Section 3. Europe

Item 1. Regional Situations

1. Reforms in Eastern Europe and Assistance to East European Countries.

(1) Reforms in Eastern Europe

The process toward democratization in East European countries progressed rapidly in 1989. Reforms started in Poland and Hungary. In Poland, Solidarity held a round-table conference with the Communist Government from February through April to discuss a future political set-up. In February Hungarian Socialist Workers Party decided to introduce pluralism.

In postwar Eastern Europe, all moves toward reform, like the 1956 Hungarian revolt (Note 1) and the "Prague Spring" (Note 2) in Czechoslovakia was severely suppressed by the Soviet Union. Accordingly, there was fear that the moves toward reform which started early in 1989 in Poland and Hungary might provoke Soviet intervention. But, such fear dissipated when Soviet President Gorbachev ruled out Soviet intervention and expressed support to each country's choice of its own political system in June and July.

In Poland, Solidarity member Tadeusz Mazowiecki became Prime Minister in August 1989 and organized the first non-Communist government in Eastern Europe. In Hungary, the Communist Party declared a break with communism in November. As the Soviet Union made a gesture of non-intervention in these moves, reforms in East European countries gained momentum.

Behind the rapid spread of reforms in East European countries was a dramatic change in East Germany which used to be a stronghold of communism in Eastern Europe. Under pressure of the exodus of East Germans to West Germany and the frequent outbreak of demonstrations, Erich Honecker's Regime, which ruled the country for 18 years, resigned. Communist Party rule began to crumble rapidly as the Berlin Wall was torn down and the party abandoned its leading role in November. With the changes in East Germany, moves toward democratization rapidly spread to other East European countries. In Bulgaria, the reins of government passed from Todor Zhivkov to Petur Mladenov. In Czechoslovakia, the leadership changed hands amid the continuance of demonstrations in November and a non-Communist-controlled government was organized. In Romania, following the outbreak of anti-government demonstrations and street fighting in December President Nicolae Ceausescu was arrested and executed.

Reforms in Eastern Europe spread rapidly just because most people in these countries supported democratization. In postwar Eastern Europe, Stalinistic centralization of power modeled on the Soviet Union developed rapidly, under which individual freedom was suppressed and rule by the secret police was maintained. But, since people did not accept the system wholeheartedly, communist rule began to collapse rapidly as soon as fear of Soviet intervention was dissipated.

Also behind the rapid changes was the economic disparity with Western countries. The economy has long stagnated in East European countries as a result of the inefficiency of the centrally controlled economic system. Consumer life in these countries lagged far behind that in Western countries because of an industrial policy putting too much emphasis on heavy and chemical industries and neglecting the production of consumer goods. Such an economic system could be maintained only in a closed society. However, with the development of information technology, in particular the diffusion of television and radio, ideological education and propaganda could no longer hide the economic stagnation in East European countries.

In fact the reforms accelerated under the impact of the perestroika policy of the Soviet Union. While perestroika was initially aimed at rehabilitating socialism. The reforms in Eastern Europe were pushed with the notion that economic reforms would not succeed within the framework of one-party dictatorship of the Communist Party and centrally planned economy. East European countries are now going beyond such a framework and pushing for a society with freedom, democracy and the market economy system.

The progress in domestic reforms is bringing about major changes in the foreign policies of European countries. These countries are positively moving closer to Western countries, in particular the European Community. All East European countries except Romania and Albania have concluded or signed economic cooperation agreements with the EC. At the same time, the severance of ideological ties with the Soviet Union has made the Warsaw Treaty Organization irrelevant, whereby Soviet troops have begun to withdraw from Hungary and Czechoslovakia.

Meanwhile, free elections have taken place in East European countries since the turn of the year: in East Germany in March, in Hungary in March and April, in Czechoslovakia in June and in Bulgaria in June. Except in Bulgaria, former Communist parties failed to win the confidence of the people. All the new governments thus established in Eastern European countries accept freedom and democracy as basic values and plan to shift to a market economic system.

However, there are many problems the East European countries must surmount. Despite a conspicuous decline of former Communist parties no stable political force taking their place has not yet grown mature in each country. The new governments are also facing such difficulties as rising commodity prices and an increase in the number of jobless workers, resulting from the curtailment of the fiscal deficit, tight monetary policy and other measures adopted in economic reforms. Furthermore as trade accounts within the COMECON are to be settled by hard currencies from January 1990, East European countries are losing stable trade relations with the Soviet Union, from which they purchase crude oil and other raw materials in return for their exports of industrial goods. As a result, purchase of raw materials from the Soviet Union is likely to become a burden on Eastern Europe. Some East European countries, already in the throes of heavy debt, will be shouldering additional burdens.

In addition to the economic problems, there are fears that nationalism, suppressed under Communist rule, may come into the open.

Despite these unstable elements, the democratization in Eastern Europe has already become an irreversible strong current. Furthermore, the democratization in Eastern Europe has given rise to active moves toward the formation of a new order in Europe. These moves, behind which lies the concept of a unified Europe, are becoming a force strong enough to neutralize the unstable elements.

(2) Support to East European Countries

At the Arch Summit in July 1989 the participating countries agreed to extend economic support to Poland and Hungary and invited the EC Commission to hold an international conference concerning support to the two countries.

Thus, the EC Commission convened a conference of countries concerned with support to Eastern Europe, in which 24 countries (all member countries of the OECD) - the 12 EC member countries, six EFTA member countries plus Japan, the United States, Canada, Australia, New Zealand and Turkey took part in this framework, called G-24, the participating countries exchanged views on the need for support to Poland and Hungary, set priority areas for support and made other adjustments needed to make such support most effective. Up to July 1990, the G-24 has held five official level meetings and two ministerial-level meetings.

The first G-24 high working-level meeting, held in August 1989, agreed to categorize as priority areas, 1) food aid to Poland, 2) improvement of market access, 3) expansion of investment, 4) cooperation in the field of management control, and 5) cooperation in the field of the environment. On the basis of the above framework, the G-24 countries worked out assistance measures, most of which were submitted to the first G-24 ministerial-level meeting held in December. The amount of assistance which the G-24 countries have so far offered to extend to the two countries totals about $10 billion. The first G-24 ministerial-level meeting also agreed to extend assistance to other East European countries besides Poland and Hungary if their reforms progressed.

At the fourth G-24 high working-level meeting in February 1990, agreement was reached on the extension of G-24 assistance to five countries: Czechoslovakia, Bulgaria, Yugoslavia, Poland and Romania if there was progress in their reforms up to certain criteria, in pluralism, free elections, respect of human rights, rule by law and a market economy.

In view of the fact that free elections were held in most East European countries from March through June 1990, the second G-24 ministerial-level meeting decided to extend assistance to East Germany, Czechoslovakia, Bulgaria and Yugoslavia. Assistance to Romania was shelved in view of the fact that there was an excessive use of force when anti-government demonstrations were suppressed in June 1990. However, it was agreed at the meeting that Romania would be added to the list of assistance recipient countries as soon as the country's democratization is confirmed, and that humanitarian aid could be extended even before then.

Meanwhile, French President Francois Mitterrand proposed in October 1989 the establishment of a European Bank of Reconstruction and Development (EBRD) to further assist the East European countries advancing political and economic reforms. After difficult negotiations on the drafting of an agreement on the establishment of the EBRD, prospective participating countries and organizations signed the agreement in May 1990. The participating countries and organizations are the G-24 countries plus other countries including the Soviet Union and East European countries, in total 40 countries), the European Economic Community (EEC) and the European Investment Bank. EBRD's activities are expected to start after the agreement is ratified by a certain number of participating countries. East European countries will receive assistance, mainly in their private sector, on the condition that they fulfill democratic principles.

(3) Japan's Response

Reforms in East European countries represent a historic move which changed the postwar international order. Japan is actively participating in the extension of support to East European countries on the stand that, as a major supporter of the international order, it must fully assume its due international responsibilities. In a speech in Berlin in January 1990 Prime Minister Kaifu outlined assistance measures amounting to an aggregate $1,950 million to Poland and Hungary and expressed Japan's readiness to positively respond to other East European countries if reforms progressed there. (Appendix 1)

When the second G-24 ministerial-level meeting decided to expand assistance to other East European countries, Japan expressed its readiness to study various measures to be extended to countries newly becoming assistance recipient countries. (Appendix 2) Japan needs to give a concrete form to such measures in the future.

As a signatory to the agreement on the establishment of the EBRD, Japan is expected to extend positive cooperation to the EBRD, which, unlike other international development financial organizations, has a highly political character. Japan's share of capital subscription will be the second largest after the U.S. Japan will also cooperate in the areas of co-financing and procurement of funds as well as in sending personnel.

2. Moves Toward German Unification.

The driving force behind the major changes in the European order, along with dramatic changes in the East European situation, was the moves toward unification of the two Germanys, which, as divided nations, have existed as a symbol of the East-West confrontation for 45 years since the end of World War II. Since the Berlin Wall virtually collapsed on November 9, 1989, the situation developed at an unforeseeable speed and the unification of the Germanys materialized on October 3, 1990. This event symbolically testified to the fact that the European order is at a historic turning point: from confrontation to accommodation.

(1) Opening of the Berlin Wall

On November 9, 1989, the East German Government announced a resolution by the Ministerial Council to drastically ease the restrictions on East Germans' exit from the country, whereby the Berlin Wall virtually lost its relevance. The Berlin Wall had physically prevented the exodus of labor force from East Germany, suppressed East German people's freedom of leaving for West Germany for nearly 30 years since it was built, and existed as the symbol of East-West confrontation. However, in the second half of 1989 the East Germans who sought to emigrate to West Germany started a mass exodus via Hungary. The exodus was made possible by a decision by the Government of Hungary already in the process of liberalization.

It is considered that the East German Regime of Egon Krenz dared to virtually open the Wall after judging that the government could not contain people's discontent unless drastic liberalization was accelerated.

(2) Acceleration of the Unification Process.

 At that time, few foresaw the possibility of the opening of the Berlin Wall immediately accelerating German unification, because East Germany had refused unification and because it was inconceivable for the Soviet Union to easily approve the unification. On November 28, 1989, West German Chancellor Helmut Kohl announced a 10-point proposal for German unification, under which a union will be established after free elections in East Germany and eventually a federation will be formed. East Germany came out against the idea of unification on the ground that a continuation of the two Germanys was essential for the stability of Europe. The exodus of East Germans to West Germany continued even after the opening of the Berlin Wall at a rate of some 2,000 a day, and at the same time East German economic conditions worsened, which added to the instability of the country. Under these circumstances, East German Prime Minister Hans Modrow reversed himself and announced plans for a phased German unification on condition of neutrality of a unified Germany. His proposal envisaged the formation of a treaty community between the two Germanys, to be followed by the establishment of joint committees between the legislatures and states to first build a confederation and then a federal state. When Chancellor Kohl visited the Soviet Union February 10-11, General Secretary Gorbachev clarified his stand of endorsing German unification in principle, with a result that German unification gained momentum toward realization.

(3) Internal Aspect of Unification

German unification assumes two aspects: internally the unification of two states with different social systems, and externally a postwar settlement of a nation defeated in World War II.

The internal aspect involved two questions: 1) how to carry out the unification, and 2) how to proceed with specific unification works both politically and economically.

As to the first question of the legal framework for unification, while the East German Democratic Social Party (former Communist Party) and the Social Democratic Party (SPD) asserted that the two Germanys negotiate a constitution of a unified Germany and form anew state on an equal basis, the Conservative Coalition insisted on a formula for East Germany to take the necessary procedures to merge with West Germany under Article 23 of the West German Basic Law. As the Conservative Coalition won the March 18 free election in East Germany and as the SPD, in negotiations on the structure of a SPD-Conservative coalition, accepted a unification formula based on Article 23 of the West German Basic Law, the unification of the two Germanys through East Germany's merger with West Germany was finally decided.

As to the second question of how to take procedures for unification, economic integration advanced ahead of political integration with the conclusion of a treaty for the creation of currency, economic and social unions.

Behind the rapid progress in economic integration was a mass exodus of labor force from East Germany, which made it certain to plunge the East German economy into calamity barring the realization of early unification. It also made it imperative for West Germany to let East Germans enjoy the prosperity of the West German economy while staying in the East German area, as the number of East German emigrants to West Germany had reached a maximum permissible limit. To deal with the situation, it was necessary to ensure economic stability through the early realization of virtual unification in the economic, currency and social areas, while pushing for political unification.

A summit meeting between West and East Germany on April 24 agreed to create the currency, economic and social unions starting July 1990. After a series of negotiations on various pending issues such as the currency exchange rate, a treaty on the creation of the currency, economic and social unions was signed on May 18 and came into force after approval was given by the legislatures of both Germanys. Under the treaty, East Germany completely abandoned its currency sovereignty and almost fully adopted the market economy-based West German systems in its economic and social areas.

As to the exchange rate between the West German mark and the East German mark, it was agreed that a 1-1 rate would be applied to East German people's savings below a certain limit as well as their wages and pensions, and a 1-2 rate for cash and savings above that limit. In political terms, the agreement meant that Chancellor Kohl's pledge on the application of the 1-1 rate during campaigns for the March 18 East German election was accomplished. Economically it raised the expectation that a further exodus of East Germans would be restrained. On the other hand, it was feared that commodity prices would rise now that East Germans could possess the West German mark excessively and that a rise in wages would worsen the management of East German companies with low productivity.

It is expected that with the unification of the two Germanys, massive fiscal assistance from the West German Government would be needed for the improvement of the industrial foundation, modernization of production facilities as well as unemployment allowance and other social securities in the East German district. At the time the currency, economic and social unions were created, the West German Government had already decided to create a 115 billion-mark unification fund for the economic reconstruction of East Germany.

(4) External Phase of Unification

Regarding the external aspect of unification, a unified Germany's security position and the treatment of its border lines, in particular the German-Polish border known as the Oder-Neisse Line became a contentious issue. In February 1990, the foreign ministers of the two Germanys as well as the U.S., Britain, France and the Soviet Union agreed to settle the issue in consultations among them, called the Two plus Four Conference.

As to a unified Germany's position in security, West Germany and Western countries including the U.S., Britain and France took the stand that a unified Germany should remain in NATO, whereas the Soviet Union, from the viewpoint of securing its own security, insisted on a unified Germany's neutrality.

In East Germany, Prime Minister Modrow had initially cited a unified Germany's neutrality as the condition for unification. But, the Conservative Coalition, which favored a unified Germany's continued membership in NATO, emerged victorious in the East German elections in March 1990, and the SPD, which joined the grand coalition government, agreed to a unified Germany's NATO membership. Poland, Czechoslovakia and other neighboring countries, too, supported a unified Germany's NATO membership for fear that a neutral unified Germany could become a threat. The Soviet Union, which opposed the idea, was isolated.

In February, West Germany outlined a policy of refraining from deploying NATO forces in what was then East Germany after unification. In addition to such a West German initiative, an extra NATO Foreign Ministers Conference in May decided to agree to the stationing of Soviet troops in the East German territory during the transitional period. The decision was a part of NATO'S efforts to try to compromise with the Soviet Union on the issue by giving consideration to the Soviet Union's security. The Soviet Union proposed a unified Germany's simultaneous accession to both NATO and the Warsaw Treaty Organization as well as the postponement of the settlement of the external aspect of German unification. However, both at the first and second Two plus Four conferences, held in Bonn on May 5 and in East Berlin on June 22, respectively, the Soviet Union remained basically opposed to a unified Germany's continued NATO membership.

A NATO summit meeting held in London in July upheld a review of NATO's role and strategy to deal with a new era, and declared its intention to strive to build a new partnership with the Soviet Union and East European countries. The Soviet Union favorably evaluated these moves and President Gorbachev told West German Chancellor Kohl, during his visit to the Soviet Union, that a unified Germany could choose which alliance to belong to. President Gorbachev's clarification of the stand virtually settled the question of a unified Germany's continued NATO membership. (Note) The German NATO membership was also confirmed at the third Two plus Four Conference held in Paris on July 17.

As to the second question of the German borders Poland and the four World War II victor nations - the U.S. , Britain, France and the Soviet Union - had strongly demanded, from the time moves toward unification became conspicuous, that the two Germanys promise not to alter the borders between a unified Germany and Poland for the future. In June, the legislatures of the two Germanys adopted by an overwhelming majority statements that 1) a unified Germany would not demand changes of the present border with Poland for the future, and 2) after unification, Germany and Poland would conclude a treaty legally confirming the present border. Furthermore, it was agreed at the third Two plus Four Conference, to which the Polish Foreign Minister was invited, that 1) after unification, an agreement determining the status quo of the border be promptly concluded between Germany and Poland and ratified by respective legislatures, and 2) later a treaty of good neighborly relations and cooperation be concluded between Germany and Poland.

(5) The Present Situation

The governments of the two Germanys had agreed in principle in July to hold elections for a unified Germany on December 2. In August East German Premier Lothar de Maiziere proposed that the date of the all-German elections be advanced to October 14 (the date of state legislature elections in East Germany), as the issue of the "external aspect" of the unification had been virtually settled and the economic situation in East Germany deteriorated more than had been expected. The ruling Christian Democratic Union of West Germany welcomed the proposal, but the West German SPD took the stand that though an early realizing of unification was necessary, there was no need to advance the election date. This made it official to hold the unified elections on December 2, as originally scheduled.

However the East German CDU and SPD found themselves at loggerheads over the timing of the unification, that is East Germany's merger with West Germany, itself. SPD demanded that the unification be realized as soon as possible after the fourth Two plus Four meeting in Moscow on September 12, but the CDU opposed the idea. A special session of the East German parliament held on August 23 adopted a resolution endorsing East Germany's merger with West Germany on October 3. With the West German side welcoming the resolution, the unification on October 3, 1990, became final. On August 31, the Unification Treaty governing the political and legal integration at the time of unification was signed.

3. New Evolution of the European Economy

The market integration of the European Community is steadily developing toward 1992, and progress is also expected in moves toward the EC's economic and monetary integration scheduled later. The EC, which will incorporate a unified Germany, is also strengthening its relations with other East European countries as well as the EFTA. The EC is considered likely to play a leading role in Europe as it gropes for a new European economic order, and make major contributions to the development of the world economy.

(1) EC's Market Integration as well as Economic and Monetary Integration

The protocol for a unified Europe, which, took effect in July 1987, set a guideline for completing a borderless area within the region by ensuring the free movement of people, goods, services and capital. It also aimed at accelerating decision-making processes through the introduction of a system under which decisions are made on many issues by a specific majority not by unanimity.

In regard to the integration, various problems remain to be settled except agriculture, fishing and commercial policy, the integration of which has almost been completed. An EC report on internal market integration, adopted by the EC Commission in June 1985, cited 299 items as the target of the removal of internal barriers. (The number has been reduced to 282 through adjustment). These items have been submitted to the EC Council by the EC Commission and half of them approved.

Indirect taxation, control on human movements across the borders and other matters still left unsettled in the integration works all concern the fundamentals of each member country's sovereignty and thus difficulties are foreseen in the process. Yet, it is seen likely that the basic current toward integration will remain unchanged.

Beyond the market integration lies the target of economic and monetary integration. An interim meeting of the European Council, held in Dublin in June, agreed on the holding of an inter-government conference in December 1990 to discuss economic and monetary integration, an issue over which the EC countries had sharply differed. (Note)

In some countries, mainly those under the rule of the socialist parties, there are arguments emphasizing the social aspect of the EC integration so that workers' rights will not be impaired by it. A European Council meeting held in Strasbourg in December 1989 overrode British objections to adopt a charter of the fundamental social rights of workers guaranteeing, among others, basic labor rights and workers' participation in management within the EC. (The charter is not legally binding.)

(2) EC and German Unification

An interim European Council meeting, held in Dublin in April, approved an EC Commission report calling for integrating East Germany into the EC in stages without revision of the Treaty of Rome.

(3) EC's Relations with Eastern Europe and EFTA

Since establishing formal relations with the COMECON in 1988, the EC has pushed through with the conclusion of bilateral trade and economic cooperation agreements between the EC and COMECON countries. In view of the recent progress in reforms in the East European countries, the European Council, at its interim Dublin meeting, decided to complete the conclusion of the bilateral agreements by June 1990 and to start preparations for concluding an associatiton agreement incorporating economic and technological cooperation with the COMECON with the aim of materializing free trade between the two groups.

Relations between the EC and the EFTA have been developing too. A joint EC-EFTA ministerial meeting held in Brussels in December 1989 adopted a joint declaration featuring a decision to start in the first half of 1990 formal negotiations on the creation of a European Economic Area (EEA) aimed at ensuring the free movement of people, goods, services and capital between the EC and EFTA.

4. Changes in Existing European Organizations

Against a backdrop of the new developments in Europe, high-lighted by the democratization of East European countries and the dramatic moves toward German unification, existing European organizations such as NATO, the EC and the CSCE are undergoing changes too.

(1) Review of NATO's Rule and Strategy

The reforms and liberalization in Eastern Europe, the virtual collapse of the Warsaw Pact Organization in the military sense and the withdrawal of Soviet troops from Eastern Europe and other developments have made it necessary for NATO to review its role and strategy. A NATO summit meeting held in London in July clarified NATO's response to the new European situation by adopting the London Declaration on a Transformed North Atlantic Alliance.

The declaration emphasized NATO's defensive nature and outlined a policy of strengthening NATO's political function. It also recognized the necessity of extending friendly hands to East European countries and proposed a joint declaration with the Warsaw Treaty Organization incorporating the reaffirmation of mutual nonaggression. In regard to NATO's strategy, the London declaration maintained NATO's stand that the alliance needs an appropriate mix of nuclear and conventional forces in Europe (CFE) for the foreseeable future, and even keep them up to date where necessary. On the other hand, NATO document took the stand that once the Soviet Union completes its withdrawal from Eastern Europe and a treaty on conventional forces in Europe is signed, it will be possible for NATO to adopt a new strategy making nuclear forces weapons of last resort, reduce forward presence where appropriate, and modifying flexible response to reflect a reduced reliance on nuclear weapons. As to Short-range Nuclear Forces (SNF), the London Declaration proposed that SNF reduction talks start as soon as the CFE treaty is signed and that NATO nuclear artillery shells be totally eliminated from Europe in return for reciprocal action by the Soviet Union.

(2) Moves Toward EC Political Integration

Keeping step with the moves toward the market integration scheduled for the year-end of 1992, the EC has started moves toward an economic and monetary union as well as political integration.

Belgian Prime Minister Wilfried Martens' call for European political integration in March 1990, was followed in April by the issuance of a joint message in the same direction by French President Mitterrand and West German Chancellor Kohl. The two leaders said that the time had come for the EC relationship to be transformed into a European union. Specifically, they proposed that the governments of the EC member nations examine 1) the democratic legitimacy of the alliance, that is, the strengthening of the authority of the European Parliament, 2) improvement of the efficiency of EC organizations, 3) ensuring the integrity and consistency of the alliance in the areas of economy, currency and politics, 4) the definition and implementation of common policies regarding foreign policy and security. The two leaders proposed that preparations for an inter-government conference on such a political union be started.

The proposals were submitted to an interim meeting of the European Council in April, where the acceleration of political integration was confirmed and the conclusion was reached on the start of a detailed study of the necessity of revising the Treaty of Rome. A European Council meeting in June decided to hold an inter-government meeting on political integration in December 1990. Details of the political integration will be revealed during preparations for the inter-government meeting or in other processes.

(3) Increasing Importance of CSCE

The Conference on Security and Cooperation in Europe (CSCE), which consists of 35 countries - all European countries except Albania plus the United States and Canada - has served as an important framework of East-West dialogue in Europe since it adopted the final Helsinki Document in 1975. (Note 1)

Various conferences and meetings are under way within the framework of the CSCE. In addition to the ongoing negotiations on conventional forces in Europe (CFE) and confidence and safety buildup measures (CSBM), issues of a wide range were examined at such forums as the East-West economic conference in Bonn in March 1990, second Human Rights Conference in Copenhagen in June 1990 and the Environment Conference in Sofia in October 1989.

Amid the major changes in the European situation, the CSCE is becoming increasingly important as an all-European forum. This is underscored, for example, by an attempt to develop the CSCE, which basic ally has the character of a conference, into an international organization. The London Declaration, adopted at the London NATO summit in July, incorporated specific recommendations on institutionalizing the CSCE (Note 2).

A CSCE summit conference is scheduled to be held within 1990 as a forum for seeking the agreement of all European countries on how the new European order should be. The CSCE summit is expected to decide to bolster CSCE's structure, sign the CFE agreement, and endorse the conclusion reached by the Two plus Four Conference on German unification.

Item 2. Situations in Major Countries

1. United Kingdom 

Prime Minister Margaret Thatcher marked her 11th year in office in May 1990. Prime Minister Thatcher has stepped up Thatcherism with priority on small government by continuing to privatize public service sectors one after another, following the privatization of government enterprises. However, the Conservative Party's popularity has been sharply on the decline, with the privatization criticized as excessive, inflation rekindling since 1989 and objection to the introduction of the poll tax increasing. On the contrary, the opposition Labor Party's public approval rating has been exceeding the Conservative Party's since March 1989. Contributing to the situation is the Labor Party's shift to a realistic policy line. In a review of its policies, the Labor Party abandoned its advocacy of the unilateral elimination of nuclear weapons. Offensives mounted by the ultra-leftists in the party in the late 1980s were put under control. As a testimony to the increasing Labor popularity, the party boosted its numerical strength in local elections held in May 1990. The Conservative Party, though, has been regaining public support after adopting new policies including a review of the introduction of the poll tax and positive environmental protection efforts.

On the economic side, business overheating has led to an upsurge in exports and a subsequent deterioration of the current account balance of payments, with the current account deficit widening to ��20,850 million in 1989. Slowing inflation began to spur with consumer prices surging 7.8% during the year. To stave off the inflation and defend the pound, the British Government has maintained a high interest rate policy. The high interest rate, which puts burdens on debtors of equipment investment funds and housing loans, partly contributes to the waning of the Conservative Party's popularity. Having announced a dismal economic outlook by forecasting a 1% growth for 1990, the government is expected to maintain the high interest rate policy and tight-money fiscal policy in continuing difficult economic management.

2. France

In the Senate election in September 1989 the Socialist Party only maintained its pre-election strength. Though the No. 1 opposition Reassembly for the Republic (RPR) drastically increased its strength, the opposition remained in control of the Senate. As the Socialist Party is short of a majority even in the National Assembly (lower house), Prime Minister Michel Rocard's Government is expected to experience rough sailing on various occasions.

In New Caledonia, the assassination of Jean-Marie Tjibaou, chairman of the pro-independent Kanak Socialist National Liberation Front, in May 1989, brought into the open the intra-factional disputes within the group, but the election of a new chairman in June 1990 stabilized the situation.

On the domestic economic front, France maintained relatively high growth, with the 1989 growth rate standing at an estimated 3.5%, thanks to private sector efforts to step up rationalization and modernization prior to the EC's market integration. However a chronically high unemployment rate now running at the 10% level and the continuing external trade deficits, totaling 45.9 billion francs in 1989, remain among the problems the Government must surmount.

In external relations, President Mitterrand, in his belief that the EC must serve as the nucleus of the stability and development of Europe, has positively worked for EC integration amid the progress in the democratization of Eastern Europe and in moves toward German unification. France in fact has been playing a leading role in the formation of a new European order. President Mitterrand energetically held a series of summit talks with the leaders of the United States, the Soviet Union and West Germany. Chairing the EC Council in the second half of 1989, France convened an urgent meeting of the European Council in Paris immediately after the collapse of the Berlin Wall and proposed the establishment of the European Bank of Reconstruction and Development.

3. West Germany 

Chancellor Kohl's ruling Christian Democratic Union, which bad repeated poor performances in local elections since 1987, suffered setbacks in two state elections in May 1990 and lost its control of the Bundesrat. This made it necessary for the ruling party to cautiously steer parliamentary proceedings.

The German economy achieved a growth of 4% in 1989, the highest rate in the 1980s, bolstered by the continued strong domestic demand and increased exports of investment goods amid the investment boom in European countries. The trade surplus in 1989 registered an all-time high of 134.9 billion marks. The expansionary trend continued in 1990 with the growth rate in the first quarter standing at 4.4%. The unemployment on downtrend dipped to 7 % in May 1990. Commodity prices rose 3% in 1989 and the stable trend continued in 1990, rising 2.3% in May over a year before. However, there is concern about inflation, as the East German and West German marks have been exchanged at a 1-1 rate within a certain limit since July 1990. It remains to be seen how the German economy can shoulder the burdens of the unification of the two Germanys, as a huge amount of funds must be raised to improve East Germany's standard of living and basic industrial structure.

4. Italy 

Following Prime Minister Ciriaco De Mita's resignation, Giulio Andreotti's center-left coalition Cabinet was inaugurated in July, 1989. The new coalition Cabinet was made up, as the previous Cabinet, of five center-left parties. The new Cabinet is positively tackling the important task of promptly responding to the EC's market integration and reconstructing the country's fiscal situation. The ruling parties had somewhat differed since the turn of the year over the management of the government and over immigration-related legislation, but the five-party coalition was upheld in the unified local elections in May 1990. Several Cabinet members resigned in July over a broadcasting bill, but the prime minister managed to tide over the crisis by reshuffling the Cabinet.

Meanwhile, new developments in Eastern Europe prompted the Communist Party, the second largest party in the Italian parliament, to decide to dissolve itself at a party convention in March 1990 to be reorganized into a new party with other leftist parties in the future.

The Italian economy has been on an expansionary course since 1984, registering 3.2% real growth in 1989 sustained by active domestic demand. Inflation, which ran 6.6% in 1989, has been showing a sign of easing since the beginning of the year. The fiscal deficit continued to narrow for the fourth consecutive year in 1989, though it still remained at a high level of some 132 trillion liras or 11% of the country's gross domestic product. The trade deficit widened from the previous year to about 17 trillion liras. The unemployment rate remained at a high 11.5% with young people, females and Southerners making up the bulk of the jobless. Meanwhile, the government fully liberalized the transfer of capital in May 1990 to meet the EC market integration.

5. Poland 

In June 1989 the Solidarity scored an overwhelming victory in the first free elections (Note) since the Socialist Regime was established, and organized the Citizens' Parliamentary Club to become the largest group in the legislature. Against this background, Tadeusz Mazowiecki became the Prime Minister as the first non-Communist to take the reins of government in Eastern Europe since Communist rule started in the region. After experiencing difficulties in organizing his Cabinet due to factional rivalry over Cabinet posts, Mazowiecki managed to launch a Cabinet including Polish United Workers (Communist) Party members in September 1989. The Mazowiecki Cabinet immediately embarked on the task of reconstructing the economy with austerity measures. The liberalization of food prices and the wage indexation introduced by the Communist Government had caused inflation to soar to 40% to 50% on the average in August and September. The free internal exchange of currencies authorized from March 1990 temporarily boosted the exchange rate to a level 10 times as high as the official rate. Under the situation, the Mazowiecki administration agreed with the International Monetary Fund on a structural adjustment program in December 1989 and pushed through a new economic policy in January 1990 focusing on a balanced budget, tight-money financing, the stabilization of the currency, restraints on wage raises, privatization of government enterprises and the creation of a stock exchange market. The government achieved certain results in the stabilization of the currency thanks to the exchange stabilization fund established with the cooperation of Western industrialized countries, including Japan, in January 1990. The fund enabled the Government to recover the internal currency convertibility and to reduce the inflation rate by 3% in June from the previous month.

In February 1990 a multilateral agreement was reached to allow Poland to repay its debt over a longer period than in the past in the fifth rescheduling of debt repayment. The measure was taken to relieve the country's external debt burden, now totaling as much as $40 billion, which is emerging as a big obstacle to the country's economic reconstruction. The Polish people acknowledge that the new economic policy is indispensable for the country's economic reconstruction. Underscoring the people's persistent discontent over restraints on higher wages and the increasing unemployment rate resulting from the new economic policy, coal miners walked out in January 1990 and a massive railway strike broke out in May.

In the local elections in May 1990, the first ever completely free elections in Poland, the Solidarity won the largest support of the people, with their share of votes totaling 42%. However, a decrease in the voter turnout to 42% from 62% in the parliamentary elections in June 1989 underscored the people's apathy to politics. At the same time, the local elections witnessed the political diversification of the people, with more than 15 organizations fielding candidates. Poland changed the country's name from the Polish People's Republic to the Polish Republic in December 1989.

Diplomatically, the question of fixing its western border with Germany has emerged with the rapid progress toward unification of Germany. Through its active diplomatic maneuvers, such as participation in the Two plus Four Conference, Poland secured a promise that a unified Germany would recognize the present western border.

6. Hungary 

Since the beginning of 1989, moves toward political reforms focusing on democratization and the introduction of pluralism gained momentum. The ruling Socialist Party (former Communist Party), at its 14th party convention in October that year, declared a break with one-party dictatorship and communism. On the basis of the decision, the parliament adopted a new constitution, a political party law, an election law and a law for the introduction of the presidential system and decided to change the country's name from the Hungarian People's Republic to the Republic of Hungary. Transition to a parliamentary democracy was thus peacefully achieved. In the general elections held on March 25 and April 8, the Socialist Party suffered a stunning setback though it had served virtually as the driving force of the reforms. The Hungarian Democratic Forum, a moderate reformist group with a populist tendency, emerged as the No.1 party by winning 164 seats in the 386-member parliament. In May Jozsef Antall, leader of the Forum, organized a coalition government.

Economically, though in the throes of a $20 billion external debt and inflation, Hungary moved on toward a market-oriented economy focusing on privatization and ownership reforms. An act of business organization, which permits 100% privately owned companies with up to 500 workers and abolishes basic restrictions on foreign capitals, was enacted in 1989 as part of the economic reforms under way since as early as 1968. In 1990 a stock exchange was established.

In diplomacy, Hungary has been pushing its own foreign policy. It eliminated barbed wire along its border with Austria in May 1989 and allowed East Germans staying in Hungary in the hope of emigrating to West Germany to leave for Austria in September. The mass exodus of East Germans and other measures which would eventually lead to the opening of the Berlin Wall aroused an international sensation.

7. East Germany

 While Poland and Hungary pushed for reforms, Erich Honecker's regime had steadfastly rejected changes. However, the instability in East Germany came into the open, as citizens led by youths and intellectuals began to demand reform, and the number of people seeking exit to West Germany sharply increased. In September 1989 the Hungarian Government unilaterally let more than 10,000 East Germans staying in Hungary leave for Austria on their way to West Germany. At this point, East Germany's isolation even from the Soviet Union and other East European countries became evident.

Simultaneously with the mass exodus of people, demonstrations demanding reforms began to take place throughout the country. As some 110,000 persons turned out in a demonstration in Leipzig, the largest ever rally held in the country, in October 1989, Honecker resigned as General Secretary of the Unified Socialist (Communist) Party and Chairman of the Council of State at an emergency meeting of the party central committee. Egon Krenz, Politburo member of the party, took over as General Secretary.

Krenz started dialogue with citizens, promising to promote liberalization and democratization to a certain degree within the framework of socialism. But, he failed to restore people's confidence. As the mass exodus of citizens continued, as many as 1 million people rallied in a demonstration in East Berlin in November. The entire membership of the Council of Ministers resigned and General Secretary Krenz reshuffled the party Politburo. On November 9, East Germany lifted all restrictions on foreign travel and opened the Berlin Wall.

In the People's Parliament, Hans Modrow, a reformist member of the party Politburo, was named Prime Minister. In December, all members of the party Politburo and central committee; including General Secretary Krenz, resigned under pressure of rank-and-file party members. The conservatives were completely swept out of power and the reformists led by Prime Minister Modrow took over the party leadership.

As the injustices and corruption committed by the Communist Party in the past were revealed, people's discontent with the party spread throughout the country and East Germany began to lose the centrifugal force in its internal politics.

As reforms progressed, citizens began to carry more weight than intellectuals, and their voices were directly reflected in internal politics. Against a background of East German people's aspiration for freedom, democracy and the high standard of living already realized in West Germany, as well as their nationalistic sentiment, demand for unification of Germany gained momentum. As the exodus continued at a rate of 2,000 a day, Prime Minister Modrow endorsed unification and announced plans for gradual unification. Moves toward unification got into full swing.

In the free elections held on March 18, the German coalition, led by the Christian Democratic Union, which advocated an early realization of unification, won a landslide victory and Lothar de Maiziere organized a Cabinet embracing middle-of-the-road parties in April. The de Maiziere administration concluded a treaty for monetary, economic and social union with West Germany in May to push for reforms toward unification. After the treaty came into force on July 1, the number of jobless workers sharply increased (272,000 at the end of July) due mainly to a delay in protective measures for the agricultural sector, which, together with other factors, created economic disorder and social unrest in the country. This in turn accelerated the moves toward unification.

8. Czechoslovakia 

The Communist regime in Czechoslovakia, the existence of which was based on rejection of the Prague Spring reform movement, had avoided political reforms, which could lead to its self-denial, and attempted to carry out reforms only in the economic field.

As people's discontent with the Communist regime intensified, the Government's crackdown on a student demonstration in November triggered demand for liberalization and democratization. As huge demonstrations continued daily in Prague, General Secretary Milos Jakes and other leaders of the party resigned. The revision of the Constitution that followed abolished the leading role of the Communist Party. In December a coalition Cabinet led by non-Communists was inaugurated and President Gustav Husak, former party General Secretary, resigned, finally putting an end to the Communist rule in Czechoslovakia. The smooth transition to a non-communist government was called "a velvet revolution."

The new government, led by President Vaclav Havel, former leader of the anti-government coalition Civic Forum, advocated a return to Europe and carried out political reforms including revision of the law on the freedom of assembly and association and the abolition of censorship. The Civic Forum, which emerged as the largest party in the June 8-9 free elections, organized a union with the Masses Against Violence to lead moves toward democratization and liberalization.

Czechoslovakia changed the country's name from the Czechoslovak Socialist Republic to the Czech and Slovak Federal Republic.

On the economic side, the government took various reform measures including the enactment of a private enterprise law and the revision of the foreign capital and joint venture laws.

Czechoslovakia's economic reconstruction is expected to make relatively steady headway, because 1) the country bas built industrial foundations and accumulated technology since before World War II, 2) the tradition of industrial society has been rooted among people, and 3) the country has relatively light debt burdens, now totaling about $7.9 billion.

9. Bulgaria 

State Council President and Communist Party General Secretary Todor Zhivkov, who held power for 38 years, suddenly offered his resignation in November 1989 and Foreign Minister Petur Mladenov succeeded him. The transfer of power, which came before the people's demand for democratization began to rise, was tinged with a power struggle within the Communist Party. The Mladenov Government carried out a major reshuffle and a restructuring of the government in a positive move toward reform. Anti-government forces organized the Union of Democratic Forces and strengthened their demand for reform at such forums as a round-table conference with the Communist Party. The National Assembly held in January 1990 deleted the article on the Communist Party's leading role in society from the Constitution in favor of the introduction of pluralism.

The 14th extraordinary convention of the Communist Party held from late in January through early February carried out a major structural and personnel reshuffle. Politburo member Lilov was elected to the newly created post of the Chairman of the Supreme Council to form a troika leadership with State Council President Mladenov and Prime Minister Lukanov. The State Council was abolished in April in favor of the presidency, which was assumed by State Council President Mladenov.

In the free elections held on June 10 and 17 as part of democratization, the Socialist Party (formerly Communist Party) won a majority. But, the party, which advocates a coalition with other parties, had failed to organize a Cabinet as of the end of July due to differences with major opposition parties which had refused the coalition. The political situation became more fluid in July after President Mladenov offered to resign in the face of protests from opposition parties and students following reports that he ordered out army tanks to quell demonstrations at the end of 1989.

Economic growth of Bulgaria was down from the previous year due to labor shortages resulting from ethnic Turks' mass exodus to Turkey and a frequent outbreak of strikes. The economic stagnation continued in 1990, which, coupled with rising commodity prices, puts pressure on daily life. With the country's external debt exceeding the $10 billion level, the Government temporarily suspended repayments of capital in March 1990.

10. Romania 

President Nicolae Ceausescu, reelected as General Secretary of the Romanian Communist Party for a sixth term at the 14th party congress in November 1989, maintained his anti-reform policy line. However, anti-government campaigns, triggered by an anti-government riot in Timisoara in mid-December, spread to all parts of the country. On December 22 the Ceausescu regime, in power for 24 years, was overthrown by democratic forces supported by the national army. Ceausescu and his wife were later executed.

Late in December a new government was established by the Council of the National Salvation Front (NSF). The new Government laid down a policy for democratization and liberalization including the abolition of one-party dictatorship, the introduction of pluralism, the holding of free elections, and changed the country's name from the Socialist Republic of Romania to Romania.

The Council of the NSF was initially inaugurated as an interim legislature. But, after the NSF announced its intention to contest the forthcoming elections, the opposition to the NSF grew and anti-NSF demonstrations frequently broke out. In February the new Government and opposition parties effected a reconciliation and launched as a replacement for the Council of the NSF the provisional council of National Unity including opposition parties.

In the free presidential and legislature elections, peacefully held on May 20, the NSF emerged victorious and the NSF's presidential candidate, Ion Iliescu, was elected President.

Romania's steady move toward democratization was temporarily marred when the security authorities' excessive use of force in their crackdown on anti-government forces during the June 13 rallies and demonstrations in central Bucharest caused casualties and was strongly criticized by Western countries. Iliescu took office late in June and a new Cabinet headed by Prime Minister Petre Roman was inaugurated.

Meanwhile, despite the new Government's promise to respect the rights of minorities, disputes between the Hungarian minority and Romanian people broke out in Transylvania.

On the economic side the new Government has announced an economic restructuring policy with emphasis on self-management of enterprises, promotion of agriculture and the inducement of foreign capital, but it is facing many problems. Full-scale economic reforms have just started.

11. Yugoslavia 

Yugoslavia is shifting from the self-management socialist system under the League of Communists (Communist Party) to a market economy and to Western-style pluralist democracy.

The League of Communists virtually split at the 14th party congress in January 1990 when the delegates of the Slovenia Republic Communist Party walked out over ethnic differences about how reforms should be carried out. In Kosovo province, where ethnic Albanians hold a majority, ethnic disputes flared up again from January through February. The split of the Communist Party accelerated the tendency of each republic pushing for reforms independently. Slovenia and Croatia have introduced pluralism. Following free elections in April, non-Communist governments were established in the two republics in May. These republics are aiming to strengthen their own sovereignty simultaneously with democratization. As reform moves progressed on the federal level too, argument is mounting as to whether republics should maintain the federation or form a confederation.

Prime Minister Ante Markovic's Cabinet is pushing for a major economic reform toward a market economy in order to free the country from the current economic hardships featured by galloping inflation now running at an annual rate of 2 600%.

Since January 1990 the Government has been implementing a new economic policy forcusing on credit tightening and the liberalization of currency exchanges. The policy has succeeded in somewhat controlling inflation and achieving other results.

On the diplomatic aspect, Yugoslavia has continued to strengthen its non-alignment policy. Its initiatives included the holding of the 9th summit meeting of non-aligned countries in Belgrade in September 1989.

The country is also seen trying to integrate itself in the process of European integration, strengthening its links with the EC and applying for OECD full membership.

12. Albania 

Amid the radical changes in Eastern Europe, global attention was focused on moves of Albania, the last stronghold of Stalinism. Since the beginning of 1990 there has been some progress in the country's moves toward democratization as shown by Labor Party First Secretary Ramiz Alia's proposal for the introduction of plural candidates elect, freedom of religion and liberalization of traveling abroad. In July some 5,000 people sought shelter at foreign embassies in Tirana demanding exit to foreign countries. The incident testified to the deep discontent harbored by the Albanian people.

In the economic filed, First Secretary Alia, in a departure from the self-supporting policy line, has embarked on reforms calling for strengthening its self-supporting accounting system of state-owned enterprises and introduction of the principle of competition.

In foreign policy, Albania has begun to switch its isolation policy. First Secretary Alia, who had long ruled out the possibility of rapprochement with the United States and the Soviet Union, indicated the possibilities of Albania estabishing relations with the United States the Soviet Union and the EC, and in July resumed relations with the Soviet Union. These moves represented a departure from Albania's long-maintained closed foreign policy.

Item 3. Japan's Relations with Europe

1. Relations with Western Europe 

Western Europe shares with Japan and the United States the basic values and systems of freedom, democracy and market economy. Various moves toward the formation of a new European order, as mentioned in Chapter I of this Section, are all based on these values, and their impact is globally being felt.

Japan is closely watching these moves, as the building of a democratic, prosperous and stable Europe is essential for the formation of a desirable international order. Japan, a country supposed to carry a large burden of the international order, intends to make due contributions to the formation of a new European order.

In January 1990 Prime Minister Kaifu visited West Germany, Belgium, the EC, France, Britain, Italy the Vatican, Poland and Hungary. The visit was designed to demonstrate Japan's posture, establish global partnership with European countries in the formation of a new order and make appeals to Europe on the importance of strengthening the cooperative relationship with Europe.

Another important purpose of the visit was to clarify Japan's intention to positively assist the East European countries pushing for democratization. Prime Minister Kaifu outlined Japan's basic thinking on these issues in a speech in Berlin.

During the visit, the Prime Minister exchanged views with the leaders of these countries and won their endorsement of Japan's idea on such issues as the strengthening of Japan's political cooperation with Europe.

From Western Europe, British Prime Minister Margaret Thatcher visited Japan in September 1989 and agreed with Prime Minister Kaifu on developing Anglo-Japanese relationship into an "unprecedented partnership and friendly relations" toward the decade of the 1990s. In July 1990 French Premier Michel Rocard came to Japan and agreed with Prime Minister Kaifu to strengthening the bilateral relationship and explore the possibilities of Japan-French relations in wide fields.

2. Japan's Economic Relations with EC 

Since 1987 Japan's imports from the EC have been increasing more than its exports to the EC and Japan's trade surplus with the EC in 1989 declined from 1988. At the same time, Japan has been stepping up industrial cooperation with the EC and boosting investment in the EC.

Japan basically welcomes the EC's economic integration scheduled for 1992 because it makes major contributions to the development of the world economy and favorably evaluates the EC's stand that the EC would not become a closed entity.

The EC is discontent with some individual problems regarding Japan. It is seeking more access to Japan's agricultural market, Japan's expansion of leather goods as well as leather shoes, and equal job opportunities for foreign lawyers in Japan. There is a criticism in the EC that Japan does not apply the same principle as the EC. To clear up such misunderstanding, both sides need to make further efforts to promote mutual understanding. On the other hand, Japan and the EC are making progress toward settlement of the discriminatory quantitative restrictions on imports from Japan, as the EC has proposed to immediately remove 70 items from the list of 131 items on which restrictions on Japanese imports have been by EC countries except Britain. Regarding the anti-dumping tax imposed to parts produced by Japanese companies operating in the EC, Japan has appealed to the GATT. A GATT panel has passed a judgment in favor of Japan, which contended that the EC restrictions are against the GATT rule. Japan has also expressed concern that the EC Commission's unilateral enactment of rules of origin amounts to the imposition of restrictions on trade and investment.

Japan and the EC are also stepping up the exchange of visits between their leaders. Prime Minister Kaifu held talks with EC President Jacques Delors during his European tour in January, and the two agreed to further strengthen bilateral relations. Japan and the EC held their first ministerial meeting in more than three years in Brusseles in May 1990, putting an important landmark on the Japan-EC relationship. At this meeting, the Japanese and EC ministers agreed to promote their dialogue on all levels, set up a working group on trade problems and strengthen their cooperative relationship in the field of, among others, trade promotion, support to Eastern Europe, environment protection and science and technology.

3. Relations with Eastern Europe 

Japan has maintained good relations with East European countries. But exchanges between these countries and Japan have not been so active due to geographical and historical factors. As East European countries push for reforms for freedom, democracy and market economy, in which Japan believes, and as they are emerging as independent players, the need to develop bilateral relations with them are increasing.

Against such a background, Prime Minister Kaifu and Foreign Minister Taro Nakayama, visited Poland and Hungary in January 1990. During these visits, Prime Minister Kaifu clarified Japan's intention to extend support measures to these countries and agreed with their leaders to develop bilateral relations in wide areas including economic and cultural exchanges. In May Foreign Minister Nakayama visited Czechoslovakia and Yugoslavia and agreed with their officials to accelerate bilateral political dialogue, to expand or newly launch technological cooperation, to start negotiations for investment protection agreements, and to promote private-sector exchanges. From Eastern Europe, Bulgarian Deputy Prime Minister Petko Danchev and Yugoslavian Foreign Minister Budimir Loncar came to Japan in October 1989. In addition to the exchanges of prime ministerial and other ministerial visits exchanges on the working level also gained momentum. Japan dispatched to East European countries a governmental environment research mission in December 1989, technological cooperation missions in January through February and May through June 1990, and investment condition research mission in April. These missions exchanged views with their East European counterparts on how to specifically extend the cooperation.

As for cultural exchanges, Japan Culture Week was held on a large scale in East Germany, Hungary and Yugoslavia. (Refer to Item1 of this Section for details of Japan's assistance to Eastern Europe.)

Opportunity to expand cooperation on the private-sector level is also ripening. Since autumn 1989, various Japanese organizations and companies have dispatched research missions to Eastern Europe to explore such possibilities. But the amount of trade with East European countries in 1989 was only $1,596 million (declined 8.9% from the previous year). Japanese companies are said to be more cautious than American and West European companies about setting up joint ventures in Eastern Europe. It is desirable that reforms in Eastern Europe should get on the right track and economic exchanges including direct investment should expand keeping with the Japanese Government's efforts to improve the environment for Japan's cooperation to the region.

On December 29, 1989, Japan recognized the new Romanian Government, established after the collapse of the Ceausescu Regime, and extended $1 million as emergency aid.

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   Note 1:  In 1956 the Soviet Union sent its troops to Hungary to crush moves toward democratization. Prime Minister Nagi was later executed.

   Note 2:  The Soviet Union and other member countries of the Warsaw Treaty Organization intervened militarily in Czechoslovakia to crush the reform movement (Prague Spring) aimed at realizing communism with a human face.

   Note  :  At the German-Soviet summit meeting, it was agreed, among others, that Germany would recover full sovereignty at the time of unification; a unified Germany could freely decide which military alliance it would join; the NATO forces would not expand to the East German area while Soviet troops are stationed there; the U.S., British and French forces would be stationed in West Berlin during the same period; the German forces belonging to NATO could be stationed on East German area after Soviet troops are withdrawn from there, but no nuclear arms would be kept there. Chancellor Kohl said at the meeting that a unified Germany would reduce its military personnel to 370,000.

   Note  :  A committee on monetary integration, established under EC President Jacques Delors, adopted in April 1989 a final report dividing the integration process into three stages. A European Council meeting in Madrid in June 1989 agreed on procedures for economic and monetary integration including the start of the first stage in July 1990. The first stage will be featured by all the EC member countries' participation in the European Monetary System.

   Note 1:  The document provides for, among others, security of Europe, cooperation in the areas of economy, science and technology and the environment, and cooperation in humanistic and other areas.

   Note 2:  The recommendations called for: 1) the holding of regular inter-government consultation at the heads of state or ministerial level at least once a year, 2) the holding of regular working-level meetings, 3) the holding of conferences to review CSCE once every two years, 4) the establishment of a small CSCE secretariat, 5) the implementation of a CSCE mechanism to monitor elections, 6) the establishment of a center for exchanging military information, consulting on unusual military activities and conciliating disputes involving CSCE member states, and 7) the establishment of a CSCE parliament based on the existing parliamentary assembly of the European Council.

   Note  :  Completely free elections were held for the newly created upper house. In the lower house elections, 65% of the seats were allotted to the Communist Party and other government-controlled parties, while. the remaining 35% were open to free elections.