Section 3. Europe


1. Major Trends in the Region


1-1. EC Integration


(1) Current State of the EC Integration


(a) Deepening of Integration

(i) Market Integration

The 1985 White Paper entitled, "Completing the Internal Market" set a target date of the end of 1992 for achieving a single market in which people, goods, services and capital would move freely. Based on this Paper, the EC has been engaged in the adoption of laws and regulations which are necessary in removing impediments for the market integration. As a result, of the 282 items deemed to require new laws or regulations, specific measures have been taken on 264, approximately 94 percent of the total. As for the remaining 18 items (as of December 22, 1992), including common corporate laws and harmonization of taxation systems, coordination among the member countries are still underway, as many of these items involve intense conflict of national interests. Many of these laws and regulations require separate domestic legislation in each member countries. As of December 1992, the rate of domestic legislation averaged 81 percent in all member countries.

In 1993, many of the laws and regulations which have been adopted so far will take effect, thus creating, though not completely, a large single market of 340 million people and a GNP of about $6 trillion (about three times Japan's population and twice its GNP). The focus will shift to the economic and monetary integration, as described later, but the completion of the market integration itself has historic significance. It is hoped that the market integration will revitalize the regional economy through structural adjustments, deregulation and the rise in economies of scale, thereby contributing to the development of the world economy.

(ii) Treaty of European Union

(ii-a) Signing the Treaty

The EC set the program for economic, monetary and political integration at the European Council in Rome in December 1990 and held the first inter-governmental conference in each field. After a series of meetings, including the European Council at Luxembourg in June 1991, a basic agreement was reached on the Treaty on European Union (the so-called Maastricht Treaty) at the European Council in Maastricht, Netherlands, in December 1991. This Treaty was signed in February 1992 by the 12 EC member states in Maastricht.

The objective of the Treaty is to develop the present EC and to promote economic, monetary and political integration to create the European Union. This treaty lays down the ultimate objective of the European Union as "an ever closer union among the peoples of Europe." The Treaty consists of a revision of the Treaty establishing the European Economic Community to accommodate the economic and monetary union, and revisions of the Treaties establishing the European Coal and Steel Community and the European Atomic Energy Community. It also has new provisions on a common foreign and security policy and cooperation in the fields of justice and home affairs concerning the political union. It also stipulates the requirements for the Treaty to come into effect, and possesses an annex (various protocols and declarations).

(ii-b) Economic and Monetary Integration

Progress toward market integration increased awareness that coordination and harmonization of EC members' economic and monetary policies are necessary to attain an integrated market which is efficient and beneficiary to all members. In June 1989, the Delors Commission Report, which sets a three-stage timetable for economic and monetary integration was compiled. The Maastricht Treaty stipulates economic and monetary integration, incorporating the Delors Commission Report. When the Treaty is ratified and enters into force, coordination of monetary policies and convergence of fiscal policies will be pursued according to the following schedule, leading to the establishment of the European Central Bank and to the introduction of a single currency as part of plans for a single monetary policy applied throughout the EC.

Coordination in foreign exchange and liberalization of capital flows started in July 1990, as the first stage for economic and monetary integration. As for the second stage, the Maastricht Treaty stipulates the creation of the European Monetary Institute in January 1994. The European Monetary Institute will serve as a transitional body leading to the creation of the European Central Bank, which will strengthen coordination of monetary policies and monitor the functioning of the European Monetary System. The third stage, which is to begin by January 1999 at the latest will realize the creation of the European Central Bank and the implementation of a single monetary policy of the EC through introducing a single currency.

The Maastricht Treaty stipulates numerical criteria on price stability, fiscal policy, exchange rates and long-term interest rates as the conditions that member countries must fulfill to move toward the third stage of economic and monetary integration. This is designed to make the single EC currency a highly reliable, sound and stable currency. To this end, only those member countries which have high economic performance are expected to move to the third stage of economic and monetary integration with a single EC currency. The single currency is expected to bring enormous benefits, as it eradicates currency exchange costs by eliminating foreign exchange risk. The single currency is also expected to stabilize the international monetary system along with the U.S. dollar and the Japanese yen, thereby promoting international cooperation, as it is reliable as a common currency of countries of healthy economies. Progress in economic and monetary integration should also promote investment in the EC, not only by corporations in the EC but also by those outside. Furthermore, although it will depend on how the European Central Bank will be managed, implementation of a single monetary policy will make it possible to eliminate political intervention in the monetary policy of each country. Furthermore, the introduction of a single currency will serve as an important step toward EC political integration, as well as a symbol of the citizens of the European Union.

However, a series of monetary crises occurred in September 1992 against the background of widened interest rate disparities between the United States and Germany, uncertainties over the ratification of the Maastricht Treaty as well as disparities in economic performance among the member states. The United Kingdom left the European Rate Mechanism (ERM), and Italy abandoned the intervention obligation under the ERM. In addition, the European Monetary System was readjusted for the first time in the past five years and eight months. The stability of currencies is an important element in promoting economic and monetary integration, and it is hoped that the factors that triggered the crisis will be eliminated at an early stage so as to realize economic and monetary integration.

(ii-c) Political Union

The core of the political union is the common foreign and security policy. The Single European Act which entered into force in 1987 laid down mechanisms for cooperation and coordination of foreign and security policies and set up an independent secretariat for European Political Cooperation. Such coordination has already been seen in such issues as recognition of the New Independent States of the former Soviet Union and the former Yugoslavia, and peace-making efforts in the former Yugoslavia.

The Maastricht Treaty takes this a step further and stipulates that systematic cooperation will be established on items of common interest in foreign policy and security affairs, and joint action will betaken as agreed upon by the Council. Matters requiring joint action must be unanimously agreed by the Council, but some items can be decided by a qualified majority. Matters subject to joint action will include Central and Eastern Europe (including the former Soviet Union and the former Yugoslavia), the Maghreb and Middle East countries and within the security dimension, the process of the Conference on Security and Cooperation in Europe (CSCE), disarmament and arms control, nuclear non-proliferation in Europe and economic aspects of security affairs (especially transparency of conventional Weapons transfers). Concrete measures are being examined on these matters.

The common foreign and security policies include all questions related to the security of the Union, including the eventual framing of a common defense policy, which might in time lead to a common defense. Specifically, the Union requests the Western European Union (WEU), which is an integral part of the development of the Union, to elaborate and implement decisions of the Union of defense implications. This must be compatible with the security and defense policies set within the framework of the North Atlantic Treaty Organization (NATO).

Another pillar of the political union is cooperation in the fields of justice and home affairs. Asylum policy, rules for crossing external borders of the member states, immigration policy, combating drugs, combating fraud on an international scale, civil and criminal policies, customs cooperation, police cooperation on terrorism and major international crimes are to become matters of common interest and cooperation, although they are not to be dealt with as a common policy. In this respect, establishment of the Europol was also agreed upon.

The Treaty on European Union, in addition, strengthens competence of the European Parliament, introduces citizenship of the Union, and stipulates the principle of subsidiarity.

(ii-d) Recent Moves on Ratifying the Treaty on European Union

The Treaty on European Union stipulates that the Treaty shall enter into force on January 1, 1993, provided that all the instruments of ratification have been deposited, or failing that, on the first day of the month following the deposit of the instruments of ratification by the last signatory state.

The ratification procedure began in each member state after the signing in February 1992. Requirements for ratification differ from country to country; some require constitutional amendments or a referendum. In the referendum held in Denmark in June, 49.3 percent voted for and 50.7 percent against ratification. This outcome had considerable repercussions for the ratification procedures of other member states thereafter. In the extraordinary session of the Council of Foreign Ministers held in June, the other 11 signatories decided to proceed with their respective ratification procedures without changing the contents of the Treaty, while keeping the door open for Denmark.

Thereafter, in the national referendum of Ireland in June, the proposal to amend the constitution necessary for ratification was approved by 69.25 percent to 30.75 percent. Luxembourg and Greece also ratified the Treaty. The French referendum in September, which captured great interest worldwide, approved ratification by a scarce margin of 51.05 percent voting for and 48.95 percent voting against the Maastricht Treaty. Even though it was possible for France to ratify the Treaty by voting in the parliament, President François Mitterrand decided to seek the approval through a national referendum. This can be attributed to the view that such an important issue should be placed for direct public approval. It is also pointed out that President Mitterrand decided the holding of the referendum in view of domestic political considerations, particularly, in view of the parliamentary election scheduled in March 1993. France was regarded as the strongest supporter of EC integration, so the ratification of the Treaty by France was expected to encourage ratification by others. The very narrow margin of support, however, caused negative repercussions. In particular, opponents of European integration gained ground in the United Kingdom. Nevertheless, ratification by other member countries proceeded. By the end of 1992, 10 out of 12 member states had already decided to ratify the treaty, with Denmark and the United Kingdom left behind.

In the European Council in Edinburgh in December, member states agreed to Denmark's non-participation to decisions and actions which have defense implications and to the third stage of the economic and monetary union (such as the introduction of a single currency and the establishment of the European Central Bank). In response, the Government of Denmark announced its intention to hold another referendum in April or May 1993.


(b) Widening of Integration

While the EC is "deepening" the integration through the single market and through economic and monetary integration, it is also moving toward "widening" the integration, such as through the move of creating the European Economic Area (EEA) with the European Free Trade Association (EFTA) member countries, through the conclusion of a union agreement with the Central and Eastern European countries and through EC applications by the EFTA member countries. The question, for the Community, is how to balance the "deepening" and the "widening" of the integration.

(i) EEA Agreement

A free trading agreement was concluded in 1972 between the EC and the EFTA member states (Switzerland, Austria, Sweden, Norway, Finland, Iceland and Liechtenstein). With the move toward EC market integration, the mood to create a single market gained strength, and agreement was reached in October 1991 to create the EEA to realize the free movement of people, goods, services and capital between the EC and EFTA. The EEA agreement was signed in May 1992. Although it was originally scheduled to come into effect in January 1993 with the completion of the ratification by the EC and EFTA member countries, the agreement was rejected at the referendum held in Switzerland in December 1992. Consequently, adjustments among the countries concerned are being made to make the agreement effective without Switzerland during the first half of 1993.

(ii) Moves toward the EC Applications

The EEA agreement aims at enabling the EFTA members to enjoy the benefits of EC market integration while leaving aside political difficulties, such as their position of neutrality, in joining the EC. However, the collapse of the Soviet Union, has prompted the EFTA member countries to reconsider their positions on neutrality. They have also come to realize that the EEA agreement will basically keep the EFTA member countries outside the EC decision-making process. Under these circumstances, EFTA member countries one after another began applying for EC membership. By the end of 1992, Austria (1989), Sweden (1991), Finland (March 1992), Switzerland (May 1992) and Norway (November 1992) applied for the membership. It was decided in the European Council in Edinburgh in December 1992 that negotiations will be officially started with Austria, Sweden, and Finland for their membership at the beginning of 1993. Plans were also made in Edinburgh to begin negotiations with Norway.

(iii) Relations with Central and Eastern European Countries

The EC concluded an association agreement with Poland, Czechoslovakia and Hungary in December 1991 to create, among others, a free trade area, which is seen as the first step toward the application for EC membership by Central and Eastern European countries.


(2) Relations with Japan


(a) Overview

The Japan-EC Joint Declaration issued in the Hague, Netherlands, in July 1991 states that Japan and the EC share common political values, such as freedom, democracy, the rules of law and human rights, and economic values such as market principles and promotion of free trade and development of a prosperous and sound world economy. Recognizing that Japan-EC relations are increasingly interdependent, the Declaration announced for regular consultations and coordination on political, economic, scientific and cultural matters as well as major international problems. As a framework for this, it was agreed to hold annual summit consultations between Japan and the EC in addition to the existing Japan-EC Troika Foreign Ministers' Consultation (EC Troika refers to the present, previous and next Presidencies) and the Japan-EC Commission Ministerial Consultation. The Japan-EC Summit Consultation will provide an occasion for the top leaders to discuss policies from a long-term and broad perspective.


(b) Political Relations

Following the first consultation held at the time when the Japan-EC Joint Declaration was issued, the second Japan-EC Summit Consultation took place in London in July 1992 between Prime Minister Kiichi Miyazawa of Japan and Prime Minister John Major of the United Kingdom and the President of the EC Commission Jacque Delors. At this meeting, views were exchanged or: various important international issues, including the Northern Territories Issue. Since the meeting was held on the eve of the Munich Summit, the meeting provided Japan with a valuable opportunity to coordinate policies with the EC. This second summit laid the basis for the stable development of the comprehensive relationship between Japan and the EC, including on political matters.

In addition to the frequent working-level contacts between Japan and the EC, dialogue is also underway through regular consultative frameworks as mentioned above, such as the Japan-EC Annual Summit Consultation, the Japan-EC Troika Consultation at Foreign Ministers' Level, and the Japan-EC Troika Consultations at Political Directors' Level. Cooperation has been especially fruitful in areas, such as arms control and disarmament, Middle East peace process and assistance to the former Soviet Union.


(c) Economic Relations

Since 1991, the expanding trade imbalance has become a matter of concern between Japan and the EC. Nonetheless, it is imperative for Japan and the EC to promote cooperation in broad areas including the environment and development assistance, thereby building a relationship founded on sounder competition and constructive partnership based on the Japan-EC Joint Declaration.

(i) Current Situation

Although Japan's trade surplus with the EC had been diminishing since 1986, it resumed to increase from November 1990. In 1991 the surplus reached $27.4 billion, a 48 percent increase over the previous year. The main factors behind the increase were: first, the increased demand in Germany due to its unification; second, the rising export prices denominated in dollars because of the appreciation of the yen from the fall of 1990; and third, the reduction in imports of art works and expensive cars that had increased rapidly in 1990. In 1992, the trade surplus still shows an increasing trend.

As regards investments, since the announcement of the 1985 EC White Paper on Market Integration, Japan's direct investment in the EC has been actively increased, due to Japanese corporations' need for access to the huge EC market as well as their concern about the possible rise of protectionism in the EC. However, since FY 1990, most large-scale investment projects in the EC were completed, while Japanese companies faced falling profits and difficulty in obtaining capital as the bubble economy burst in Japan. As a result, Japan's direct investment in the EC has declined substantially. In fact, it fell 5.2 percent in FY 1990 against the previous year, by 34.0 percent in FY 1991. In the first half of FY 1992, it dropped by 22.2 percent from the same period of the previous year.

The EC's direct investment in Japan also decreased in FY 1991 from the previous fiscal year, reflecting the stagnant EC economy (Note). Its total investment is merely one-eighth of Japan's direct investment in the EC. It is hoped that companies in the EC will take a greater interest in Japan.

(ii) Progress in Dialogue

Japan conducts frequent exchanges of views not only with member countries of the EC, but also with the EC, including the regular Summit Consultations and ministerial meetings, Japan-EC high level consultations (the vice-ministerial level), and fora for economic dialogue on specific fields including industrial cooperation and competition policy.

Exchanges and dialogue between Japanese and EC business-men are held more frequently. A mission of the Japan Federation of Economic Organizations led by its Chairman Gaishi Hiraiwa visited Europe in November 1991 and March 1992. This mission proposed a "symbiosis" thesis as the guiding principle of Japanese corporations, which led to discussions that attracted public attention in Japan.

(iii) Problem of Trade Imbalance

In June 1992, the European Council adopted a document on its policy to Japan for the first time in four years since 1988. This document, whose tone is more positive in substance than its previous documents, stresses the need to strengthen Japan-EC relations in all fields, including political dialogue, based on the Japan-EC Joint Declaration. At the same time, in economic matters, it expresses concern about the expanding trade imbalance and proposes a meeting between Japan and the EC to assess and analyze its causes. The EC also expressed concern at summit meetings about trade issues and called for improved access to the Japanese market. It should be noted that the trade imbalance between Japan and the EC does not result from "the closed nature" of the Japanese market. As a matter of fact, the lack of interest and insufficient efforts by the EC companies in the Japanese market have contributed to the Japan-EC trade imbalance. From this point of view, it is indispensable for the EC, including its companies, to take a look at the Japanese market without bias and to make further efforts to develop the market in the context of the development of trade relations with Japan. The situation in which economic issues adversely affect overall Japan-EC relations runs contrary to the spirit of the Japan-EC Joint Declaration and must be avoided. Toward this end, both sides must maintain and foster close dialogue. Japan demonstrated such a line of thinking in June 1992 by announcing the "Basic Thinking on the Policy of the Japanese Government to the EC" as a response to the document of the European Council.

The next few years will be very important for Japan and the EC in developing a relationship based on the Japan-EC Joint Declaration. Thus, it has become increasingly important for Japan and the EC to pursue dialogue and mutual understanding in the economic fields.


1-2. Developments in European Security


With the end of the Cold War, the collapse of the Soviet Union, and persistent ethnic strife in the former Yugoslavia and the former Soviet Union, the security environment of today's Europe is under-going fundamental, structural changes. Efforts to secure Europe's own identity in relation to the progress made toward European Union are also underway. Given these changes, the existing security framework in Europe, including the North Atlantic Treaty Organization (NATO), the Conference on Security and Cooperation in Europe (CSCE), and the Western European Union (WEU), has been in the process of redefining itself and the inter-relationships between its institutions. Recent changes in Europe are truly of a revolutionary nature and Europeans are seeking an orderly framework to cope with them.


(1) Progress in Arms Control and Disarmament and Changes in the Military Situation

One of the major concerns of the West during the Cold War era was how to cope with the superiority of conventional forces of the former Warsaw Pact in Europe. NATO's response to the situation was to attempt to reduce conventional forces in Europe while deterring attacks from the East through the strategy of flexible response by retaining possible use of nuclear weapons. In November 1990, the Conventional Forces in Europe (CFE) Treaty, which aimed at terminating the Eastern superiority in conventional forces was signed. The Treaty came into effect in November 1992 after necessary adjustments to the treaties were made, following new developments such as the disappearance of the Warsaw Pact and the collapse of the Soviet Union, which posed a new question as to who should be the signatories. At the same time, the CFE-Ia Treaty, setting a ceiling on the number of personnel, was signed and became effective. As a result of these developments, the reduction in conventional forces in Europe has entered a new stage.

Negotiations on the implementation of the CFE and the CFE-Ia Treaties are to be continued in the Forum for Security Cooperation, created by the CSCE Helsinki Summit in July 1992, along with the negotiation on the implementation of the Vienna Document 1992 (effective May 1992) which sets out confidence and safety building measures.

Efforts to reduce nuclear forces are also underway, as is shown by the NATO decision in October 1991 to abandon all short-range nuclear forces and 80 percent of quasi-strategic nuclear forces, and by the signature in January 1993 by the United States and Russia of the Second Strategic Arms Reduction Treaty (START II).


(2) North Atlantic Treaty Organization (NATO)

In response to the end of the Cold War, NATO has redefined itself as an alliance of countries sharing common political values. NATO bas strengthened its political role and adopted a new strategy based on a concept centered on risk (of instability) instead of conventional threat perception. It is in the process of giving shape to its new post-Cold War role and reorganizing its armed forces based on the new strategy.

The United States is expected to maintain, though in a smaller scale, its presence in Europe.


(a) New Strategy of NATO

NATO's military strategy was formerly based on the strategy of forward defense and flexible response. Yet, NATO is now moving toward a reduced forward presence strategy, which was adopted at the November 1991 NATO Rome Summit, in response to the changes in the former Soviet Union, German unification and the ongoing withdrawal of the former Soviet forces stationed in Central and Eastern Europe. This strategy consists of deploying smaller troops with higher mobility to respond to risks by gathering or relocating these troops whenever necessary. The flexible response strategy is also subject to revision due to the abolition of intermediate nuclear forces by the Intermediate Nuclear Force (INF) Treaty (May 1991), the 80 percent reduction of quasi-strategic nuclear forces in Europe and the decision to abolish short-range nuclear forces.


(b) Relations with Former Eastern Bloc Countries

The basic policy of NATO toward the former Eastern bloc nations is centered on the question of how to assist the reconstruction of these countries based on common values. In the declaration adopted at the Rome Summit, "cooperation" was added to the traditional NATO role of "dialogue" and "maintenance of a collective defense capability." This has taken shape through the establishment of the North Atlantic Cooperation Council (NACC), as a framework for dialogue with the former Warsaw Pact countries. The objective of NACC is to contribute to the security of Europe by promoting the stability of Central and Eastern European countries through conferences at foreign ministerial and ambassadorial levels.


(c) NATO and Peace-keeping Operations

Because NATO is seeking to play a role not only in ensuring the security of the allied nations but also in building a framework of security for all Europe, its cooperation to Peace-keeping Operations is deemed indispensable. NATO has already been engaged in monitoring the former Yugoslavia since July 1992 on the Adriatic Sea and has also been operating to monitor the "no-fly zone" over Bosnia-Herzegovina (outside NATO territory) since October 1992. In addition, NATO has sent about 6,000 ground troops to the former Yugoslavia since November as the U.N. Protection Force (UNPROFOR) to protect the humanitarian relief operations and to support controls on heavy artillery implemented by the United Nations. NATO has also expressed its readiness to support Peace-keeping Operations under CSCE at the Foreign Ministers' Council of June 1992.

NATO's cooperation to Peace-keeping Operations in Europe will likely become one of the major activities of the organization.


(d) Relations with Japan

As NATO strengthens its political role and plays a broader part in constructing a new order in Europe, the strengthening of the dialogue between NATO and Japan will contribute to the reinforcement of Japan-European relations and Japan-U.S.-European relations as a whole. Personnel exchange is increasing as is shown by the visit of NATO Secretary-General Manfred Waerner to Japan in September 1991. The second Japan-NATO security conference held in November 1992 reaffirmed the importance of continuing dialogue between Japan and NATO.


(3) Common Foreign and Security Policies of the EC

The Treaty on European Union signed in February 1992 aims that the 12 EC member countries speak with "one voice" on foreign and security policies, and thus accomplishing the "European Union" not only on the economic but also on the political front. The role of the Western European Union (WEU) in supporting the common security policy from the military aspect is stressed, and WEU is defined as the indispensable defense component of the European Union as well as the means of strengthening the European pillar of the Atlantic alliance. WEU, which was originally launched as an organization to coordinate the defense policies of member countries, came to have an independent combat capability, with the creation of a military force as declared in the Petersburg Declaration of June 1992.

At their bilateral summit in May 1992, Germany and France set out an "European Force" initiative to act under WEU and agreed to create a Franco-German Joint Corp as its core, by developing the existing Franco-German Joint Brigade. The two nations agreed in December 1992 to place the Franco-German Forces under the command of NATO, an important move toward strengthening the relationship between NATO and France, which does not participate in the military organization in NATO.


(4) Conference on Security and Cooperation in Europe (CSCE)

During the Cold War era, the CSCE primarily aimed at building confidence between the East and the West. However with the end of the Cold War, the CSCE has been evolving as its framework for cooperation toward regional stability, based on common values, such as the market economy and democracy. To this end, institutional improvements and the strengthening of its functions are underway.


(a) Institutional Improvements and Strengthening of Its Functions

Since the Paris Summit Meeting of November 1990, the CSCE has made progress on institutional improvements and strengthening of its functions such as creating a mechanism to settle conflicts peace-fully and peace-keeping operations.

The Stockholm Council Meeting in December 1992 decided to set up a CSCE Secretary-General. Former Dutch Foreign Minister Max van del Stool was appointed High Commissioner on National Minorities. In addition, 30 countries, including France, Germany and Sweden, signed a Convention establishing a court of Conciliation and Arbitration for peaceful settlement of disputes.


(b) Increased Membership and Enlarged Role

The CSCE was initially launched with 35 countries. With Albania in 1991, the former Soviet Union and the former Yugoslavia in 1992 and the Republics of Czech and Slovakia in January 1993 when they separated, the number of member states has increased to 53. This indicates that the CSCE is accepting culturally and religiously diverse nations as members and its coverage both in term of sub-stance and geography is expanding. With its increased role, the interest of non-participating states in the CSCE is growing and the organization is extending beyond the limited traditional framework of North America and Europe.


(c) Relations with Japan

The post-Cold War developments of the CSCE indicate its important role in constructing a new world order. Given this, it is beneficial both for Japan and the CSCE to build closer relations. At the Helsinki Summit meeting, which Japan attended as a special guest in 1992, it was decided that Japan would be invited to major CSCE meetings, including the meeting of heads of state or government (Summit Meeting), Council and Committees of senior officials. Japan, however, will not participate in adoption of decisions, yet it will be given the right to make statements.

At the Stockholm Council Meeting, the major areas in which Japan will cooperate or be involved with the CSCE activities were identified as follows: first, issues with global dimensions, such as proliferation and transfers of arms; second, issues which need cooperation with international organizations, including the United Nations and others; and third, issues which directly affect Japan in terms of its security.

Thus, the strengthening of the relations between the CSCE and Japan has significant implications for Japan-U.S.-European relations and for Japan's international contributions. The CSCE itself is still undergoing changes, and its relations with Japan will be expected to further develop in the future.


1-3. The Former Yugoslavia


In the then Yugoslavia, the breakup began in 1990. The two northern republics of Slovenia and Croatia declared independence in June 1991, followed by the Macedonian Republic in September 1991, and the Republic of Bosnia-Herzegovina in March 1992. The remaining republics of Serbia and Montenegro established the Federal Republic of Yugoslavia (New Yugoslavia) in April 1992. Thus, Yugoslavia, which began in 1918 as the Kingdom of Serbs, Croats and Slovenes and lasted for over 70 years as a multiethnic country as the Kingdom of Yugoslavia, and the Socialist Federal Republic of Yugoslavia dissolved and disappeared.

The ethnic conflicts that arose in the dismantling of Yugoslavia still persist and any solution appears distant. Rather, some predicted that ethnic conflicts might spread to Kosovo and Macedonia that are in serious political and economic difficulties.

In the Republic of Slovenia, armed clashes which had broken out immediately after its declaration of independence ended quickly. Slovenia is unique among the former Yugoslavian republics for being a single ethnic nation, and is of the view that it has achieved its independence.

In the Republic of Croatia, intense warfare continued through-out the latter half of 1991 in all of the districts where the Serbians live. A truce was more or less maintained as of the end of 1992 with the dispatch of UNPROFOR since March 1992, but reconciliation between Serbian residents and the Croatian authorities appears difficult.

The armed conflict in Croatia spread to Bosnia-Herzegovina inhabited by three ethnic groups, as had been feared. Muslims and Croatians, who declared independence to maintain a unified republic, are being opposed by Serbians who insist either on independence of the Serbian districts or a division of the republic by ethnic groups. Thus, the fighting is becoming more intense as it is virtually a fight among ethnic groups for their own border demarcation.

The Republics of Serbia and Montenegro, after all other republics had declared independence, established the Yugoslavia Federal Republic (New Yugoslavia) as successor to the former Yugoslavia. But it has not been internationally recognized, being subject to severe United Nations sanctions for supporting the Serbian armed forces in the Republic of Bosnia-Herzegovina.

The Republic of Macedonia declared its independence in September 1992, but Greece had vehemently demanded a change in its name insisting that "Macedonia" refers to an ancient name of a Greek region. Taking into consideration the Greek demand, the EC n its meeting of the European Council in Lisbon in June 1992 decided that it would be prepared to recognize it without its reference to "Macedonia." However, Macedonia has refused to change its name, and is yet to obtain international approval. Macedonia is faced with economic difficulties. There is a concern that the armed conflict in Bosnia will spread to Macedonia and Kosovo, South Serbia, where there are large Albanian minorities.

The Yugoslavian situation has become a major issue not only for Europe, but for the international community. Originally, it was the EC which played a mediating role by gathering the leaders of each of the ethnic groups. However, with the spread of fighting in the Republic of Croatia, the United Nations became involved, and is overseeing the cease-fire with 14,000 UNPROFOR troops in the warring areas. Later, the U.N. dispatched 7,000 UNPROFOR troops to protect the transport of relief supplies to the Republic of Bosnia-Herzegovina, consisting of mainly troops of the United Kingdom and France.

The United Nations has charged the Republics of Serbia and Montenegro as mainly responsible for the fighting in the former Yugoslavia, particularly in the Republic of Bosnia-Herzegovina. Since June 1992, it has imposed severe sanctions on New Yugoslavia, consisting of these two republics, with a trade embargo, prohibition of capital transactions, ban on air links and sports exchanges.

In August 1992, the International Conference on the Yugoslavian Problem (London Conference) was co-hosted by the EC and the United Nations to exert pressure on all the parties involved in the conflict to accept a political settlement. The London Conference established a steering committee as a permanent body. Active mediation attempts have been underway, co-chaired by former U.S. Secretary of State Cyrus Vance and former British Foreign Secretary Lord Owen, in their efforts to find a solution to the conflict in Bosnia-Herzegovina.

In addition, the Conference on Security and Cooperation in Europe (CSCE) has sent long-term missions to the areas of concern over intensifying conflicts among ethnic minorities. Furthermore, organizations such as the United Nations High Commissioner for Refugees (UNHCR) are engaged in relief operations, with the aim of helping more than 3 million refugees and afflicted persons.

Japan supports the effort by the international community to tackle the Yugoslavian problem and has contributed donations to international organizations, such as UNHCR, as part of assistance to refugees totaling $24.51 million. It also sent a government delegation to the London Conference, and participated in the long-term mission of the CSCE.


2. Countries in the Region


2-1. United Kingdom


Prime Minister John Major has taken a series of measures to garner increased popular support to his ruling Conservative Party since he took office in November 1990. He abolished the unpopular poll tax, introduced by former Prime Minister Margaret Thatcher, and has pursued a more cooperative policy toward Europe. In a general election in April 1992 amid the longest recession in the postwar era, with negative growth since the third quarter of 1990, the Conservatives won the election for another five-year term despite negative opinion polls predicting a victory for the opposition Labor Party. However, the British economy continued to be in recession. In September 1992, when the value of the sterling pound was sharply reduced, the United Kingdom left the Exchange Rate Mechanism (ERM). In October, criticism of the Prime Minister's economic policy grew with the proposed plans to close coal mines on a large scale.

Prime Minister Major used the opportunity of the six-month U.K. Presidency of the EC from July 1992 to take the initiative in its policy toward the EC. At the same time, however, he was compelled to take a carefully-considered stance toward the so-called Euro-skeptics about European integration in his own party. These Euro-skeptics gained strength with the failure of the Danish referendum of June 1992 to ratify the Treaty on European Union, the slim margin in approval in the French September referendum to the Treaty, and the departure of the sterling pound from the ERM. Prime Minister Major endeavored to create an environment needed to approve the Treaty on European Union by way of, among others, hosting an extraordinary European Council meeting in Birmingham in October. In November the House of Commons adopted a motion, with a slim majority, to promote parliamentary discussions on the Treaty. Yet, Prime Minister Major stated the day after the motion that the final stage of the deliberations on the Treaty will not be initiated until May 1993.

In December 1992, the European Council meeting was held in Edinburgh, where agreement was reached on treatment of Denmark concerning its ratification of the Treaty and on medium-term fiscal packages. Progress was also made in other respects, such as the decision on the early start of negotiations to expand the EC. As such, the diplomatic skills of Prime Minister Major as the leader of the cbairing country of the EC attracted public respect.

Bilateral relations between Japan and the United Kingdom are in excellent shape. Political dialogues frequently took place between the two countries at various levels in 1992. Summit meetings between the two Prime Ministers were held in New York in January and in London in July 1992. The two Foreign Ministers met in January in Washington, D.C. and in September 1992 in New York, marking close policy consultations and cooperation. Economic ties are also strong, as shown by Japan's direct investment in the United Kingdom accounting for about 40 percent of Japan's aggregate direct investment to the EC. The United Kingdom has been promoting a "Priority Japan" campaign since 1991 which aims at increasing U.K. exports to Japan, transfer of technology from Japan and U.K. investment to Japan. This campaign and its preceding "Opportunity Japan" campaign are examples of the active U.K. approach toward Japan. In the cultural field, one noteworthy event was the holding of the "Japan Festival 1991" throughout the United Kingdom from September to December 1991. This large scale promotion of Japanese culture helped enhance the British people's understanding of Japan and strengthen the friendly relationship.

The United Kingdom has consistently maintained the view that Europe should remain open in the process of promoting European integration. It is also eager to strengthen its relations with Japan and maintain its traditionally close ties with the United States. The strengthening U.K.-Japan relations will significantly contribute to improving overall relations between Japan and Europe.


2-2. France


The domestic political situation in France has destabilized as France awaits parliamentary elections in March 1993, and as political movements become sensitive toward the presidential election. The French people appear to be weary of long years of the Mitterrand Administration and are increasingly dissatisfied with the rising unemployment rate. Prime Minister Edith Cresson who assumed office in May 1991, failed to live up to initial expectations not only in foreign policies (in particular its relations with Japan) but also in domestic policies. She resigned, taking responsibility for the dramatic defeat in the local elections in March 1992 (in which support for the Socialist Party fell to 18.3 percent, the lowest level since it was formed). Former Finance Minister Pierre Beregovoy, who became Prime Minister in April 1992, places the highest priority on the employment issue.

In the area of foreign policy, France has been pursuing its own independent policies in response to the structural changes in the international environment after the collapse of the Soviet Union. Under those circumstances, discussions about France's new security policy, including the question of the role of nuclear weapons, have become active. The government announced in April 1992 that it would suspend nuclear tests in the South Pacific for the time being.

In September 1992, a national referendum on the ratification of the Treaty on European Union resulted in an approval of the treaty by a slight majority. Because France was the strongest advocate of the European Union, this unexpected result had a major impact both at home and abroad. The referendum also provided an opportunity for individual French citizens to give a serious look at the European Union which until then had been promoted mainly by its intellectuals and elites. This can be seen as a promising event in the long run. The Government of France recognizes that its future lies in the advancement of the European integration in collaboration with Germany and believes that the realization of the European Union is indispensable for Europe to secure its influence in the process of seeking a new world order which would prevail beyond the 21st century.

While the French economy is fundamentally sound and enjoys relatively low inflation by European standards and largely improved trade balance, its double-digit unemployment rate exceeding 10 percent has become a serious social problem and has raised public dissatisfaction. Because the French Government is pursuing a strict fiscal policy with the main objective of balancing the budget, it is not in a position to take economic stimulative measures accompanied by large budgetary spending.

The relation between Japan and France, as a bilateral relationship between the countries with the world's second largest GNP (Japan) and the fourth largest (France), should be further developed both in depth and in breadth. This would also contribute to the development and stability of the world as a whole. Fortunately, France has come to share this recognition, and is beginning to take active policies toward Japan both politically and economically. The export promotion campaign "Le Japon C'est Possible (Japan, it's possible)" is a manifestation of this new positive French attitude. Japan highly regards and supports this campaign, believing that it will help not only the French firms but also European firms to take interest in Japan. In April 1992, when Prime Minister Kiichi Miyazawa visited France, he announced a three-part plan to increase exports to Japan, strengthen human exchanges, and improve communications between the two countries.


2-3. Germany


The Kohl Administration, which reinforced its position by achieving German unification in October 1990, secured a stable majority as a result of the general election in December of the same year. It implemented a tax increase contrary to its election pledges to support the United States in its operation during the Gulf Crisis and to finance the reconstruction of the former East German region. This reconstruction is proving a tough task. The difference in the standards of living between the East and t1ne West as well as the difference in values have risen as major social problems. Under these circumstances, the ruling Christian Democrat coalition suffered continuous defeats in the Lander (state) elections after unification, and the Kohl Administration is facing difficult parliamentary management due to the minority status of the ruling party (31 against 37) in the Upper House (composed of representatives from the Landers). In the state elections in 1992, conventional political parties that in the past have formed state governments, whether conservative or progressive, experienced substantial setbacks in its public support giving way to new parties advocating extreme rightist or environmental policies. Under these circumstances, political parties are now beginning to reexamine their strategies toward the next Federal Parliamentary election in 1994.

In the area of foreign policy, the change of Foreign Minister in May 1992 from Mr. Hans-Dietrich Genscher to Mr. Klaus Kinkel, has not given rise to a change in the basic policy. Germany has continued to take active initiative for the European integration with Germany and France playing the central role, for the settlement of the Yugoslavian issues through European cooperation as is shown by the adoption (at the end of 1991) by the EC of the catalogue for approval of the Republic of Yugoslavia for the strengthening of the functions of the Conference on Security and Cooperation in Europe (CSCE). These policies are rooted in the strong conviction of the present leadership that unified Germany should stand as a "Germany for Europe" and not as "Europe for Germany." Following the conclusion of the Good Neighbor Friendship Treaty with the former Soviet Union and Poland, Germany also signed Good Neighbor Friendship Treaties with four other Eastern European countries during the latter half of 1991. By promoting the North Atlantic Council (NACC) as the framework for dialogue between the North Atlantic Treaty Organization (NATO) and former Warsaw Pact member countries, and by jointly proposing to establish the International Science and Technology Center, Germany is taking necessary steps to consolidate democracy and stability in the countries of the former Soviet Union and Central and Eastern Europe and to maintain favorable relations with these countries.

Under these circumstances, debates within Germany about its contribution to the international community are growing as Germany accomplishes unification and completes restoration of its sovereignty. In particular, the questioning of dispatching German Federal forces outside the NATO region and the amendment of the "Basic Law" for that purpose have become important issues of debate. In this context, it is worth noting that the leader of the Social Democratic Party, the largest opposition party, expressed in November 1992, its readiness to examine the possibility of Germany's participation in military actions within the framework of the United Nations Charter under certain conditions. Against the background of recent debates about reorganization of the U.N. Security Council, Foreign Minister Kinkel expressed Germany's interest in acquiring permanent membership of the Council in his address at the General Assembly in September.

On the economic front, Germany faces rising inflationary pressures because of a tax increase in 1991, high wage increases, rapid growth in money supply and the expanded fiscal deficit, which have led Germany to take a tight monetary policy by maintaining high interest rates. High interest rates as well as the strong deutschemark have not only impeded domestic economic recovery, but have also limited the scope of monetary policies of the European neighbors through the Exchange Rate Mechanism (ERM) of the European Monetary System (EMS). The European currency crisis that began in September 1992 was largely attributable to the strong deutschemark resulting from Germany's high interest rate policy.

While Germany is still preoccupied with the task of unification and promotion of the European Union, the need for dialogue and cooperation between Japan and Germany, the central presence in Europe, has increased. The two visits of Prime Minister Kiichi Miyazawa to Germany and those of Foreign Minister Genscher and other German cabinet members to Japan in 1992, have contributed to the strengthening of bilateral relationship. The significance of stronger Japan-German ties is not limited to a bilateral context. Strengthening of Japan-German relations is a centerpiece for the strengthening of overall relations between Japan and Europe and for the cooperation to seek a new world order. From the economic perspective, cooperation with Germany, Japan's largest trading partner in Europe (accounting for about a third of Japan's trade with the EC), is also gaining further importance for the advancement of overall economic relations between Japan and Europe. On the German side, despite some alarming opinions about the competition against Japan in the area of high technology, particularly after the large increase in Japan's surplus with Germany in 1991, there is a wide recognition among German people that industrial cooperation should be promoted through dialogue and coordination between Japan.


2-4. Italy


As a result of the general election in April 1992, the two principal parties, the Christian Democrats and the Leftist Democrats (former Communist Party), lost ground. The Socialist Party and the Social Democratic Party which formed the coalition government with the Christian Democrats also lost seats. In contrast, the Northern League, the new political force throwing doubts to political control from the capital and supporting of greater autonomy of the northern regions gained ground. With the collapse of the communist regime in Europe, diversification of the value system of the people and the rising mistrust of central government, there have been increasing trends toward more divergent and smaller parties. These trends have further undermined the foundations of the four-party coalition system. After the new Parliament was convened in April, Italy went through great changes in the political scene with the general resignation of the Andreotti Cabinet, the resignation of President Francesco Cossiga, and appointment of Mr. Oscar Luigi Scalfaro as the new President. In June, the new Amato cabinet was formed. The new Cabinet, strongly in favor of promoting European integration, is appealing to the public that many problems which Italy faces must be swiftly settled, so that Italy will not to be left out of the integration process. The Government, in particular, has designated economic and fiscal restructuring, reform of the political system, and of political ethics and strengthening of fight against crime including the Mafia as three priority issues and is implementing bold measures.

In the area of foreign policy, Italy is playing an important role, in search of a new world order in the post-Cold War era, in its title, for example, as the chairing country of the West European Union (WEU, 1-year from July 1992) leading the discussion on security issues of the European region and helping to coordinate European countries in creating a new European order. Italy also places apriority, in its foreign policy, on the belief that the stability of Central and Eastern Europe and the Middle East, where destabilizing factors are increasing, are crucial to the security of Italy itself. For example, it has dispatched military assistance missions to Albania and is promoting activities of the "Central European Initiatives" which aim to ensure economic and political cooperation in the Central and Eastern European region. It is also actively involved in the Middle East peace process and promoting cooperation with the Mediterranean countries, by way of, among others, proposing to host in Rome a working group of Multilateral Middle East Peace Talks and arguing for strengthened relations between Israel and the EC.

Italy and Japan have traditionally had favorable relations. In particular, the Italian Government has recently expressed its support for Japan, by upholding Japan's position concerning the Northern Territories, and by helping Japan to strengthen its relations with the Conference on Security and Cooperation in Europe (CSCE). The two countries also enjoy favorable economic relations with more active exchanges of the industrial sectors of both countries, such as activities of the Japan-Italy Business Group.


2-5. Central and Eastern European Countries


(1) Reforms in the Central and Eastern European Countries

The reforms in the Central and Eastern European countries have historic significance as they served as a catalyst for the breakdown of Communist regimes. Democracy taking roots in Central and Eastern Europe is also giving momentum to the establishment of freedom and democracy in other regions. In August 1991, the democratic governments in the Central and Eastern European countries swiftly announced their opposition to the attempted coup d'etat in the then Soviet Union. This gave a push to the collapse of Soviet Communism. This was in sharp contrast with President Mikhail Gorbachev's stance of a neutral, non-intervention position during there form moves in the Central and Eastern Europe in 1989. As the Central and Eastern European countries are leading other former communist countries in terms of their reforms, their successful reconstruction of their economies will give momentum to pro-reform forces in other ex-Communist countries. Thus, whether the Central and Eastern European countries succeed in their reforms continues to have global implications.

Nevertheless, there are still several uncertain elements. Firstly, there are economic difficulties accompanying the transition to a market economy. Economic retrogression in Poland, Hungary, Czech and Slovakia have been arrested since the beginning of 1992. (Czechoslovakia split into two independent states, the Czech Republic and the Slovak Republic in January 1993.) Nevertheless, it will take several more years before economic activities recover to the pre-reform level. In Bulgaria, Romania and Albania, where the reforms started later economic difficulties are becoming more serious. It is clear that there is no other option for the reconstruction of the Central and Eastern European economies than to move to a market economy. While there are controversies over the pace of the reforms, the government of each country is adhering to the reform policy backed by solid public support. However, there is a danger that the public support for the reforms could be undermined if social burdens accompanying the reforms, such as unemployment and bankruptcies, persist over a long time.

Another destabilizing factor is rising nationalism accompanying the collapse of communism. As stated earlier, ethnic strife in the former Yugoslavia (See Chapter 2, Section 2, 6), has turned into armed conflicts. Similar problems exist in other regions, such as the discord between the Czechs and Slovaks, the problem of Hungarian minority in Romania and Slovakia, that of Turkish minority in Bulgaria, and the plight of Polish minority in Lithuania. These problems have not yet become serious, since the Yugoslavian conflicts are working as a deterrent. Czechoslovakia split into two independent states, the Czech Republic and the Slovak Republic, in January 1993 as a result of the agreement reached between the two Republics. There is also a danger where economic dissatisfactions might result in more radical ethnic demands.

The international community must strongly appeal for proper protection of human rights, including ethnic minorities, in these countries. It must also insist that any problem must be settled peacefully, without resorting to force.


(2) Japan's Response to the Central and Eastern European Aid Program

As mentioned earlier, helping the Central and Eastern European countries to stabilize democracy and reconstruct their economies is in the interest of the international community as a whole. The assistance to these countries in overcoming their difficulties is a common responsibility of the industrialized democracies. From this point of view, the industrialized democracies, including Japan, have been actively supporting these countries. Total aid to the Central and Eastern European Countries agreed in the G-24 meeting (Note) amounted to approximately $56 billion as of June 1992, of which Japan's share exceeds $4.5 billion, 8.3 percent of the total.

The following three points are important in assisting the reforms of the Central and Eastern European countries.

First, the self-help efforts on the part of these countries are essential for continuing international assistance. This means that Central and Eastern European countries themselves have the primary responsibility for the reforms and only with their self-help efforts does aid become effective. This implies a strong political message that assistance is denied to countries not engaged in reforms. It is for this reason that the G-24 and the European Bank for Reconstruction and Development (EBRD) explicitly demand democratization and transition to a market economy as conditions for aid, thus suspending aid to the former Yugoslavia except for Slovenia.

Secondly, cooperation among Japan, the United States and Europe is indispensable. Because there is the strong need to assist the Central and European countries, assistance from each country should be coordinated to maximize their effect. Thus, the G-24 will continue to play an important role.

The Central and Eastern European countries, while aiming to strengthen relations with the EC, expect a greater role from Japan and the United States. It is of significance that Japan and the United States cooperate in providing assistance to this region. When U.S. Vice President Dan Quayle visited Japan in May 1992, Japan announced aid of up to $400 million (Note) to foster the private sector in Central and Eastern Europe in cooperation with the United States. This should be noted as an example of Japan-U.S. cooperation.

Third, the assisting countries should extend priority assistance in the area where they have comparative advantages. Japan, for its part, needs to implement measures by way of placing emphasis on the transfer of know-how, such as industrial policy based on its own experience of postwar reconstruction, and on financial contributions in the field of environment-related assistance.


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Note : A 12.8 percent decrease for the Netherlands, Germany, France and the United Kingdom, where a comparison with the previous fiscal years is possible.

Note : The Group of 24 for Economic Assistance to Central and Eastern Europe (G-24) was created on the basis of the agreement reached in the Arche Summit of July 1989, to coordinate assistance by the industrialized nations to Central and Eastern European countries. The EC Commission chairs the forum. The membership is the same as the 24 OECD member countries. The aid recipients are currently Poland, Hungary, Czechoslovakia (as it then WFIS), Bulgaria, Romania, Albania, the three Baltic nations and Slovenia.

Note : $300 million two-step loans by the Export-Import Bank of Japan and expansion of contribution to JAIDO by $100 million.