CONFIDENrIAL NO FOREIGN DISSEM ' i L REU-16 March 20 1967 To The Acting Secretar r Through FrCJu sis Subject S oiGdish Decision to Cut Mtlltary Spending Causes Defanse Re riall Reduces Likelihood ot Nuclear tle 'lPOl U3 Aoquisition INa - George C Denney Jr Since 1950 Swedents defense effort has been proportionately larfter than that of its Scandinavian NATO neighbors and his been an important fact or in Scandinavinn resistance to Soviet pressures A recent government doo Ls1 ol1 to decrease ' '' 'Q spel1ding s1gnii'ic 1 t l ' ' ' plf'nned levels has ar'ousrJd conce rn both in hieden and abroad and aeena likoly to gj vG rise to natiom J ' It defense and foreign policies This HeroOl andum examines the decision ' 'C' cut defense outlays analyzes the %Uoti vut1ons behind it and assesses tho cones quences thc1t it IDS ' have for Swedenifa cletensG and nuclear weapons PQJ Lciei 1 Ar$STHACT fj In fllar1J1' Ja r nmrYt Swedents mnc 1 t y- Social Democratic Gove- nlllfmt JropoBod 1 I'M bjr the t'OU l tlon-Communist parties bJt instead be held to a const alrl1 laval fm' tho next t rwyear fr eeze ps rt ot at least This cl lJC1 s on coupled with the ear U' 9r 01' 9 to the p rG'Vious year t a ppro priaUons t means that the ''J l1t''n of the GNP g1ven t defense would drop belt 1 4 1 01 the first time in OV 'f 10 years Although the throe other non-Comunist p artiea at first tried to itu ist that the previous dot' lnse agreement should be adher-ed to the two canter pn i ' t 'i ' O Lib ll lll' Since they now largely accl 't the go'v'll n and Center aX ty eventually gave in mont's propo a18 Parl1ament t s adopt ion of' the pared-do'Wn defense ' c dg t CmlFIDENTIAL NO FORI IGN DISSEM CONTROLLED DISSEM 1 ' -_ 1 1 --_ _ ---- _ _ ' '-- _ ' - -' - DECLASSIMED - I 7 Authority session DISSEM Defense Chiefs warn of Consequences Military commanders have contended that the government's decision means that plans to modernize the weapons of -Sweden s armed forces will have to be drastically revised The Supreme Commander has declared that if the present spending level is maintained fer the next four years as the Social Democrats propose the number of air squadrons in Sweden's Air Force nos western Europe's third largest may have to be out in half because a disproportionately large share of current defense appropriations is earmarked for replacing aircraft noW'in operation with the advance deltantype Viggen aircraft Defense Minister Andersson has agreed that it will no longer be possible to use the air force as the chief deterrent to attack and had said that Sweden will have to rely more on a tenacious defense of territory led hy the army - Motivations Both Economic and Political The primary cause for the proposed reduction in defense spending is Sweden's economic situation Inflationary pressures are among the highest in western Europe the balance of payments deficit is serious and a slowdown in the rate of economic growth is expected Another motivation for the proposed defense cute is the desire of Social Denocratic leaders to recoup their party's losses in the 1966 local elections which if not checked would oust them from poser in the 1968 parliamentary election Disgruntlemant caused by rising prices is generally thought to be the chief cause for these losses Reductions in defense spending should not only help to remedy this situation but will also be pOpnlar with leftwning Social Democrats and younger Swedes in general who have tended toward pacifism FOREIGN DISSEM DECLASSIFIED FOREIGN DISSEM DISSEM - a and have increasingly supported the relatively moderate Communist Party Finally the growing belief among Swedes that the danger of Soviet aggression has declined has created an atmosphere favorable to cutbacks in the defense program The Social DenOcrats the Liberals and the Center Party maintain that the Us and the USSR desire further relasation of tensions that the current balance of power has led to a desire to keep were limited and that these deveIOpments have increased the potentiality for use of conventional weapons I Inter Party Cooperation Strained The manner in which the Social Democrats presented their defense proposal has strained inter-party cooperation on defenseo 'They first announced it in the Royal Defense Commission on which each-of the four non Communist parties has representation when the other members the two center parties and the Conservatives agreed on a counteruproposal the Social Democrats refused to consider a compromise The Conservatives then walked out of the Commission They returned after the two center parties had largely acceded to the Social Democratic demands but they did so ungracefully and only after a sharp exchange in Parliament between Prime Minister Erlander and Conservative leader Holhberg Fouruparty unity on defense questions will be rery difficult to attain in the future I Acquisition of Nuclear weapons Now Less Likely The new defense Situation makes it even less likely-that Sweden will acquire nuclear weapons The Supreme Commander requested in early 1966 that nuclear weapons research be expanded so that the lead time necessary to make such weapons would be reduced from seven years to four and so that the Option to acquire nuclear weapons would thereby be kept meaningfulo The Defense Commission did not act on his request however and CONFIDENTIAL FOREIGN DISSEW CONTROLLED DISSEM 1 ASSIFIED ij t g FOREIGN DISSEM DISSEM research expenditures may actually be reduced under the proposed budget for 1967 68 Defense Minister Andereeoe has recantly publicly opposed a deoleration by Perliament that Sweden will not make nuclear weapons and has indicated that the option will be kept at least theoretically alive mainly'ae a means of putting pressure on the major powers to achieve nuolear disarmament It seems undeniable however that the new economic and political situation makes it extremely unlikely that the authorities will take any positive action on the matter Indeed the Swedish Government appears ready to Sign a nonuproliferetiOh treaty FOREIGN DISSEM CONTROLLED DISSEH 1 ea-ll a if Authorin Lj Oj g' FOREIGN DISSEM Social DemoCrats Act Unilaterally to Cut Defense-Costs On January ll Sweden's minority Social Democratic Government departed from precedent in proposing to Parliament a defense budget that did not have the support of the other three nonnCommunist parties and that departed significantly from the previous fouruparty agreement on defense Since 1958 the Social Democrats Liberals Center Party and Conservatives usually negotiating within Royal Defense Commissions have made agreements for a three 0F f0ur year period the last such agreement concluded in 1963 expires this year and_a new Defense Commission has been sitting since 1965 trying to negotiate another one The Social Democrats demanded that further increases in defense spending be halted for the next few years at least In late January the two center parties the Liberals and the Center Party agreed essentially to the government's proposals and pledged their cooperation with the Social Democrats on farnreaching revisions of the present defense system and on new longurange planning at a reduced level of spending Therefore acceptance of the government s proposals with little change seems assured The Communists according to their present tactics will probably support the Social Democrats even though they want still further outs Only the Conservatives oppose the government Defense Spending to Drop Below 4% of GNP Pleading economic difficulties and changes in the international scene the government proposed that defense appropriations for fiscal 1967 68 rise only enough to compensate for estimated priceincreases or from 4 8 billion kronor1 to 5 13 billion kronor Moreover the government deleted the 2 5% increase that has been granted annually under the 1963 Agreement for moderniza- tion purposes and declared that the 350 million kronor in apprOpriationed funds that were frozen last year as an economy measure would remain frozen As a result the proposed budget is about 545 million kronor less than the Supreme Commander General Rapp had requested and the proportion of the GNP given to defense will drop below 4% -- approximately to 3 7% for the first time in over 10 years Furthermore the government has insisted that this reduced level of spend-rE ing must not be raised in the next four years except to compensate for price rises and that the funds for such increases would come only fromhunfreezing the 350 million kronor already appropriated The center parties have wanted to' allow an increase of only about 100 million kronor a year for the next four years 1 5 19 kronor US $1 00 FOREIGN DISSEM FOREIGN DISSEM but they will probably finally agree with a figure not much above that proposed by the Social Democrats If appropriations are kept to the- level that the government advocates over as long as Seven years the usual length of mili- tary modernization programs defense spending would be about 6 64 billion kronor less than the figure recommended by the Supreme Commander to maintain current defense goals Both Economic and Political Reasons Lie Behind Government's Action The principal reason for the government's decision to_halt further rises in defense spending and for the center parties' willingness to accede to its wishes is that the Swedish economy largely as a result of inflationary pressures has been running into difficulty Sweden's rate of inflation has been one of the highest in Western Europe and government economists are pessimistic about the future wage contracts that peg wage rises generally to an 8% - 9% increase a year considered excessive by most economists still have two years_to run The balance of payments deficit is at a worrisome level The GNP is expected to increase at a slower rate in the last half of the 1960's and in fact there has been a downturn in the first two months of 1967 Taxes are already high and no party advocates raising them significantly Therefore increasing emphasis has been put on limiting increasea in government spending and on trimming where at all possible _ Defense spending had escaped up to now but it has presentEd a tempting target to government economizers a The political situation has also put pressure on the government to act The Social Democrats already in a minority in Parliament lost heavily in the fall 1966 local elections their share of the vote dropped from about the 51% that they won in the 1962 election to 43% Popular_disgruntlement with rising prices was generally considered the chief cause for this loss Therefore government leaders have concluded that more drastic action is needed to stem inflation before the next parliamentary election scheduled for 1968 if the government is to stay in power Thus the proposed 1967 68 budget is a 7 stringent one in addi iOn to imposing government economy measures it raised the sales tax from 10% to 11% and upped other indirect taxes considerably Prime Minister Erlander has declared that the defense establishment must now bear its share of retrenchment Social Democratic leaders probably also believe they can capitalize_on reductions in defense spending to appeal to leftuwing elements and younger Swedes who have been deserting their party to vote for the nationalnminded and relatively moderate Communist Party which has stressed antiumilitarist and disarmament themes A cut in defense outlays would be particularly popular with this group which has become increasingly critical of the Erlander administration The Liberal and the Center parties particularly the former also contain anti militarist elements especially among their younger members and the leaders of these two parties have also shown fear that they might loss support from - those quarters FOREIGN DISSEM i l FOREIGN -73 Finally the grouing belief among Swedes generally that the danger of Soviet aggression has declined has created an atmosphere favoring economieS in the defense program The Social Democrats the Liberals and the Center Party have declared m in a directive that their repreSentatives on the Defense Commission issued to the Supreme Commander on January 20 -- that Sweden must adjust to the changed aggressive threat' picture The directive Stated that the US and the USSR are seeking greater relaxation of tensions and that a balance of power has been achieved at different levels and in different parts of the world The large power desire to limit the wars that exist as much as possible Therefore conventional strength for the direct defense of terri- tory is regarded as having greater meaning In a separate subsection the Social Democrats went further and declared The situation in Europe is now more relaxed Against this background the organization of the defense forces ought to be so formed that it makes possible an adjustment'both up and down in with the demands of developments on the international scenel - imam Defense Chiefs and Opposition Spokesman SconsCuts Even under the defense programs of the past few years which have kept military spending at about 4 5% of the GNP since 1958 Swedish defense chiefs have had great difficulty in maintaining a strong modern_defense force because of rising costs and swift advances in military technology This has been particu larly true in the case of the Air Force which is currently Western Europe's third largest The replacement of the aircraft now in operation with the new delta type Viggen jets has been so costly than there have been doubts whether i it could be carried out The Air Force Commander in-Chief General Thunberg has publicly branded the government's proposed budget as catastrophic General Rapp has bluntly warned the government that the Viggen program will have to be reassessed and that the i number f air squadrons may have to be cut in half Programs to replace naval vessels may also have to be abandoned Rapp has dramatically proclaimed that the defense forCe may no longer be able to repel an attack and defend the entire country Conservative party leader Holmberg and Sweden's most influential news- paper the Liberal Dagens Nyheter have gone so far as to question whether the defense forces will remain strong enough to allow Sweden to maintain its tra- 3 ditional policy of non-alliance and armed neutrality Government and Supporters Call for Review of Defense and Organization Government spokesmen have sought to counter the claims of military leaders and some Opposition politicians particularly among the Conservatives that the proposed defense cutbacks will seriously weaken Swedish defense In a long statement to the press on January 14 Defense Ministsn' der son admitted_thet the present emphasis on the air force as the chief meansto deter attack be maintained but insisted that under the changed_internaticnal circumstances a tenacious defense of territory led chiefly by the army could provide just as much of a deterrent as present defense strategies do He contended that the present objective of forcing an aggressor to pay more than his gains would be FOREIGN DISSEM yam-ii i WM TEE-CLASSIFIED AumodWE BileXiggl mi 7 ii same mm LASSIFIED use LAuthoriWW FOREIGN DISSEM lworth cOuld therefore still be achieved Representatives of the Social Democrats and the two center parties on the Defense Commission directed the Supreme Commander last January to investigate the effects of the proposed level of defense appropriations over the next four years on the oeganization and missions of the armed forces They asked him also to weigh the role that the air force should play The Social Democrats requested an investigation of the possibility of replacing the interceptor version of the Viggen by anti aircraft missdes probably the Swedish version of the US Hawk All three parties agreed that the training period for conscripts in the air force and the navy should be shortened The Supreme Commander's reports to be made in a preliminary version in June and in final form by September 25 are to form the basis for the next'interaparty long term agreement Meanwhile pacifist and anti militarist elements have-seized on the proposed defense reductions to argue for further cuts and a full-fleged national debate on defense and foreign policies seems to be in the making One left-wing spokesman for instance has claimed that further defense cuts would contribute to efforts to reduce tensions in Europe and increase confidence in Sweden's policy of neutrality I In rebuttal the Director of Sweden's Foreign Policy Institute early this month argued the contrary Far-reaching cuts would not have such an effect Instead they would change the power situation in Scandinavia at least as a result the Danish Government might find it necessary to accept greater west German participation in the defense of Denmark which in turn might be displeasing to the Soviet leaders Finnish security interests might be affected by such cuts In general the Scandinavian seCurity situation might be worsened Therefore the present Swedish_policy of neutrality supported by a strong defense was still best even though the domestic economic and inter- national political situation might justify some reductions in defense spending Social Democratic Initiative Strains Inter-Party Cooperation The Social Democratic manner of handling the issue of reducing defense spending has so strained the traditionalpfour-party cooperation on defense that it will be very difficult to restore inter-party unity in this field Social Democratic representatives on the Defense Commission first preposed in October 1966 that the 2 5% annual increase in defense spending for modernization purposes be drOpped and that the length of the four-party agreements be reduced from four to two years The other three parties submitted a counter-proposal in late November agreeing only to limited reduction but the Social Democrats refused to negotiate Then Defense Minister Anderseon stated in a radio address on December 12 that the Opposition proposal would not be considered in the government s 1967 68 budget i i When the budget was presented to Parliament on January ll the Conservative representatives asked their party leadership for permission to withdraw from the Commission but the two center parties led by Center Party Chairman Hedlund FOREIGN DISSEM CONFIDENTIAL NO FOREIGN DISSElVI COWFROLLED DISSEH - 5 i- ho before 1957 had been in coalition Hith the Social Democrats decided to remain when the Prime Hinister expressed a willingness to alloH the Commission to draft a new four-year defense plan The two center parties then largely acceded to Social Democratic demands and agreed on the new Commi ss ion directive to the Supreme Commander before the Conservatives rejoined the Commission As a result the Conservatives chose to put forth in the form of a parliamentary resolution a separate proposal for the future level of defense spending it varies little from that in the 1963 agreement The hard feelings thab exist not only between the three oppostion parties and the Social Democrats but also behieen the Conservatives and the other two oppostion parties were evidenced during the sharp exchanges that took place betHeen Prime Minister Erlander and Conservative Party Chairman Holmberg during the parliamentary debate on January 19 At the end of the debate Hedlund deplored the fact that llunity on the defense question has been destroyed The new situation created by the proposed cuts in defense spending reduces the likelihood that the Swedish Government vJill authorize manufacture of nuclear weapons The Supreme COllMander has consistently held that Sweden Hill be unable to have an effective defense force by the 1970's if it does not acquire nuclear weapons However he has recognized political realities and in recent years has fought only to keep open the option to make the weapons within a short period of time In Nay 1966 he requested a specific limited appropriation to increase the present military research program on nuclear weapons so that the lead time would be reduced from about seven years to four His request was referred to the Defense Corr ission which has failed to act on it The cuts in defense spending proposed by the Social Democrats call for reducing expenditures on military research but it is not clear whether this liould affect nuclear weapons research It does seem significant however that the January directive to the Supreme COIT ander to investigate the effects of cutting defense outlays specifically excluded consideration of nuclear weapons Defense Hinister Andersson stated in -mid-January -that opinion within the Social Democratic Party differed on whether Parliament would declare that Sweden will not make nuclear weapons He said that he personally opposed such a declaration Some papers quoted him as saying The decisive thing is that we by not taking any steps show that we do not plan any nuclear weapons construction HOi-lever according to Arbetet the paper closest to the government he said e have the technical resources to make atomic weapons I And he agreed with the editor of a southern Swedish newspaper Sk nska Dagbladet when the latter asked whether our freedom of action in the question of atomic weapons cannot be used as a means of pressure on the large powers The clear implication was that Sweden still maintains freedom of action on the matter but that the new economi c and political situation makes it extremely unlikely that Sweden vlOuld take any positive action In fact the government seems to be preparing to sign the nonproliferation treaty NPT an action which would effectively rule out future acquisition CONFIDENTIAL NO FOREIGN DISSB' CO ROLLED DISS q DECLASSIFIEU I 1 Authority MD i session DISSEM ii- Eggense Chiefs warn of Consequences Military commanders have contended that the govornnent's decision means that plans to modernize the weapons of -Sweden s armed forces will have to be drastically revised The Supreme Commander has declared that if the present spending level is maintained fer the next four years as the Social Democrats propose the number of air squadrons in Sweden's Air Force noa western Europe's third largest may have to be out in half because a large share of current defense appropriations is earmarked for replacing aircraft nos'in operation with the advance deltantype Viggen aircraft Defense Minister Andersson has agreed that it will no longer be possible to use the air force as the chief deterrent to attack and had said that Sweden will have to rely more on a tenacious defense of territory led hy the army A I motivations Both Economic and Political The primary cause for the preposed reduction in defense spending isSweden's economic situation Inflationary pressures are among the highest in western Europe the balance of payments deficit is serious and a slowdown in the rate of economic growth is exPected Another motivation for the proposed defense cute is the desire of Social Democratic leaders to recoup their party's losses in the 1966 local elections which if not checked would oust them from poser in the 1968 parliamentary election Disgruntlement caused by rising prices is generally thought tobe the chief cause for these losses Reductions in defense spending should not only help to remedy this situation but will also be pOpalar with leftuwing Social Danccrats and younger Swedes in general who have tended toward pacifism FOREIGN Autthoritywm FOREIGN DISSEM - a and have inoraasingly supported the relatively moderate Communist Party Finally the growing belief among Swedes that the danger of Soviet aggression has declined has created an atmosphere favorable to cutbacks in the defense program The Social Dancerats the Liberals and the Center Party maintain that the US and the USSR desire further relegation of tensions that the current balance of power has led to a desire to keep were limited and that these developments have increased the potentiality for use of conventional weapons 7 InteruParty Cooperation Strained The manner in which the Social Democrats presented their defense proposal has strained inter-party cooperation on defense They first announced it in the Royal Defense Commission on which each of the four nonmCommunist parties has representation when the other members the two center parties and the Conservatives agreed on a counteruproposal the Social Democrats refused to consider a compromise The Conservatives then walked out of the Commission They returned after the two center parties had largely acceded to the Social Democratic demands but they did so ungracefully and only after a sharp exchange in Parliament between Prime Minister Erlander and Conservative leader Holnberg Four party unity on defense questions will be very difficult to attain in the future Acquisition of Nuclear weapons Now_Less Likely The new defense Situation makes it even less likely that Sweden will acquire nuclear weapons The Supreme Commander requested in early 1966 that nuclear weapons research be expanded so that the lead time necessary to make such weapons would be reduced from seven years to four and so that the Option to acquire nuclear weapons would thereby be kept meaningfulo The Defense Commission did not act on his request however and Lad 7 it w 7' LMM FOREIGN DISSEM - 1v - research expenditures may actually be reduced under the proposed budget for 7 1967 68 Defense Minister has recently publicly opposed a declaration by Perliament that Sweden_Will not make nuclear weapons and has indicated that the option will be kept at least theoretically alive mainly'ae a means of putting pressure on the major powers to achieve nuclear disarmament It seems undeniable however that the new economic and political situation makes it extremely unlikely that the authorities will take any positive action on the matter Indeed the Swedish Government appears ready to Sign a non-proliferation treaty FOREIGN DISSEM L I AuthoriWW FOREIGN DISSEM Social DemoCrats Act Unilaterally to Cut Defense Costs On January 11 Sweden's minority Social Democratic Government departed from precedent in proposing to Parliament a defense budget that did not have the support of the other three non Communist parties and that departed significantly' from the previous fouruparty agreement on defense Since 1958 the Social Democrats Liberals Center Party and Conservatives usually negotiating within Royal Defense Commissions have made agreements for a threeu0r_four year period the last such agreement concluded in 1963 expires this year and_a new Defense Commission has been sitting since 1965 trying to negotiate another one The Social Democrats demanded that further increases in defense spending be halted for the next few years at least In late January the two center parties the Liberals and the Center Party agreed essentially to the government's preposals and pledged their cooperation with the Social Democrats on far reaching revisions of the present defense system and on new long range planning at a reduced level of spending Therefore acceptance of the government s proposals with little change seems assured The Communists according to their_present tactics will probably support the Social Democrats even though they want still further Cuts Only the Conservatives oppose the government - Defense Spending to Drop Below 4% of GNP Pleading economic difficulties and changes in the international scene the government proposed that defense appropriations for fiscal 1967 68 rise only enough to compensate for estimated priceincreases or from 4 8 billion kronor1 to 5 13 billion kronor Moreover the government deleted the 2 5% increase that has been granted annually under the 1963 Agreement for modernize- tion purposes and declared that the 350 million kronor in appropriationed funds that were frozen last year as an economy measure would remain frozen As a result the proposed budget is about 545 million kronor less than the Supreme Commander General Rapp had requested and the prOpOrtion of the GNP given to defense will drop below h% -- approximately to 3 7% for the first time in over 10 years Furthermore the government has insisted that this reduced level of spend-E ing must not be raised in the next four years except to compensate for price rises and that the funds for such increases would come only from unfreezing the 350 million kronor already appropriated The center parties have wanted to allow an increase of only about 100 million kronor a year fer the next four years 5 19 kronor 2 US $1 00 FOREIGN DISSEM IDDECLASSHHED AuthorityM g' pf FOREIGN DISSEM -2- but they will probably finally agree with a figure not much above that proposed by the Seeial Democrats If appropriations are kept to the level that the government advocates over as long as Seven years the usual length of_ mili tary modernization programs defense spending would be about 6 64 billion kronor less than the figure recommended by the Supreme Commander to maintain current defense goals Both_Economic and Political_Reasons Lie Behind Government's Action The principal reason for the government s decision to halt further rises in defense spending and for the center parties' willingness to accede to its wishes is that the Swedish economy largely as a result of inflationary pressures has been running into difficulty Sweden's rate of inflation has been one of the highest in Western Europe and government economists are pessimistic about the future wage contracts that peg wage rises generally to an 8% - 9%_increase a year considered excessive by most economists still have two years to run The balance of payments deficit is at a worrisome level The GNP is expected to increase at a slower rate in the last half of the 1960's and in fact there has been a downturn in the first two months of 1967 Taxes are already high and no party advocates raising them significantly Therefore increasing emphasis has been put on limiting increaseszin government spending and on trimming where at all possible Defense spending had escaped up to now but it has Presented a tempting target to government economizers 7 The political situation has also put pressure on the government to act The Social Democrats already in a minority in Parliament lost heavily in the 3 fall 1966 local elections their share of the vote dropped from about the 51% that they won in the 1962 election to Popular disgruntlement with rising prices was generally considered the chief cause for this loss Therefore 7 government leaders have concluded that more drastic action is needed to stem inflation before the next parliamentary election scheduled for 1968 if the government is to stay in power Thus the proposed 1967 68 budget is a 7 stringent one in addition to imposing government economy measures it raised the sales tax from 10% to-ll% and upped other indirect taxes considerably pPrime Minister Erlander has declared that the defense establishment must now bear its_ share of retrenchment Social Democratic leaders probably also believe they can capitalize on reductions in defense spending to appeal to left wing elements and younger Swedes who have been deserting their party to vote for the nationaluminded and relatively moderate-Communist Party which has stressed anti militarist and disarmament themes A cut in defense outlays would be particularly popular with this group which has become increasingly critical of the Erlander administration The Liberal and the Center parties particularly the former also contain anti militarist elements especially among their younger members and the leaders of these two parties have also shown fear that they might loss support from i - those quarters FOREIGN DISSEM 1 FOREIGN #3 Finally the grouing belief among Swedes generally that the danger of Soviet aggression has declined has created an atmosphere favoring economies in the defense program The Social Democrats the Liberals and the Center Party have declared mu in a directive that their repreSentatives on the Defense Commission issued to the Supreme Commander on January 20 -m that Sweden must adjust to the changed 'aggressive threat' picture The directive Stated that the US and the USSR are seeking greater relaxation of tensions and that a balance of power has been achieved at different levels and in different parts of the world The large power desire to limit the wars that exist as much as possible Therefore conventional strength for the direct defense of terri- tory is regarded as having greater_meaning In a separate subsection the Social Democrats went further and declared The situation in Europe is now more relaxed Against this background the organization of the defense forces ought to be so formed that it makes possible an adjustment'both up and down in with the demands of developments on the international scen l mime Defense Chiefs and Opposition Spokesman-SconaCuts Even under the defense programs of the past few years which have kept military spending at about 4 5% of the GNP since 1958 Swedish defense chiefs have had great difficulty in maintaining a strong modern_defense force because of rising costs and swift advances in military technology This has been particu- larly true in the case of the Air Force which is currently Western Europe's third largest The replacement of the aircraft now in operation with the new delta-type Viggen jets has been so costly than there have been doubts whether a it could be carried out The Air Force Commander-in-Chief General Thunberg has publicly branded the government's proposed budget as catastrophic General Rapp has bluntly warned the government that the Viggen program will have to be reassessed and that the' number f air squadrons may have to be out in half Programs to replace naval vessels may also have to be abandoned Rapp has dramatically proclaimed that the defense force may no longer be able to repel an attack and defend the entire country Conservative party leader Holmberg and Sweden's most influential news- paper the Liberal Dagens Nyheter have gone so far as to question whether the defense forces will remain strong enough to allow Sweden to maintain its tra ditional policy of non alliance and armed neutrality Government and Supporters Call for Review of Defense and Organization Government spokesmen have sought to counter the claims of military leaders and some opposition politicians particularly among the Conservatives that the proposed defense cutbacks will seriously weaken Swedish defense In a long statement to the press on January 14 Defense Minister' nderSSOH admitted_that the present emphasis on the air force as the chief meansto deter attack couldl it be maintained but insisted that under the changed international circumstances a tenacious defense of territory led chiefly by the army could provide just as much of a deterrent as present defense strategies do He contended that the present objective of forcing an aggressor to pay more than his gains would be FOREIGN DISSEM Wows-mm ems n kWh l - Authorityw a 12 humdmim uthorityg igj g' - i ill LA aluminum - a A __ h wmwuu LASSIFIED FOREIGN DISSEM worth cCuld therefore still be achieved Representatives of the Social Democrats and the two center parties on the Defense Commission directed the Supreme Commander last January to investigate the effects of the preposed level of defense appropriations over the next four years on the oeganization and missions of the armed forces They asked him also to weigh the role that the air force should play The Social Democrats requested an investigation of the possibility of replacing the interceptor version of the Viggen by anti aircraft mismles probably the Swedish version of the US Hawk All three parties agreed that the training period for conscripts in the air force and the navy should be shertened The Supreme Commander's reports to be made in a preliminary version in June and in final form by September 25 are to form the basis for the next intersparty long term agreement Meanwhile pacifist and anti-militarist elements have-seized on the proposed defense reductions to argue for further cuts and a full-fleged natibnal debate on defense and foreign policies seems to be in the making One left wing spokesman for instance has claimed that further defense cuts would contribute to efforts to reduce tensions in Europe and increase confidence in Sweden's policy of neutrality - In rebuttal the Director of Sweden's Foreign Policy Institute early this month argued the contrary Far reaching cuts would not have such an effect Instead they would change the power situation in Scandinavia at least as a result the Danish Government might find it necessary to accept greater West German participation in the defense of Denmark which in turn might be displeasing to the Soviet leaders Finnish security interests might be affected by such cuts In general the Scandinavian sedurity situation might be worsened Therefore the present Swedish policy of neutrality supported by a strong defense was still best even though the domestic economic and inter- national political situation might justify some reductions in defense spending Social Democratic Initiative Strains IntermPartv Cooperation The Social Democratic manner of handling the issue of reducing defense spending has so strained the traditionalgfour party c00peration on defense that it will be very difficult to restore inter-party unity in this field Social Democratic representatives on the Defense Commission first proposed in October 1966 that the 2 5% annual increase in defense spending for modernization purposes be dropped and that the length of the four party agreements be reduced from four to two years The other three parties submitted a counter-proposal in late November agreeing only to limited reduction but the Social Democrats refused to negotiate Then Defense Minister Andersson stated in a radio address on_December 12 that the opposition proposal would not be considered in the government s 196 68 budget When the budget was presented to Parliament on January ll the Conservative representatives asked their party leadership for permission to withdraw from the Commission but the two center parties led by Center Party Chairman Hedlund FOREIGN DISSEM CONFIDENrIAL NO FOREIGN DISSEM ' i L REU-16 March 20 1967 To The Acting Secretar r Through FrCJu sis Subject S oiGdish Decision to Cut Mtlltary Spending Causes Defanse Re riall Reduces Likelihood ot Nuclear tle 'lPOl U3 Aoquisition INa - George C Denney Jr Since 1950 Swedents defense effort has been proportionately larfter than that of its Scandinavian NATO neighbors and his been an important fact or in Scandinavinn resistance to Soviet pressures A recent government doo Ls1 ol1 to decrease ' '' 'Q spel1ding s1gnii'ic 1 t l ' ' ' plf'nned levels has ar'ousrJd conce rn both in hieden and abroad and aeena likoly to gj vG rise to natiom J ' It defense and foreign policies This HeroOl andum examines the decision ' 'C' cut defense outlays analyzes the %Uoti vut1ons behind it and assesses tho cones quences thc1t it IDS ' have for Swedenifa cletensG and nuclear weapons PQJ Lciei 1 Ar$STHACT fj In fllar1J1' Ja r nmrYt Swedents mnc 1 t y- Social Democratic Gove- nlllfmt JropoBod 1 I'M bjr the t'OU l tlon-Communist parties bJt instead be held to a const alrl1 laval fm' tho next t rwyear fr eeze ps rt ot at least This cl lJC1 s on coupled with the ear U' 9r 01' 9 to the p rG'Vious year t a ppro priaUons t means that the ''J l1t''n of the GNP g1ven t defense would drop belt 1 4 1 01 the first time in OV 'f 10 years Although the throe other non-Comunist p artiea at first tried to itu ist that the previous dot' lnse agreement should be adher-ed to the two canter pn i ' t 'i ' O Lib ll lll' Since they now largely accl 't the go'v'll n and Center aX ty eventually gave in mont's propo a18 Parl1ament t s adopt ion of' the pared-do'Wn defense ' c dg t CmlFIDENTIAL NO FORI IGN DISSEM CONTROLLED DISSEM 1 ' -_ 1 1 --_ _ ---- _ _ ' '-- _ ' - -' - DECLASSIMED - I 7 Authority session DISSEM Defense Chiefs warn of Consequences Military commanders have contended that the government's decision means that plans to modernize the weapons of -Sweden s armed forces will have to be drastically revised The Supreme Commander has declared that if the present spending level is maintained fer the next four years as the Social Democrats propose the number of air squadrons in Sweden's Air Force nos western Europe's third largest may have to be out in half because a disproportionately large share of current defense appropriations is earmarked for replacing aircraft noW'in operation with the advance deltantype Viggen aircraft Defense Minister Andersson has agreed that it will no longer be possible to use the air force as the chief deterrent to attack and had said that Sweden will have to rely more on a tenacious defense of territory led hy the army - Motivations Both Economic and Political The primary cause for the proposed reduction in defense spending is Sweden's economic situation Inflationary pressures are among the highest in western Europe the balance of payments deficit is serious and a slowdown in the rate of economic growth is expected Another motivation for the proposed defense cute is the desire of Social Denocratic leaders to recoup their party's losses in the 1966 local elections which if not checked would oust them from poser in the 1968 parliamentary election Disgruntlemant caused by rising prices is generally thought to be the chief cause for these losses Reductions in defense spending should not only help to remedy this situation but will also be pOpnlar with leftwning Social Democrats and younger Swedes in general who have tended toward pacifism FOREIGN DISSEM DECLASSIFIED FOREIGN DISSEM DISSEM - a and have increasingly supported the relatively moderate Communist Party Finally the growing belief among Swedes that the danger of Soviet aggression has declined has created an atmosphere favorable to cutbacks in the defense program The Social DenOcrats the Liberals and the Center Party maintain that the Us and the USSR desire further relasation of tensions that the current balance of power has led to a desire to keep were limited and that these deveIOpments have increased the potentiality for use of conventional weapons I Inter Party Cooperation Strained The manner in which the Social Democrats presented their defense proposal has strained inter-party cooperation on defenseo 'They first announced it in the Royal Defense Commission on which each-of the four non Communist parties has representation when the other members the two center parties and the Conservatives agreed on a counteruproposal the Social Democrats refused to consider a compromise The Conservatives then walked out of the Commission They returned after the two center parties had largely acceded to the Social Democratic demands but they did so ungracefully and only after a sharp exchange in Parliament between Prime Minister Erlander and Conservative leader Holhberg Fouruparty unity on defense questions will be rery difficult to attain in the future I Acquisition of Nuclear weapons Now Less Likely The new defense Situation makes it even less likely-that Sweden will acquire nuclear weapons The Supreme Commander requested in early 1966 that nuclear weapons research be expanded so that the lead time necessary to make such weapons would be reduced from seven years to four and so that the Option to acquire nuclear weapons would thereby be kept meaningfulo The Defense Commission did not act on his request however and CONFIDENTIAL FOREIGN DISSEW CONTROLLED DISSEM 1 ASSIFIED ij t g FOREIGN DISSEM DISSEM research expenditures may actually be reduced under the proposed budget for 1967 68 Defense Minister Andereeoe has recantly publicly opposed a deoleration by Perliament that Sweden will not make nuclear weapons and has indicated that the option will be kept at least theoretically alive mainly'ae a means of putting pressure on the major powers to achieve nuolear disarmament It seems undeniable however that the new economic and political situation makes it extremely unlikely that the authorities will take any positive action on the matter Indeed the Swedish Government appears ready to Sign a nonuproliferetiOh treaty FOREIGN DISSEM CONTROLLED DISSEH 1 ea-ll a if Authorin Lj Oj g' FOREIGN DISSEM Social DemoCrats Act Unilaterally to Cut Defense-Costs On January ll Sweden's minority Social Democratic Government departed from precedent in proposing to Parliament a defense budget that did not have the support of the other three nonnCommunist parties and that departed significantly from the previous fouruparty agreement on defense Since 1958 the Social Democrats Liberals Center Party and Conservatives usually negotiating within Royal Defense Commissions have made agreements for a three 0F f0ur year period the last such agreement concluded in 1963 expires this year and_a new Defense Commission has been sitting since 1965 trying to negotiate another one The Social Democrats demanded that further increases in defense spending be halted for the next few years at least In late January the two center parties the Liberals and the Center Party agreed essentially to the government's proposals and pledged their cooperation with the Social Democrats on farnreaching revisions of the present defense system and on new longurange planning at a reduced level of spending Therefore acceptance of the government s proposals with little change seems assured The Communists according to their present tactics will probably support the Social Democrats even though they want still further outs Only the Conservatives oppose the government Defense Spending to Drop Below 4% of GNP Pleading economic difficulties and changes in the international scene the government proposed that defense appropriations for fiscal 1967 68 rise only enough to compensate for estimated priceincreases or from 4 8 billion kronor1 to 5 13 billion kronor Moreover the government deleted the 2 5% increase that has been granted annually under the 1963 Agreement for moderniza- tion purposes and declared that the 350 million kronor in apprOpriationed funds that were frozen last year as an economy measure would remain frozen As a result the proposed budget is about 545 million kronor less than the Supreme Commander General Rapp had requested and the proportion of the GNP given to defense will drop below 4% -- approximately to 3 7% for the first time in over 10 years Furthermore the government has insisted that this reduced level of spend-rE ing must not be raised in the next four years except to compensate for price rises and that the funds for such increases would come only fromhunfreezing the 350 million kronor already appropriated The center parties have wanted to' allow an increase of only about 100 million kronor a year for the next four years 1 5 19 kronor US $1 00 FOREIGN DISSEM FOREIGN DISSEM but they will probably finally agree with a figure not much above that proposed by the Social Democrats If appropriations are kept to the- level that the government advocates over as long as Seven years the usual length of mili- tary modernization programs defense spending would be about 6 64 billion kronor less than the figure recommended by the Supreme Commander to maintain current defense goals Both Economic and Political Reasons Lie Behind Government's Action The principal reason for the government's decision to_halt further rises in defense spending and for the center parties' willingness to accede to its wishes is that the Swedish economy largely as a result of inflationary pressures has been running into difficulty Sweden's rate of inflation has been one of the highest in Western Europe and government economists are pessimistic about the future wage contracts that peg wage rises generally to an 8% - 9% increase a year considered excessive by most economists still have two years_to run The balance of payments deficit is at a worrisome level The GNP is expected to increase at a slower rate in the last half of the 1960's and in fact there has been a downturn in the first two months of 1967 Taxes are already high and no party advocates raising them significantly Therefore increasing emphasis has been put on limiting increasea in government spending and on trimming where at all possible _ Defense spending had escaped up to now but it has presentEd a tempting target to government economizers a The political situation has also put pressure on the government to act The Social Democrats already in a minority in Parliament lost heavily in the fall 1966 local elections their share of the vote dropped from about the 51% that they won in the 1962 election to 43% Popular_disgruntlement with rising prices was generally considered the chief cause for this loss Therefore government leaders have concluded that more drastic action is needed to stem inflation before the next parliamentary election scheduled for 1968 if the government is to stay in power Thus the proposed 1967 68 budget is a 7 stringent one in addi iOn to imposing government economy measures it raised the sales tax from 10% to 11% and upped other indirect taxes considerably Prime Minister Erlander has declared that the defense establishment must now bear its share of retrenchment Social Democratic leaders probably also believe they can capitalize_on reductions in defense spending to appeal to leftuwing elements and younger Swedes who have been deserting their party to vote for the nationalnminded and relatively moderate Communist Party which has stressed antiumilitarist and disarmament themes A cut in defense outlays would be particularly popular with this group which has become increasingly critical of the Erlander administration The Liberal and the Center parties particularly the former also contain anti militarist elements especially among their younger members and the leaders of these two parties have also shown fear that they might loss support from - those quarters FOREIGN DISSEM i l FOREIGN -73 Finally the grouing belief among Swedes generally that the danger of Soviet aggression has declined has created an atmosphere favoring economieS in the defense program The Social Democrats the Liberals and the Center Party have declared m in a directive that their repreSentatives on the Defense Commission issued to the Supreme Commander on January 20 -- that Sweden must adjust to the changed aggressive threat' picture The directive Stated that the US and the USSR are seeking greater relaxation of tensions and that a balance of power has been achieved at different levels and in different parts of the world The large power desire to limit the wars that exist as much as possible Therefore conventional strength for the direct defense of terri- tory is regarded as having greater meaning In a separate subsection the Social Democrats went further and declared The situation in Europe is now more relaxed Against this background the organization of the defense forces ought to be so formed that it makes possible an adjustment'both up and down in with the demands of developments on the international scenel - imam Defense Chiefs and Opposition Spokesman SconsCuts Even under the defense programs of the past few years which have kept military spending at about 4 5% of the GNP since 1958 Swedish defense chiefs have had great difficulty in maintaining a strong modern_defense force because of rising costs and swift advances in military technology This has been particu larly true in the case of the Air Force which is currently Western Europe's third largest The replacement of the aircraft now in operation with the new delta type Viggen jets has been so costly than there have been doubts whether i it could be carried out The Air Force Commander in-Chief General Thunberg has publicly branded the government's proposed budget as catastrophic General Rapp has bluntly warned the government that the Viggen program will have to be reassessed and that the i number f air squadrons may have to be cut in half Programs to replace naval vessels may also have to be abandoned Rapp has dramatically proclaimed that the defense forCe may no longer be able to repel an attack and defend the entire country Conservative party leader Holmberg and Sweden's most influential news- paper the Liberal Dagens Nyheter have gone so far as to question whether the defense forces will remain strong enough to allow Sweden to maintain its tra- 3 ditional policy of non-alliance and armed neutrality Government and Supporters Call for Review of Defense and Organization Government spokesmen have sought to counter the claims of military leaders and some Opposition politicians particularly among the Conservatives that the proposed defense cutbacks will seriously weaken Swedish defense In a long statement to the press on January 14 Defense Ministsn' der son admitted_thet the present emphasis on the air force as the chief meansto deter attack be maintained but insisted that under the changed_internaticnal circumstances a tenacious defense of territory led chiefly by the army could provide just as much of a deterrent as present defense strategies do He contended that the present objective of forcing an aggressor to pay more than his gains would be FOREIGN DISSEM yam-ii i WM TEE-CLASSIFIED AumodWE BileXiggl mi 7 ii same mm LASSIFIED use LAuthoriWW FOREIGN DISSEM lworth cOuld therefore still be achieved Representatives of the Social Democrats and the two center parties on the Defense Commission directed the Supreme Commander last January to investigate the effects of the proposed level of defense appropriations over the next four years on the oeganization and missions of the armed forces They asked him also to weigh the role that the air force should play The Social Democrats requested an investigation of the possibility of replacing the interceptor version of the Viggen by anti aircraft missdes probably the Swedish version of the US Hawk All three parties agreed that the training period for conscripts in the air force and the navy should be shortened The Supreme Commander's reports to be made in a preliminary version in June and in final form by September 25 are to form the basis for the next'interaparty long term agreement Meanwhile pacifist and anti militarist elements have-seized on the proposed defense reductions to argue for further cuts and a full-fleged national debate on defense and foreign policies seems to be in the making One left-wing spokesman for instance has claimed that further defense cuts would contribute to efforts to reduce tensions in Europe and increase confidence in Sweden's policy of neutrality I In rebuttal the Director of Sweden's Foreign Policy Institute early this month argued the contrary Far-reaching cuts would not have such an effect Instead they would change the power situation in Scandinavia at least as a result the Danish Government might find it necessary to accept greater west German participation in the defense of Denmark which in turn might be displeasing to the Soviet leaders Finnish security interests might be affected by such cuts In general the Scandinavian seCurity situation might be worsened Therefore the present Swedish_policy of neutrality supported by a strong defense was still best even though the domestic economic and inter- national political situation might justify some reductions in defense spending Social Democratic Initiative Strains Inter-Party Cooperation The Social Democratic manner of handling the issue of reducing defense spending has so strained the traditionalpfour-party cooperation on defense that it will be very difficult to restore inter-party unity in this field Social Democratic representatives on the Defense Commission first preposed in October 1966 that the 2 5% annual increase in defense spending for modernization purposes be drOpped and that the length of the four-party agreements be reduced from four to two years The other three parties submitted a counter-proposal in late November agreeing only to limited reduction but the Social Democrats refused to negotiate Then Defense Minister Anderseon stated in a radio address on December 12 that the Opposition proposal would not be considered in the government s 1967 68 budget i i When the budget was presented to Parliament on January ll the Conservative representatives asked their party leadership for permission to withdraw from the Commission but the two center parties led by Center Party Chairman Hedlund FOREIGN DISSEM CONFIDENTIAL NO FOREIGN DISSElVI COWFROLLED DISSEH - 5 i- ho before 1957 had been in coalition Hith the Social Democrats decided to remain when the Prime Hinister expressed a willingness to alloH the Commission to draft a new four-year defense plan The two center parties then largely acceded to Social Democratic demands and agreed on the new Commi ss ion directive to the Supreme Commander before the Conservatives rejoined the Commission As a result the Conservatives chose to put forth in the form of a parliamentary resolution a separate proposal for the future level of defense spending it varies little from that in the 1963 agreement The hard feelings thab exist not only between the three oppostion parties and the Social Democrats but also behieen the Conservatives and the other two oppostion parties were evidenced during the sharp exchanges that took place betHeen Prime Minister Erlander and Conservative Party Chairman Holmberg during the parliamentary debate on January 19 At the end of the debate Hedlund deplored the fact that llunity on the defense question has been destroyed The new situation created by the proposed cuts in defense spending reduces the likelihood that the Swedish Government vJill authorize manufacture of nuclear weapons The Supreme COllMander has consistently held that Sweden Hill be unable to have an effective defense force by the 1970's if it does not acquire nuclear weapons However he has recognized political realities and in recent years has fought only to keep open the option to make the weapons within a short period of time In Nay 1966 he requested a specific limited appropriation to increase the present military research program on nuclear weapons so that the lead time would be reduced from about seven years to four His request was referred to the Defense Corr ission which has failed to act on it The cuts in defense spending proposed by the Social Democrats call for reducing expenditures on military research but it is not clear whether this liould affect nuclear weapons research It does seem significant however that the January directive to the Supreme COIT ander to investigate the effects of cutting defense outlays specifically excluded consideration of nuclear weapons Defense Hinister Andersson stated in -mid-January -that opinion within the Social Democratic Party differed on whether Parliament would declare that Sweden will not make nuclear weapons He said that he personally opposed such a declaration Some papers quoted him as saying The decisive thing is that we by not taking any steps show that we do not plan any nuclear weapons construction HOi-lever according to Arbetet the paper closest to the government he said e have the technical resources to make atomic weapons I And he agreed with the editor of a southern Swedish newspaper Sk nska Dagbladet when the latter asked whether our freedom of action in the question of atomic weapons cannot be used as a means of pressure on the large powers The clear implication was that Sweden still maintains freedom of action on the matter but that the new economi c and political situation makes it extremely unlikely that Sweden vlOuld take any positive action In fact the government seems to be preparing to sign the nonproliferation treaty NPT an action which would effectively rule out future acquisition CONFIDENTIAL NO FOREIGN DISSB' CO ROLLED DISS q