EUROPEAN REVIEW

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP87T00289R000301210001-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 26
• Document Creation Date: December 22, 2016
• Document Release Date: March 31, 2011
• Sequence Number: 1
• Publication Date: October 24, 1986
• Content Type: REPORT

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Directorate of
Intelligence
MASTER FILE COPY
0 }T 'IV " 041;! T
European Review
)Z(
EUR ER 86-024
24 October 1986
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European Review
France: US Engines for the Rafale Fighter L__1
Spain-United States: Madrid's Stance on Base Talks
Finland-Sweden: Joint Naval Exercises
East Germany-West Berlin: Initiative on Berlin Anniversary
Articles Cyprus: What If United Nations Negotiations Fail?
The UN effort to bring about a negotiated settlement on Cyprus
appears to be at an impasse. The Greek Cypriot refusal last June to
accept a third draft "framework" agreement as a basis for
negotiations, and the subsequent Turkish Cypriot refusal to consider
any modifications in that document, bode ill for the UN effort. If
the path toward a negotiated settlement remains blocked, a number
of unsettling developments appear probable and could dangerously
increase tensions in a region of major strategic importance to the
United States.)
Austria: Back Together Again
Austrians soon may see a renewal of the same partnership that ruled
the country from 1947 to 1965. Current opinion polls place both the
Socialist and People's Parties below 50 percent of the vote, and
leaders of both parties strongly favor a grand coalition if the
electorate does in fact fail to award either party a majority on 23
November. F__~
In reopening Parliament earlier this month, the Tories stressed fiscal
responsibility and played down US-Canadian relations. Early media
reaction indicates Prime Minister Mulroney will- be hard pressed to
dispel the perception that the Tories are drifting.
Secret
EUR ER 86-024
24 October 1986
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Secret
Some articles are preliminary views of a subject or speculative, but
the contents normally will be coordinated as appropriate with other
offices within CIA. Occasionally an article will represent the views
of a single analyst; these items will be designated as uncoordinated
views.
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European Review
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France US Engines for the Rafale Fighter
Dassault-Breguet has been actively seeking partners to cooperate in the
development of the Rafale. Generally reliable press reports indicate that the
French have discussed the possibility of building the new-generation fighter as a
multinational venture with senior defense officials from Belgium, Denmark,
Norway, and the Netherlands.
There are also indications that Dassault-Breguet may now be looking outside
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Europe in hopes of obtaining additional partners.
who reportedly will retire this month to
assume a senior post with Dassault-Breguet-favors US-French cooperation,
particularly in engine and radar development.
The F-404 engine, which is also used in the US-built F-18, is probably more
powerful than the M-88 Mk.1 currently being developed by SNECMA for the
Rafale. The ability to fit either engine in the new fighter and allow potential
buyers a choice should make the Rafale competitive on the export market. Much
depends on the success of the M-88, now in the prototype stage, and the ability of
France and the United States to agree on terms. At the same time, France's
decision to build a naval version of the new fighter probably precludes the sale of
F-18s to France. The F-18, currently in service with the US Navy and the Marine
Corps-as well as in Canada, Australia, and recently purchased by Spain-has
been favored by the French Navy to replace its aging US-built F-8s and Super
Entendards on the new nuclear-powered aircraft carrier. The final go-ahead for
the production of approximately 330 aircraft for the French Air Force and Navy is
currently awaiting approval under the miltary programs law. The Rafale is
expected to be operational in the mid-1990s, and Dassault-Breguet sees a potential
worldwide market for approximately 1,000 aircraft.
Spain-United States Madrid's Stance on Base Talks
Spanish leaders may be willing to consider substantial concessions in bilateral
talks on the US bases despite Defense Minister Serra's recent tough statements.
Serra argued vigorously to a US official that Spain's decision to remain in NATO
in the March referendum should lead to negotiation of a "drastic reduction" in US
forces in Spain through the bilateral base talks. He warned that, if the talks did
not succeed within the next year, the United States would have to negotiate an
entirely new bilateral agreement. Serra added that he was prepared to come to
Washington to discuss the base issue with Secretary Weinberger once the current
negotiations were further along. Spanish leaders want a substantial reduction of
US forces, but they probably have not decided on their minimum objectives in the
talks, and they may be trying to see how much they can get with a tough initial
position.
Prime Minister Gonzalez wants to maintain what he views as his newly acquired
status as a Western leader and probably will try to avoid jeopardizing that position
by pressing Washington too hard. Last spring one of his senior aides raised with a
US official the possibility of moving US operations at Torrejon Airbase to another
location-in Spain. The gap between that scenario and the official Spanish position
that US forces at Torrejon, Zaragoza, and Moron must leave Spain altogether
suggests that Spanish leaders might eventually be willing to settle for much less
than they are asking. Serra's apparent hope of negotiating directly with Secretary
Weinberger may indicate, however, that Spain will not yield much ground before
raising the issue to a high level. Gonzalez's considerable pride may still make it
hard for him to back down unless he believes US leaders have taken his
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negotiating position seriously and until he is convinced he has received enough
cosmetic adjustments to save face with the Spanish electorate.
ppears to substantiate
previously rumored-but never confirmed-peacetime cooperation between the
Finnish and Swedish Navies. the two
navies conduct joint antisubmarine exercises on a routine basis when their ships
visit each other's ports ay
well be using frequent visits with his Swedish counterpart to coordinate the
exercise activity. US Navy personnel learned in
May 1986 that the Finnish Navy had tested some of its new shipboard and
underwater ASW systems against "friendly"-presumably Swedish-submarines.
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Although Finnish-Swedish military cooperation has been suspected for some time,
these reports provide the first firm indications of joint naval training operations.
Because neither country normally trains with other nations' forces, joint exercises
would provide both the Swedish and Finnish Navies a rare opportunity to evaluate
their effectiveness against other forces. Since Finland has no submarines, it would
particularly benefit from the opportunity to test its ASW capability
Czechoslovakia- Border Incidents
West Germany-Austria
Recent actions by Czechoslovak border guards against West German and
Austrian citizens have angered both Bonn and Vienna, causing a temporary
cooling of relations between Prague and its Western neighbors. In the most serious
and bizarre incident, Czechoslovak gunfire last month killed a retired Bundeswehr
colonel on West German territory. According to Czechoslovak accounts, border
guards shot him by mistake when firing on two Poles trying to escape across the
border. Prague claims he died en route to a hospital in Czechoslovakia. The regime
formally apologized to Bonn and returned the body a few days later. The incident
might then have blown over quickly but for the discovery that the body was
missing parts apparently damaged by the bullets. Both West German politicians
and the media were outraged at this "body snatching." The Kohl government
demanded a complete explanation of the incident and has proposed formation of a
joint commission of inquiry. Foreign Minister Genscher expressed his country's
anger to Czechoslovak Foreign Minister Chnoupek during their meeting at the
United Nations.
The Austrians have also issued sharp protests over recent Czechoslovak actions.
Shortly after the West German incident, Czechoslovak troops apparently crossed
into Austrian territory to apprehend an old man who was gathering mushrooms.
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One day later, Czechoslovak border officials turned back an Austrian professor
who was leading a delegation to Prague, presumably because of his rightwing
reputation. These actions ironically followed a meeting of the Czechoslovak-
Austrian committee on border incidents at which both sides agreed the situation
was good. To mark its displeasure, Vienna canceled the visit of a midlevel
politician to Prague and Foreign Minister Jankowitsch sharply chastised the
These incidents have clearly hurt relations between Czechoslovakia and its two
Western neighbors, but, serious as they are, they are unlikely to cause lasting
damage. Relations have been improving slowly in recent years, and all sides are
interested in maintaining the momentum. The Czechoslovaks especially want to
increase trade, and the Austrians and West Germans see major political benefits in
pursuing dialogue with the East. Similar border incidents in the past, including
killings, have had little lasting impact on relations. Austria and West Germany
have been willing to overlook such mishaps and are likely to soon forget these
East Germany- Initiative on Berlin Anniversary
West Berlin
East German leader Erich Honecker may again be probing the status of Berlin by
inviting West Berlin Governing Mayor Diepgen to two ceremonies in the East
celebrating Berlin's 750th anniversary in October 1987. Planning for the yearlong
festivities, important to both halves of the city, has been a source of contention as
the East Germans have sought to use them to bolster the status of their "capital"
in the heart of old Berlin. The series of ceremonies next year will give the East
plenty of opportunity for mischief and presents the occupying Allies, the West
German Government, and the West Berlin Senat with delicate new problems.
Diepgen almost certainly would like to accept at least one of the invitations. He is
sensitive to Allied concerns that the East Germans may use the ceremonies to
highlight their views of East Berlin's status, perhaps by including military parades
or references to the "capital of the GDR." At the same time, Diepgen actively is
seeking opportunities to expand contacts with the East, which are increasingly
popular in West Berlin. If the Allies strongly press Diepgen not to accept the
invitations, he might be willing to suggest to East Berlin that he attend a less
overtly political ceremony instead. The Social Democrats and Alternatives,
however, would loudly accuse the Allies of obstructing West Berlin's dialogue with
the East if their pressure became public.
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Libya (
Boundary representation is
not necessaray authoritative.
Turkey
200 Kilometers
200 Miles
Greek` rea controlled by
Cypriot Government
Cyprus,
Western Sovereign
Base Area (U.K.)
Varosb "1
Zone [astern Sovereign
Base Area (U.K.)
30 Kilometers
30 Miles
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Cyprus: What If United Nations
Negotiations Fail?
The United Nations effort to bring about a negotiated
settlement on Cyprus through the good offices of UN
Secretary General Perez de Cuellar appears to be at
an impasse. The Greek Cypriot refusal in June to
accept his painfully constructed third draft
"framework" agreement as a basis for negotiations,
and the subsequent Turkish Cypriot refusal to
consider any modifications in that document, bode ill
for the UN effort. There is broad international
support for keeping the UN effort alive, however, and
Perez de Cuellar may still devise a formula for
resurrecting his initiative or an alternative approach.
If the path toward a negotiated settlement remains
blocked, a number of unsettling developments appear
probable. These include:
? An intensified effort by the Turks and Turkish
Cypriots to consolidate the independent status of
northern Cyprus and win recognition from third
countries.
? A flurry of diplomatic activity by the Greeks and
Greek Cypriots aimed at heightening international
attention to the Cyprus dispute, blocking Turkish
Cypriot state-building efforts, and undermining
Turkey's improved image in Western Europe.
? Increased opportunities for Soviet involvement in
the region.
? Pressure from the Greeks and Greek Cypriots for
more direct US support and countervailing pressure
from Ankara.
Background
The current UN effort to achieve a comprehensive
Cyprus settlement began in August 1984. Since then
the United Nations has been trying to create an
acceptable "framework" for negotiations between the
Greek and Turkish Cypriots. In January 1985, a UN-
sponsored summit meeting broke down when the
Greek Cypriot side maintained it had come only to
discuss the UN's initial draft agreement, while the
Turkish Cypriots insisted on its formal acceptance. In
April 1985, the UN came up with a revised version
that the Greek Cypriots accepted and the Turkish
Cypriots rejected. Following protracted discussions
with both sides, the UN Secretary General produced
yet another agreement last March. The Turkish
Cypriots have accepted this document, but the Greek
Cypriots for all practical purposes have rejected it.
Possible Turkish Cypriot Moves
We believe prolongation of the current impasse-
and the widespread perception that Greek Cypriot
obstinacy is responsible for it-will encourage the
Turkish Cypriots to take steps to legitimize their
claim to the 37 percent of the island they control-the
so-called Turkish Republic of Northern Cyprus
(TRNC). There is precedent for such action. After
gaining the diplomatic high ground at the January
1985 summit, Turkish Cypriot leader Denktash used
the favorable international climate to strengthen his
"state" by promulgating a new constitution and
calling presidential and parliamentary elections.
Denktash could well be tempted to use Greek Cypriot
rejection of the third UN draft agreement to justify
Any of these courses of action could dangerously
increase tensions in a region of major strategic
importance to the United States.
Secret
EUR ER 86-024
24 October 1986
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further state-building efforts. He has already
indirectly challenged the status of UN forces on
Cyprus. When he closed the border with southern
Cyprus for a week in early July, he presented it not as
retaliation for a similar Greek Cypriot action in
protest of Turkish Prime Minister Ozal's visit to
northern Cyprus, but as a demonstration of Turkish
Cypriot sovereignty over the north. The Turkish
Cypriot Council of Ministers reiterated this point
when it reopened the border, alleging that Turkish
Cypriot "sovereignty" had been demonstrated to the
world. 7__~
The border closing, moreover, succeeded in extracting
tacit UN acknowledgment of the Denktash regime's
authority over the north. Only after prolonged
negotiations was the United Nations able to persuade
Denktash to give up his demands for visas from all
travelers from the south and for formal talks with the
UN on an agreement fixing the conditions for the
future movement of UNFICYP' forces in the
Turkish zone. On the basis of Denktash's past
practices, it would be typical for him to use these
negotiations as confirmation of the TRNC's
"sovereignty" and to push the process further with
other restrictions on UN troop movements.
citizens with property in Varosha have been told to
register their interests with the Turkish Cypriot
authorities or risk forfeiting their claims. 2
View from Ankara
Ankara has traditionally exercised some restraint
on Denktash's state-building efforts. There are
indications, for example, that Denktash's past
willingness to cooperate with UN peace efforts were,
at least in part, because of pressure from Ankara.
Ankara's role could change, however, if Turkish
officials perceive that the negotiations are failing.
In fact, Turkish actions and public statements suggest
that Ankara already is edging toward a tougher
policy-despite assurances to Washington to the
contrary. During Prime Minister Ozal's visit to
northern Cyprus, for example, he made a number of
statements supporting Turkish Cypriot "equality"
with the Greek Cypriots and endorsed Denktash's
state-building efforts. Ozal reportedly was also
directly involved in orchestrating Turkish Cypriot
actions on the border;
Press reports indicate that the Turks have
There also is evidence that the Turkish Cypriots may
be considering more direct steps to consolidate their
"state." Over the past year Denktash has periodically
dropped hints about issuing a Turkish currency,
opening airlinks, or establishing commercial and
cultural ties to third countries as steps toward
attaining full diplomatic recognition. In addition to
these moves, we believe he might be seriously
considering resettling the deserted city of Varosha.
He has been quoted in the Turkish press as saying
that no one should be surprised if Varosha were to be
resettled. US Embassy reporting indicates that British
' UNFICYP (United Nations Force in Cyprus) was founded in
1964 for a three-month period-later extended by successive
resolutions in the UN Security Council-to keep the peace between
the Greek and Turkish Cypriot communities pending resolution of
the outstanding issues between them. It is composed of some 2,000
men from seven countries-Austria, Canada, Denmark, Finland,
Iceland, Sweden, and the United Kingdom.
recently been sounding out various Islamic countries
regarding the establishment of cultural, educational,
athletic, and trade relations for the purpose of
gradually upgrading the TRNC's international status.
Reports that Ankara has increased Turkish military
strength on Cyprus may be another indication that
Ankara is positioning itself for possible new moves on
the island. We believe Ankara recently shipped an
unknown number of M48-A5 tanks to northern
Cyprus. The M48-A5 has a larger gun, an improved
fire-control system, and a better engine than the older
M-47 and M-48 tanks currently on the island.
I Varosha has long been a focal point in the intercommunal talks.
Until the 1974 Turkish intervention, it was a prosperous resort town
largely populated by Greek Cypriots. It is currently unoccupied and
under UNFICYP's jurisdiction.=
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5,000 Turkish
troops were to be added to the forces in northern
Cyprus this summer in conjunction with annual troop
rotation. A 5,000-man increase in Turkish troop
strength-from about 20,000 to 25,000 troops-
would be the largest single jump since the Turkish
intervention in 1974. These increases in Turkish force
levels would enhance Ankara's ability to deter Greek
Cypriot or Greek reactions to new Turkish Cypriot
political moves, but they could also start an arms race
on the island.
Whether Ankara decides to support new Turkish
Cypriot moves depends on a variety of factors. One
clearly is the status of the UN peace effort. If it
withers-and the responsibility can be convincingly
attributed to Greek Cypriot obstinacy-Ankara
would have a plausible justification for giving
Denktash the go-ahead. On the other hand, the Turks
have more to consider than just the interests of
Turkish Cypriots-they have to factor in the effect
Turkish Cypriot actions will have on military aid
deliberations in Washington. These considerations
suggest that if the Turks decide to give Denktash the
green light on Cyprus, they will wait until late fall
when the prospects for the UN peace effort also will
be clearer.
Greek and Greek Cypriot Reactions
Unlike the Turks, the Greek Cypriots lack the ability
to revise the status quo unilaterally in their favor.
Their only possibility of altering the situation remains
a negotiated settlement, and at present they appear to
hope that their roadblock to the Secretary General's
peace effort will force the UN to come up with a new
approach that will be more in their favor. If Perez de
Cuellar fails and no acceptable alternative develops,
both Athens and Nicosia are likely to react by
launching a major diplomatic offensive aimed at
rallying international sentiment in their favor and
against Turkish Cypriot state-building efforts.
Nicosia is already stepping up pressure on the United
States, the United Nations, and the European
Community (EC) by warning in the press and UN
forums that Denktash may be preparing to challenge
the status quo. In addition, Nicosia has sent special
emissaries and letters explaining why the latest UN
proposal is "unworkable" and encouraging other
countries not to deal with the Turkish Cypriots. The
Greeks have also tried to use the recent border closing
incident as ammunition against Turkey in the EC.
If the Turkish Cypriots were to alter seriously the
status quo-for example, by resettling Varosha-the
Greek Cypriots would undoubtedly go to the United
Nations. Athens for its part would almost certainly
try to muster support for political and economic
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Nicosia and Athens would press Washington to
become more directly involved. The United States
would then have to choose between supporting one
NATO ally and outraging the other or staying neutral
and irritating both.
In response to Turkish Cypriot initiatives, the Greek
side might resort to unilateral actions constituting a
more serious threat to peace. The possibilities include
building up the Greek Cypriot forces, increasing the
Greek military presence on Cyprus, and partially or
completely cutting off Turkish Cypriot access to
essential supplies of water and electricity from the
south. Any of these actions would require a Turkish
response, significantly raising the risk of a military
conflict on the island.
Increased Opportunity for Soviet Activity .
A prolonged hiatus in UN efforts to mediate a
solution to the issue would present the Soviets with
new opportunities to promote their own solutions to
the problem. There are indications that Moscow is
already moving to play more actively in the Cyprus
problem. They have tabled a proposal for an
international conference that would, of course,
include the USSR. Moscow's goal is to promote an
agreement for a nonaligned, demilitarized island-
one that would entail removing the British Sovereign
Base areas. Greek Cypriot leader Kyprianou is not
above playing along with the idea to prod Washington
into playing a more direct role, even though Nicosia
does not want Moscow to be directly involved in
Cypriot affairs.
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The Soviets have been pushing the idea of an
international conference more vigorously since the
breakdown of the UN effort. We have seen a flurry of
Soviet diplomatic activity on the island to discuss the
proposal, and Moscow has named a younger and more
vigorous ambassador with a strong background in UN
affairs to Cyprus. The Soviets also are openly
supporting the Greek Cypriot position now, a
departure from their past efforts to maintain an
evenhanded approach. F__1
Implications
Unless the peace process can be revived, Cyprus
appears headed for eventual partition. The Greek
Cypriot responses to the latest UN peace proposal
suggest that they may be growing resigned to
permanent partition if the alternative is an agreement
that would preserve formal unity on Turkish terms.
Some Greek Cypriots feel they are better off as they
are, controlling their own destiny on a divided island,
rather than being exposed to the constant risk of
Turkish interference or intervention in a dubiously
reunited country. The Turkish Cypriots, for their
part, have less to gain from a settlement than the
Greek Cypriots. As the international community
becomes increasingly used to the existence of the
"Turkish Republic of Northern Cyprus," the Turkish
Cypriots will move closer and closer to achieving their
goal of establishing an independent state without a
settlement
Over the long haul, all the players in the Cyprus
problem-even Athens and Nicosia-may come to
see partition as the only possible solution, even though
the Greek side will be extremely reluctant to
acknowledge it openly. In the short term, however, the
process of transition, if it takes place, is likely to be
fraught with danger. Greek Cypriots are likely to
respond to any unilateral Turkish efforts to
consolidate their state with actions of their own. The
possibilities open to them-running the gamut from
"internationalizing" the issue to military moves-
would lead a region of major strategic importance to
the United States into a new phase of dangerous
tensions.)
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Secret
Austria: Back Together
Again
Austrians may soon see a renewal of the same
partnership that ruled the country from 1947 to 1965.
Current opinion polls place both the Socialist and
People's Parties below 50 percent of the vote, and the
leaders of these parties have come out strongly in
favor of a grand coalition if the voters do, in fact, fail
to award either party a majority on 23 November. At
this point, such a government promises to be not only
stable, but, more important, it is likely to have the
broad support necessary to push through badly needed
economic reforms.
The Freedom Party Moves Right
Since 1983, Austria has been governed by a coalition
of the Socialist and Freedom Parties-a union that
had been inconceivable only a few years earlier. For
much of its history, the Freedom Party (FPOe) served
as a repository for this Alpine country's shrinking pool
of Pan-Germanists, some of them veterans of the
Third Reich. At the same time, however, the party
has espoused economic tenets that place it close to
mainstream European liberalism. Finally, as a
perennial party of opposition, the FPOe has also
attracted protest voters regardless of cause.
In recent years, the liberal wing has been preeminent,
at least at the national level. Under the leadership of
Chairman Norbert Steger, the FPOe has stressed
such liberal themes as reducing the state's role in the
economy and ending the use of nuclear energy. So
positioned, the Freedom Party was able to join the
Socialists (SPOe) in a social/liberal coalition when the
Socialists lost their parliamentary majority in 1983.
This was the FPOe's first opportunity to exercise
power at the federal level.
The nationalists have not remained quiescent,
however, and the declining popularity of both the
coalition and the Freedom Party has given them
openings to attack the liberal leadership. These
openings have also provided a welcome excuse for the
brash young leader of the party's Carinthian chapter,
Joerg Haider, to promote his own fortunes by making
himself spokesman for the nationalists. During the
last three years, Haider has launched repeated
assaults on the party's direction and on Steger's
performance as chairman; the most recent challenge
came in May, when Haider used Steger's appointment
of Helmut Kruenes as Austria's new Defense Minister
to justify renewed demands for a change in party
leadership. Haider lost that battle, but he won the war
in September, when he captured 57.7 percent of the
votes for chairman to Steger's 39.2 percent.
It is not entirely clear why the delegates elevated
Haider over Steger. The Socialists had hinted before
the convention that such a move would bring about
the end of the coalition-and this at a time when the
polls showed declining support for both the
government and the FPOe. Yet, it may have been
precisely these poll results that inspired the party rank
and file-never strongly enamored of Steger as a
personality in the first place-to replace the
chairman. Indeed,
many delegates objected not so
much to the party's performance in the coalition as to
the leadership's inability to sell the party's role and
accomplishments to the public. Some may also have
reasoned that the election of Kurt Waldheim as
Federal President in June proves that there exists a
sizable nationalist vote in Austria, while others may
have surmised that an end to the FPOe's part in the
government would bring back many of the protest
votes the party appears to have lost since 1983.
The Socialists React
Whatever the reasons, the Socialist leadership quickly
made it known that the SPOe could no longer work
with the Freedom Party. Immediately after the vote
in Innsbruck, Chancellor Vranitzky called a new
national election for November, five months before
the scheduled vote in April. Vranitzky justified his
action by pointing out that the coalition had been
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negotiated in 1983 with a Freedom Party in which the
liberal wing was dominant; Haider's election,
however, showed this no longer to be the case.
The suddenness of the move caught many observers
by surprise. The Socialists had spent much of the
summer rejecting calls from the opposition for an
early election, and it was generally assumed that the
Socialists wished to give the popular and respected
Vranitzky time to win his laurels as Chancellor before
testing the government's and the SPOe's popularity at
the polls. In retrospect, however, the elevation of
Haider left Vranitzky with little choice. The left wing
of the party almost certainly would have displayed
little patience for a coalition with a Freedom Party led
by Haider, and Vranitzky probably did not relish the
prospect of a five-month partnership
Vranitzky received high marks, initially
at least, for having moved decisively to call a new
election and to show concern for preserving his party's
claim to be the chief defender of the country's postwar
antifascist legacy. Many Socialists, recognizing that
the Chancellor is now their party's best electoral
asset, have probably been encouraged by this
favorable response.
Outlook: A Grand Coalition
It is doubtful that Vranitzky's calculated gamble will
be enough to win a majority-or even a plurality-for
the Socialists. Voter dissatisfaction with the SPOe,
which has ruled Austria since 1970, is high. For
example, most observers attribute Waldheim's victory
in June-the first ever by a non-Socialist candidate
for President-primarily to this voter alienation. And
the Socialists lost approximately 5 percentage points
in the provincial election in Styria in late September.
In addition, polls placed the Socialists a few
percentage points behind the conservative People's
Party (OeVP), 44 to 46 percent, in July.
This does not mean, of course, that the Socialists are
bound to lose on 23 November. Vranitzky's image as
a competent tactician has kept his personal popularity
high. One poll recently gave the Chancellor an
approval rating of 57 percent, and, in fact, 24 percent
of those who identified themselves as People's Party
voters claimed that they would give their votes to a
Socialist ticket led by Vranitzky.
Vranitzky's popularity notwithstanding, it seems
likely that neither of the two parties will win a
majority, and, in this event, a grand coalition remains
the most likely outcome. Vranitzky, seconded by his
party's Executive Committee, has already expressed
his preference for such a government. Leading figures
in the People's Party also favor a grand coalition,
among them chairman and chancellor-candidate Alois
Mock.
No Spoiler on the Horizon
We do not believe that any of the smaller parties can
play a spoiler role in this election. At the moment, the
Freedom Party is polling less than 4 percent-3.5 in
July-and may not have the votes to build a
government in November. The Socialists have already
shown their dislike for an FPOe led by Haider.
Moreover, the current animosity between the FPOe
and OeVP is well documented. The last three years
have witnessed numerous hostile exchanges between
the parties' leaders, and even Haider dismissed the
possibility of an FPOe/OeVP coalition at the congress
in Innsbruck. Some in the two parties may believe
that the nationalist sentiment awakened during the
presidential election campaign is strong enough to
support such a coalition, but, in our view, they remain
a distinct minority.
The Greens, as always, are an enigma. Polls currently
give them about 6.5 percent of the vote, and there is
no doubt that enough potential Green voters exist to
put Green deputies in the Nationalrat. The question
for the Greens is whether they will have a unified
ticket that can capture those votes. In 1983, separate
environmental and alternative groups competed for
the Green vote, and, until recently, the divisions and
acrimony persisted. This July, however, leaders of
three factions agreed to unite their groups for the
federal election, and in September leaders of five
factions decided to field a joint list for the election. A
party congress is planned for October to elect leaders
and select candidates. Whether the newfound unity
will persist until 23 November remains to be seen. In
any event, Green leaders have declared that all the
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other parties are unworthy of their cooperation, and
the Greens' impact will depend on the ability to
attract voters from the other camps, principally from
the Socialists.
Tackling Tough Economic Problems
A Socialist-People's Party coalition may be just what
the country needs in November. To be sure, there
have been problems in Austria's past experiences with
a grand coalition. This was the partnership, for
example, that established the proportional system of
appointments to the managing boards of the
nationalized industries in the early years of the
Second Republic. This politicization, many observers
conclude, has contributed markedly to the poor state
of affairs in which those industries find themselves
today. And numerous critics point out that
contemporary Austria is very different from the
postwar society those grand coalitions ruled so
effectively.
There are, however, potentially important advantages
in a grand coalition at this time. In the first place, it
promises to be relatively stable, despite what one
might expect when leftist and conservative parties
combine. There are several reasons for this. Because
the two parties governed together from 1947 to 1965,
they have considerable experience working together.
In addition, the leadership of moderates like Mock
and Vranitzky suggests that compromises can be
reached.
More important, a grand coalition promises to have
the broad support necessary to affect badly needed
economic reforms. The country's nationalized
industries suffer from overproduction, a lack of profits
to finance modernization, and they are no longer
competitive in international markets. Restructuring
will require the cooperation of industry and labor
behind the leadership of their respective parties-the
OeVP and the SPOe-to bring about changes,
including such measures as limited privatization, an
end to subsidies, and politically painful layoffs. The
need to reduce the budget deficit and to reform the
tax system in order to promote greater investment will
also require difficult political decisions, which a grand
coalition would find easier to make and enforce. In
conversations with US diplomats, many Austrian
officials appear to realize that unless these difficult
choices are made, the Austrian economy faces rising
unemployment and inflation, a dearth of investment
capital, and declining export markets.
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Canada: Tories Reo en
Parliament
In reopening Parliament earlier this month, the
Tories stressed fiscal responsibility and played down
US-Canadian relations. Early media reaction
indicates Prime Minister Mulroney will be hard
pressed to dispel the perception that the Tories are
drifting.
Economic Problems
Ottawa is faced with the likelihood that slow
economic growth over the next two years will not
allow much deficit reduction or reverse the increasing
economic disparities between industrial Ontario and
industrial Quebec and the struggling resource-
dependent Atlantic and Western provinces. Finance
Minister Wilson apparently convinced the Cabinet in
August that any relaxation of budgetary restraint
would weaken the Canadian dollar and force higher
interest rates on the already slowing economy. As a
result, the government plans next year only to
reallocate existing funds for regional economic
development and to establish a federal agency in
eastern Canada to coordinate the aid more efficiently.
The Tories hope that proposals for lower personal tax
rates will improve their popularity with middle-
income voters and add substance to their professions
of concern about low-income Canadians.
US Interests
Departing from Mulroney's past strategy, the
government deemphasized relations with the United
States and stressed themes important to Canadian
nationalists. Ottawa played down trade talks with
Washington, emphasized GATT instead, and called
for improved trade links to Asia. The Tories' reduced
emphasis on a bilateral trade pact reflects eroding
domestic support for the idea and the intense criticism
of Mulroney for his alleged inability to exempt
Canada from US protectionism.
Canada's assertion of sovereignty over the Northwest
Passage also continues to complicate bilateral
relations. In January Ottawa drew formal boundary
lines encompassing Arctic claims disputed by
Washington. Earlier this month, the Tories renewed a
commitment to build an icebreaker to maintain a
presence in Arctic waters. Funds for the ship probably
will be pared from defense programs, slowing the
already glacial pace of Canadian force modernization.
Tory Tensions
A widening regional split within the Prime Minister's
party threatens to sap the government's prestige
This dispute-and a 21-percent decline in the
government's standing in public opinion polls during
the past year and a half to September 1986-has
aroused the traditionally fractious Conservative
caucus. Western alienation was evident in a recent
Alberta byelection when the Conservatives barely
retained a long-held seat.
Prospects
The Mulroney government can do little on its own to
reverse its political fortunes for the election that is due
not later than 1989, but is more likely to occur in
1988. The Conservatives are pinning their hopes on
tax reform and US-led economic growth to ease
budgetary pressures and reduce unemployment, on
demonstrable gains for Canada in trade talks with
Washin ton
Most of these hopes depend ultimately on
decisions largely outside Ottawa's control.
In the next few years, US domestic and foreign
policies are likely to become, more than in the past,
convenient scapegoats for the Tories as well as for the
opposition.
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Economic News in Brief
Western Europe
Turkey again hinting it may apply for EC membership,
possibly as early as December ... unhappy over lack
of progress on EC aid, workers' freedom of movement
... EC discouraging Ankara, hopes to defer action on
membership indefinitely.F--]
France likely to offer Egypt highly subsidized wheat
prices ... probably will threaten to reduce subsidies
on flour sales unless Egypt buys wheat ... US
Embassy says delegation visiting Cairo this month ...
market fifth largest for US exports.F__1
Spain negotiating to buy Norwegian natural gas for 20
years after production from new fields available in
1992... to reduce dependence on Algeria, Libya ...
Norwegian gas could supply 20 percent of Spain's
needs after 1992.
Eastern Europe
Press reports Hungary activated third reactor at
nuclear power plant at Paks ... plant will generate
about one-third of domestic electricity ... fourth
reactor due next year ... shows commitment to
nuclear program despite Chernobyl accident.
Britain reportedly withdrawing $50 million export
credit guarantee offered Poland in June ... probably
because Warsaw did not make repayment of arrears
... failure to comply with rescheduling agreements
remains obstacle to new government loans.
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