party
The birth of the Progressive Democratic Party was
the direct result of a rebellion within Fianna Fail
sparked by party leader Charles Haughey's policies
toward Northern Ireland and family planning. After
protesting Haughey's refusal to support apower-
sharing arrangement for Northern Ireland between
London and Dublin and the relaxation of Ireland's
anticontraception laws, Desmond O'Malley was
expelled from Fianna Fail in the spring of 1985. After
the Anglo-Irish Accord was signed in November,
Mary Harney was expelled because of her public
opposition to Haughey's obdurate rejection of the
agreement. Their joint launching of an official party
allowed them to speak on every major issue in the Dail
(the Irish lower house), a right not available to
members sitting simply as independents. Early this
year, the PD's parliamentary ranks were augmented
by two more defections from Fianna Fail and the
addition of a senator previously representing the
Labor Party. In early April, a Fine Gael member of
parliament also joined the ranks of the Progressive
Democrats.
February had enrolled 12,000 members. This total is
twice as many as that of the Labor Party, currently
the junior coalition partner and one-third of Prime
Minister FitzGerald's Fine Gael party. Also
surprising was the jump from the PD's initial poll
rating of 19 percent in January to 26 percent in
February-2 points ahead of Fine Gael. Moreover,
while pollsters for the Irish Times did not mention his
name when asking voters which party leader they
thought would make the best prime minister, 20
percent of the respondents named PD leader
O'Malley.
Although the Progressive Democrats started out as a
renegade Fianna Fail group drawing most of their
support from the party's disaffected, they have begun
to enlist increasing support in recent weeks from Fine
Gael's middle-class and professional constituency. In
February, for example, the PD drew 47 percent of its
support from Fine Gael, 31 percent from Fianna Fail,
and 5 percent from Labor. Significantly, the
Progressive Democrats were strongest among the 29
to 49 age group that traditionally forms the core of
Fine Gael's support.
The surprising strength of his new party has led
O'Malley to claim that it may win as many as 40 of
the Dail's 166 seats in the next election. At this point,
however, several factors militate against such quick
success. First, O'Malley and Harney are riding a
wave of emotion and hope engendered by their
audacity in founding a new party in the usually staid
context of Irish politics. Some disgruntled and
currently wavering Fine Gael and Fianna Fail
supporters are likely to return to the fold once the
PD's veneer of freshness begins to wear off. Indeed,
academic studies and past election results provide
evidence that the rigidity of Ireland's party politics
and the loyalty of voters to longtime party allegiances
are among the strongest in Europe.
Out of the Gate Like a Shot
The Progressive Democrats have developed impressive
momentum since their formation and by early
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Desmond (Des) O'Malley
A longtime opponent of Fianna Fail leader Charles Haughey, Desmond O Malley
made unsucces.~f'ul bids for the leadership post in 1982 and 1983. In 1985,
Haughey ousted O Malle rom th
A member of the Dail since
79b8, ~' a ey as extensive government experience, having served as Minister
for Trade, Commerce, and Tourism (March-October 1982); Minister for Industry,
Commerce, and Energy (1977-81 J; and Minister for Justice (1970-73). O Malley,
47, was educated at University College, Dublin, and the Law Society of Dublin.
Mary Harney
Mary Harney was elected to the Dail on the Fianna Fail ticket in 1981.
Frequently at odds with the party leadership, Harney left the Fianna Fail c;fter
she supported Prime Minister FitzGerald in voting for the Anglo-Irish Accord.
From 1977 to 1981, she served as a senator. Since 1979, she had been a member
of the Dublin County Council. Harney, 33, was educated in convents in Dublin
and at Trinity College, Dublin. ~~
The present high approval rating for the Progressive
Democrats is, in part, also a consequence of their not
yet having announced policy positions. Because of the
PD's quick start in the polls, policy prescriptions have
not been demanded by its followers. This is fortunate
for the party because O'Malley and Harney seem to
agree on little save support for the Anglo-Irish
Accord. O'Malley, for example, is a strident advocate
of free market economics and particularly abhors
central-government intervention that has historically
characterized Dublin's economic behavior. Harney,
on the other hand, is a staunch defender of both the
welfare state and of aggressive economic management
by government. Although O'Malley and Harney may
work out a program that mixes their views judiciously,
it seems likely that they are in for a measure of
bickering at the PD's first formal party conference it
late May. In any event, the fading of newness and the
acrimony of policymaking probably are destined to
cause a decline in the party's appeal from its early
lofty levels.
Influence on Irish Politics
Although it is too early to predict what sort of
influence the Progressive Democrats will have on the
next election, the party almost certainly is more than
a flash in the pan and should solidify into Ireland's
fourth major party. If O'Malley and Harney are able
to reconcile their policy orientations, the Progressive
Democrats could present a policy slate that is roughly
similar to the one that has earned FitzGerald's Fine
Gael party a solid place in the mainstream of the
republic's politics.
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The quick growth of the Progressive Democrats
probably also indicates that the party has struck a
chord of public dissatisfaction with the traditional
dominance of Irish politics by Fianna Fail and Fine
Gael. Most PD support is coming from the two main
parties and, perhaps more significantly, from the
ranks of younger party members. The Progressive
Democrats also appear to be reawakening political
interest in voters who have not taken an active interest
in politics in recent years. An Irish Times poll in
February, for example, found that 12 percent of PD's
support was coming from individuals who did not cast
a ballot in the last general election in 1982.
Perhaps the most significant aspect of the polling is
the discovery of an apparently increasing taste among
Irish voters for coalition government. Indeed, the
initial strength of the PD has had the direct effect of
costing Fianna Fail the level of support that earlier
polls showed would have allowed it to win a
parliamentary majority. The growth of the
Progressive Democrats has opened several possibilities
for coalition arrangements after the next election.
According to the Irish Times:
? Two of three PD supporters would support a
coalition with Fianna Fail but only if Charles
Haughey was removed as FF leader, and
? Two of five PD supporters would join in a coalition
with Fine Gael so long as Garrett FitzGerald
remained FG leader.
birth of the Progressive Democrats may mean the end
of Haughey's chances of ever regaining the prime-
ministership. The high level of support for FitzGerald
among Progressive Democrats-polls consistently
.show him to be the most popular party leader-
creates asecond, and perhaps more viable way, for
Fine Gael to block Fianna Fail's return to power, a
Fine Gael-Progressive Democratic coalition.
Although the PD is now taking most of its support
from Fine Gael, it is nonetheless likely to be of long-
term benefit to FitzGerald's party. The current Fine
Gael-Labor coalition is proving increasingly difficult
to manage because of the widening division between
FitzGerald's free market bent and Spring's statist
orientation. Moreover, intracoalition frictions
increased in February over a major cabinet shuffie
and the introduction of a third consecutive austerity
budget. If O'Malley and Harney can reconcile their
differences and draft a coherent platform, the new
party almost certainly would be a more comfortable
and stable coalition partner than Labor for Fine Gael.
FitzGerald recently said publicly that Fine Gael
would be willing to work with any party if it does not
win a majority in the next election. So long as
Haughey remains the leader of Fianna Fail-and
most of those in the party eager to oust him are now
aligned with the Progressive Democrats-it seems
unlikely that the PD would enter a coalition led by
him.
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Portugal: Implications of the
Presidential Election
The election in February of pro-US Socialist leader
Mario Soares as Portugal's first civilian president in
60 years removed the threat of a surge in Communist
influence, but it is unlikely to end the personal and
party differences that have undermined government
stability over the past decade. Lisbon's record of weak
and short-lived governments since the revolution in
1974 reflects its inexperience with democratic
traditions, its multiple party system, and-most
important-the highly personalized nature of its
politics. Other factors complicating the country's
prospects for stability are economic problems that
would test the mettle of even a strong, single-party
government and a defiant Communist Party (PCP)
supported by nearly one in six Portuguese voters.
Despite the likelihood of continuing political
uncertainty, we think Lisbon's commitment to NATO
will remain strong. Portugal is shifting, however, from
a US-oriented diplomacy to a more independent
European approach.
The Election-Few Winners
Soares's backing in the second round of the election
by all parties on the left conveyed an illusory
impression of unity. In fact, only the Socialist Party
can be confident of benefiting from his victory, and
even that Socialist gain will probably be at least
somewhat tempered by the only partially healed break
between the new president and Vitor Constancio-his
likely successor as Socialist leader. By contrast, there
were many losers, of whom the most conspicuous is
former President Ramalho Eanes. General Eanes,
who has been at odds with Soarer since 1978, made
the mistake of supporting a Socialist maverick,
Salgado Zenha, in the hope of ending'Soares's
political career and regrouping the left under his own
stewardship.
The Soares-Eanes feud has contributed over the years
to the institutional conflict that has prevented
implementation of cohesive national policies. Eanes's
failure has left him with only one way to remain
active in politics: to take over formal leadership of the
shaky left-of-center Democratic Renewal Party,
whose creation he quietly encouraged last year. When
he does, we expect renewal of his dueling with Soarer.
The Communist Party is also reeling from the defeat
of Zenha, its first choice for president. The party
opted in the runoff to support its arch enemy, Soarer,
whom the Communists regarded as the lesser of two
evils compared with conservative Freitas do Amaral.
The Communists acted without receiving any
commitments from Soarer, and their leadership is now
under pressure to produce tangible benefits to satisfy
the rank and file. We strongly doubt that Soarer will
cooperate. Although Constancio may try to tilt the
Socialists to the left, that shift would probably
engender as much competition as cooperation with the
Communists, and we expect that PCP leader Alvaro
Cunhal will revert later this year to obstructionist
tactics in parliament and on the labor front.
Threats to the Government
Prime Minister Cavaco Silva, who leads the Social
Democratic minority government, suffered his first
major defeat when rightist presidential candidate
Freitas do Amaral lost to Soarer. Personal animosity
is strong between Soarer and Cavaco Silva, both
because Cavaco Silva brought down the Soares-led
coalition government in 1985 by pulling the Social
Democrats out and because Cavaco Silva actively
campaigned for Freitas do Amaral in the presidential
race. Soarer and Cavaco Silva have promised to put
aside their differences and focus on Portugal's
burgeoning economic and social problems; however,
Cavaco Silva's confrontational style and Soares's
inevitable involvement in foreign policy issues have
clearly strained relations between the presidency and
the government, and we expect that this situation will
worsen in the months ahead.
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25 April 1986
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Secret
Cavaco Silva is also having trouble with parliament.
The uncompromising, hardline stance he took in April
on the budget-his first major parliamentary test-
united all three left-of-center parties against him. In
the end, he made an embarrassing retreat and
accepted most of the minor modifications those
parties had sought. Cavaco Silva may learn from that
experience and conclude that he had more to gain
from trying to play those parties against each other
than by uniting them against him. Over the longer
term, however, his hold on office will depend less on
his maneuvers than on each party's perception of how
much it stands to gain or lose from bringing down the
government and forcing another election. Even
though the Socialists and the Democratic Renewal
will want time to rebuild, we think a minority
government may prove too tempting a target.
Cavaco Silva's government could, in fact, fall from
within if opponents in his party conclude that he is
vulnerable. Many party members objected to Cavaco
Silva's support for Freitas do Amaral and may take
advantage of the opportunity to unseat him if the
government suffers setbacks in parliament. Cavaco
Silva himself might try to force an early election to
take advantage of popular approval of his
government's expansionist economic policies and
preempt possible opposition. If his economic program
continues to persuade the public that he is correcting
some of the country's ills, he would be in a strong
position to gain seats.
Prospects for the Economy
Constant political maneuvering over the last 11 years
has seriously impeded implementation of effective
economic policies. Cavaco Silva has relaxed the
Soares government's austerity program-which
turned around the current account from a $3.3 billion
deficit in 1982 to a $100 million surplus last year-
and initiated a recovery program aimed at lessening
the financial drain of state support for inefficient
public enterprises. He also intends to reverse the
downward trend in private sector investment and real
income. The government's measures for 1986 include
a 4-percentage point cut in domestic interest rates, a
series of tax cuts, and afour-month suspension of the
monthly 1-percent devaluation of the escudo. The last
is designed to hold down inflation, currently hovering
at about 19 percent, by restraining the cost of imports.
Other promised measures include reviving the stock
market and revising rigid labor laws that make it
almost impossible to dismiss workers.
The government hopes to achieve an economic growth
rate of 4 percent this year, but prospects for a
recovery of that magnitude are slim. We estimate that
GDP will rise 3.0 percent, compared with 2.2 percent
in 1985, with real income growing about 1.5 percent
and private investment by as much as 5 percent.
Inflation should come down to about 16 percent. The
government's expansionary policies, however,
probably will lead to a current account deficit because
Portuguese import demand is highly sensitive to
changes in income. EC membership also is likely to
cause Lisbon's trade gap to widen as the liberalization
of import barriers opens the economy to West
European competition and the required shift to higher
priced EC agricultural goods increases Portugal's
import bill. We would not be surprised if the deficit
approaches $1 billion, which could force the
government to seek EC or IMF financial support.
Such aid almost certainly would be contingent on
another policy reversal-a return to more restrictive
economic policies.
Moreover, the government's present economic policy
only partially addresses the fundamental problems
plaguing state-owned enterprises, which account for
40 percent of domestic borrowing and 95 percent of
foreign debt but only 14 percent of GDP. The promise
of turning over much of the huge state sector to
private enterprise has been welcomed by the business
community, but the process will be slow and painful
because Cavaco Silva needs the support of parliament
to revise the Socialist-oriented constitution. The
Socialist Party is likely to be reluctant to support such
efforts since their trade union arm is as opposed as the
Communist-dominated trade unions to the inevitable
layoffs and factory closures. Without major reforms
in the mammoth state-controlled sector of the
economy, Portugal will not make much headway in its
drive to move into the mainstream of modern,
industrialized Western Europe.
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Implications for the United States
Despite the probability of continuing governmental
instability, Portugal is unlikely to undergo a marked
shift to the left or right over the next few years. All of
the political elites are committed to a democratic
system, and the voters overwhelmingly opt for the
moderate and centrist parties. We think Portugal will
also remain generally pro-US and a member of
NATO. But the nature of the bilateral relationship
with the United States is changing, and Portugal-
traditionally among the most cooperative allies-is
likely to become a more prickly partner. This is partly
a result of Portugal's entry into the EC and partly a
result of the growing belief~ncouraged by the
center-right parties as well as the left-that Portugal
has not been treated fairly by the United States in
economic matters or security assistance.
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Albania: A Year
Without Hoxha
Ramiz Alia continues to consolidate his position a
year after succeeding Enver Hoxha as leader of
Europe's most backward and isolated country, but he
faces serious and growing economic problems that will
probably continue to cause tensions in the leadership.
control of the bureaucracy.
Domestic Situation
Alia has vigorously cultivated his image as Hoxha's
handpicked successor, and he has done nothing so far
to alter the foundation of his predecessor's Stalinist
system. Alia has moved gradually, however, to put
more of his own men in key positions and to firm up
Alia replaced the planning chief last summer and at
about the same time moved an ally onto the party
Secretariat. In January he reportedly sacked his
independently based security minister, Hekurah Isai,
although Isai recently showed up still holding his
Politburo rank. Several other party officials may be in
trouble. Significantly, Defense Minister Prokop
Murra-whose several predecessors were all
purged-is still at the head of the armed forces. Alia's
position, as well as the relative influence of other
leaders, will probably become clearer as the party
congress scheduled for 3-8 November approaches.
the next several years.
The Economy
Alia is holding to Hoxha's insistence on self-reliance
that followed Albania's successive breaks with
Yugoslavia, the Soviet Union, and China. Growth has
stagnated since the split with Beijing in 1978, and a
drought last year further dimmed prospects for near-
term recovery. World prices for Albania's commodity
exports, moreover, are likely to remain low for at least
Alia now appears determined to maintain austerity
rather than seek another Communist patron or
abandon Hoxha's constitutional prohibition against
foreign credits. But, according to Western press
reports, Albanian workers are now facing hardship,
and the debate on economic strategy within the
leadership is therefore likely to pick up. ~~
Widening Outside Contacts
Alia has stepped up Hoxha's efforts to broaden trade 25X1
contacts in the West partly to increase access to
Western technology. Tirane, which in 1970 had
diplomatic relations with only 27 countries, now has
diplomatic links to over 100 nations, including most of
those in Western Europe. Socialist solidarity
apparently impels links to a few Third World
Communist regimes, including Vietnam and Cuba.
The majority of the more recent links amount to only 25X1
thin ties to developing countries. But the desire for
increased trade is behind the most important contacts,
including those with the West.
Good relations with Italy have been taxed but not
ruptured by a controversy over six Albanians seeking
political asylum in the Italian Embassy in Tirane
where they have been holed up since December.C
Albania is eager to find a
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In March Tirane and Bonn completed their fourth
round of talks and, despite some unresolved issues, the
two countries could reestablish relations within the 25X1
next year. Relations with neighboring Greece also
continue slowly to improve. According to a recent
media report, this May Athens plans to announce an
end to the formal state of war existing since World
War II
Alia also is following Hoxha's lead in establishing
stronger trade links to individual CEMA countries
and China, which are more receptive to both
countertrade arrangements and imports of inferior 25X1
Albanian manufactures. In early December, Albania
signed its first five-year trade pact with China since
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Alia during recent meeting with students and
teachers in southern District ct/'G,lirokastra.
the mid-1970s. However, Alia continues to take pains
to ensure that these growing contacts-both Western
and Eastern-have no impact on Albania's
remarkably closed political and social institutions.
Tirane's longstanding fears of Yugoslav intentions
continue to preoccupy Albanian leaders. Concern over
Belgrade's treatment of its 2 million ethnic
Albanians-which has probably increased with recent
Serb protests against Albanian domination in the
southern province of Kosovo-assures that relations
will remain strained. Still, the two sides will probably
open their first rail link this year. ~~
Hostility Toward the Superpowers
Alia has continued to make open hostility toward both
the United States and the Soviet Union a cardinal
principle of foreign policy. The Soviet Union has
stepped up efforts to regain influence in Albania by
hints of renewed economic and technical assistance
and by pursuing an aggressive diplomatic campaign to
woo the new leadership. But Tirane has strongly
rebuffed the Soviet overtures, and prospects for a
reconciliation appear slim. ~~
Western nations, sensitive to the Soviet threat, are
cultivating Alia by considering his requests for
economic cooperation and by minimizing criticism.
But they will continue to run up against Tirane's self-
imposed limits on external relations and criticism
from their own publics for cultivating a militant
Communist regime with a dismal human rights
record.
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