Introduction and Summary: Developments in Spain overt he past year were, on balance, favorable in terms of essential United States interests. Progress made toward achieving our principal objectives was satisfactory; however, the effort needed to meet our requirements, and the cost to us, increased percep­tibly. The E:mbassy's estimate is that, during the coming year, the task of achieving U.S. objectives in Spain will become more difficult, since the hardening of attitudes, especially on the civilian side of the GOS, is expected to continue and intensify. The overall results of the year indicate that current U.S. policies, and the manner in which they were pursued, were a ppropriate to the circumstances in Spain. Military and Space Cooperation Th·= U.S. has contJnued to havP-nePded access to the joint-use military facilities in Spain. ThP aircraft I I accident over southeastern Spain on January 17, 1966 resulted in a prompt Spanish requPst for a suspension . s by the U.S. of overfliehts of ai.rcraft carryine nuclear 5 weapons, which was immediately accPoed to. .··p·~.~ - No especially difficult problems involvi.ng the use of , the air or naval bases arose with i.n the last year. ~. -:J L FORM 4 • u OS-323 In 00ut Clearaoce1: POL: FH.)tarrs/..T.l F. Madrid A-736 _ SECRET Page ,2 Spanish co-operation in providing facilities for joint exercises was for the most part adequate, but there were delays and reservations in certain instances noted later in the assessment. In continuing cooperation in the space program, the past year saw some difficulties, but ended on a hopeful note. The GOS bargained more tenaciously and was more critical in its analysis of U.S. space facility requests during the past year than previously. When the GOS once decided that it would beg'anted the essence of its demands, the atmosphere for extending the Maspalomas, Canary Island, tracking station agreement for the desired time improved considerably. Contacts with Opposition Elements The approved U.S. objectives in Spain include maintaining harmonious relations with the regime of General Franco, and at the same time keeping in close touch with elements likely to be of influence in the post-Franco period, which of course includes elements of the opposition. Despite situations of some delicacy, contacts both with the Government and with opposition figures were kept at a generally satisfactory level. The regime frowns on any u. S. diplomatic contacts with the opposition, and the various opposition forces understandably try to obtain a u. S. commitment to their particular cause. However, contacts were maintained with a broad segment of the non-Communist opposition within Spain. The Cuban Question In the period under review, u. s.-Spanish .!relations on the question of Cuba became less of a problem. The shipping question has faded in intensity since .the GOS carried out an ae;reement made with us earlier to withdraw its ships from th.1~ Cuban trade. The use of DC-$'s by Iberia Airlines between Madrid and Havana was prevented from developing into a serious problem by adoption of the formula that the u. s. noted the Spanish declaration of intention to employ the aircraft on the run, without however indicating approval of the action. Recent reports indicate that. Iberia is still carrying an occasional cargo package to Cuba, in spite of the understanding that it would not do so. _. SE.CHET-­ SEGRb'P Madrid A-736 ?age 3 Spanish Aid to Viet-Nam On the question of Spanish assistance to thP-umore flagsn effort in Viet-Nam, a discrepancy exists between Spanish statement and Spanish action. Although anti-Communist, Spain sees Viet-Nam as a long distance away, and does not have vital interests in Southeast Asia o Thus, although Spain agreed some months ago to make a further contribution to the ,,more flags" effort in the form of medical e·quip­ment, and later settled on a medical team, it h:ls proc~as­tinated over the specific arrangements. As of this writing, basic agreement has been reached, but the t earn has not yet been despatched. Economic Development -1965 In the field of long-term economic objectives, Sp:iin's economy has continmd to develop rapidly and in a generally sound direction. Durine 1965 GNP rose by an estimated 8% (in real tenns) with tourist receiptsreaching record levels. The Government also continued its· liberalization program; the remainine restrictions on repatriation of blocked peseta earnings were 1ifted and the t entr: and eleventh liberalized tradine lists were released. Furtherance of these measures has been among the chief u. s. objectives for Spain, since a healthy economic development can be expected to encourage peaceful evolution towards a more representative form of government in the post-Franco period. While there rave been no major developments in the last year which can be directly identified as increasing Spain's participation in European multilateral economic or political organizations, Spain is coming to consider herself more European, while r~uro pe comes more and more to the realization that Spain is a part of i~self. The old animosity, chief] y on political p;rounds, to overlyclose contact with the Spain of General Franco continues; but such event.s as the week-lone visit of ILO Director General David Morse to Madrid are si~ns that Spanishstock is rising, even if slowly. On balance, then, 1965 could be characterized as having been a good one for the achievement of U. S. economic policy objectives in Spain. SECRE'f I Madrid A-736 Page 4 Economic Prospects A number of unfortunate developments likely to prove increasingly troublesome in the coming year marred the otherwise favorable record. The inflation of the last half of 1965, which has carried over into 1966, shows the greatest possibility of upsetting Spain's economic stability. Compared to the average rise in prices of 7% experienced over the ta st 4 years, Spain experienced a 9.4% increase in the official cost of living index during 1965. Along with risin9 prices tas come a significant worsening in Spain s trade balance. Fort he first time since 1958 the overall balance of payments fell into defl.cit, with a fall in international reserves of $1J9 million. Current estimates are for a further decline of at least $200-300 million in reserves during1966 with an even larger deficit a distinct possibilityshould prices continue to rise, thereby making Spinish exports less competitive and reducing the attracti~eness of S.ra in as a cheap vacationland. Fa~ed with inflationary pressures and an increasinglyunfavorable trade balance despite partial remediEB · already insituted, the Government will likely be forced to take a stronger stand in its dealings with labor. In January it was announced that wage increases during1966 were not to exceed an 8% ceiling. An attempt to hold this ceiling in the face of the strong syndicate wage demands being formulated could result in politically worrisome labor unrest, since many syndicates maintain that fa.St wage increases have already been negated byrising prices. As a further outgrowth of the present economic situation, and given Spain's demonstrated need for new export markets to cover the increasing trade c. e.ficit, relations with the Communist countries, already in a state of detente remark­able for such ideologically opposed systems, can be expected to increase. Pr~sent plans call for increased exchangesof trade missions and for participation in trade fairs in several eastern European countries. While the Government has shown itself conscious of the dangers confronting the economy and has implemented a number of steps to counteract them, the problems of --SEGRE'f ­ • SEGHE'f' Madrid A-736 Page 5 internal and external equilibrium remain serious~ with opinion divided as to whether present measures will be sufficient to arrest the deteriorating situation. Unless balance is re-established quir~kly, a number of important new problems will be posed foJ:' the United States in attempting to realize its country objectives, particularly as they relate to a need for the continuance of sound economic growth in Spain. As noted, inability to h'llt inflation would on the one hand result in unrest in the labor sector while the temptation on the part of the Govern­ment to employ a strong hand would risk rekindling politicalpassions, thus compromising Spain's chances of closer integration with Europe in the foreseeable future. On the other rand, continued deterioration in the balance of payments would lead to an increased volume of protectionistsentiment and a very real possibility of the Government's opting for a slow-down--or even regression--in Spain'sliberalization moves despite the announced intention to proceed with liberalization as has been conceded desirable by nearly all of the Government's economic technicians. The Succession Question During the past year, the question which attracted most attention in Spain and about Spain was that of the succession to General Franco. U.S. ability to influence the succession question has always been extremely circum­scribed, since it is the most delicate of all internal problems. Within the last year, General Franco has f ailed to make any open decision to provide for the question of the succession, nor is there any clear indica­tion that he has made any arrangement privately which would take effect after his death. From the point of view of the United States, which has an important interest in a smooth transition and in a stable successor regime, the present situation is unsatisfactory to the degreethat it leaves uncontrolled the range of possibilities of what could occur on Franco-s departure. However, in the Embassy's opinion, there is not any direct action which the United States can take on the matter of clarifying Spain's political future; and even our indirect action must be limited to attempts to identify the forces which would play an important position in tbe post-Franco era, and to determine their relationships with one another. During the year, there were certain indications of -SECRET Madrid A-736 Page 6 relaxation, even liberalization, in the political sphere, although they11ere sometimes counteracted by harsh and oppressive measures taken on other occasions and toward other groups. It is evident that there was no uniform decision to liberalize straight across the board made by the ruling authorities. One department in which an atmosphere of detente was noticeable was in the Spanish press, where the passage of the new press law produced coverage of activities of dissenting groups and individuals in Spain to an extent that was not present before. In the religious field, the de facto situation of non-Catholic groups continued to snow improvement, and there are indications that consideration of the ,,Protestantt Law,, will be undertaken by the GOS relatively soon. A Look r"'orward Exrunining the coming year in tenns of what it means for u. s. objectives and policies with regard to Spain, the Embassy does not see any major change in prospect for relations with Spain. It does appear to us, however, that relations, especially in the political sphere, are now undergoing some changes which are gradual and perhaps subtle, though nevertheless significant, and that this atmosphere of change is going to continue arrl perhaps to accelerate and intensify in the future. The B-52/KC-135 accident of January 17, 1966 over south­eastern Spain is an illustration in part only of the test toW1ich u.s.-Spanish relations are being put. Althoueh the request for cancellation of nuclear over­flights was not unexpected, it equates, in practice if not in theory, to a unilateral alteration of one of the rights accorded to the United States under the 1953 Base Agree­ments with Spain. It brings into relief the question of whether the U .s. can, in future, utilize the joint-usebases in Spain with the same absence of constraint which has existed from 1953 until now. Although the aircraft accident produced the specificreaction mentioned above, the Embassy#s conclusion, based on careful analysis of the evidence, is that a change in both the popular and the official Spanishattitude toward the United States was d evPlopine; prior to the accident, which, while it may have heightened its SliGRRT • •• Madrid A-736 Pa1~e 7 degree or spP~ded its evolution, did not alter its direction. This chanee involves a distinct trend on the µ3.rt of Spain away from the previously prevailing close dependence on the United States in the direction of much greater independence and of what can best be described as »disengagement». Spain is not, in our view, engaged in a full-scale, conscious revision of its foreign policy, nor will it alter the essence of its association with the United States, which has been the keystone of Spanish policy in the last twelve years. No denunciation of the 1953 Agreements, as renewed in 1963 , is to be looked for. (On the other hand, the change in attitude will probably be markedly evident in the Sp.inish bargaining position in 1968 when the second and final five-year extension of the Base Agreement is being sought.) At the same time, Spain does appear to be adding spokes to its foreign policy wheel, and is beginning to exercise a greater latitude in the conduct of its international relations. There is a further, essentially internal, factor the effects of which could be felt on Spanish-US relations increasingly in the future; the lack of policy coorrl:Lnation at the upper levels of the Spanish Government, which appears in unorchestrated and in some cases contradictory policydecisions in the various branches of government. This lack of coordination, described in A-609, March 19, 1966, is connected with the fact that General Franco no longer controls the day-to-day activities of the GOS with the thorouehness that he once displayed. The tendency of djfferent ministers to act at cross purposes with one another, whether because of 1ack of direction or because they a re maneuvPrine for pernonal position for the post­Franco period, is likely to become more pronounced in the immediate future than it has been to date. The Embassy does not think that the c0operation which the u. S. came to re~ard as standard operatine; procedure from 1953 until very rP.cent ly can be re1 j ed on for the future to the extent it has been in the past. It appears more likely that, with increasinE frequency, the GOS can be expected to evidence a hard.er, more calculating, more sceptical, even more suspicious attitude toward U. s. requests and proposals than it has previously shown. In -8ECRE'£ -Madrid A-736 Par_:e 8 discussions of both military and space facilities, the GOS will ber;in to look at our requirements more closely,and may turn a number of thPm down outrig;ht, in contrast to their previous tendency to ngo along0 with most of the US requests, especially those presented on a service-to­service level. In cases where they a re inclined to consider favorably a U. s. request, it further seems likely that the Spanish authorities wilJ try to exact much ~reater con­cessions from the United States in terms of money, technical assistance, or political support. On the extent to which such a changed attitude has already affected the GOS attitude toward NASA operations in Spain1 see the npolicy considerations,, section of Embassy's A-5b4, March 6, 1966. The speed with which the Spanish High General Staff assented to the deployment of three fighter wings from the U. s. to Torrejon in late March 1966 may appear to run counter to the argument that henceforth Spanish concurrence in u. s. projects will be harder to obtain; but an important element in this case was that the discussion took place with the Spanish miJ.itary authorities who have always been more forthcomine; than their civilian counterparts, and that the Foreien Office was notified after the fact. Even so, the Forei~n Ministry felt constrained to come back for additional information, and even after t.he decision was made, one of its high-ranking officers gave an indication that he thought the decision should be re-examined. The Embassy offers the following list of indications, some inherently significant, others nedrly indicative, as to why it believes that Spanish policy has already begun to enter into a period of disengaeement from the United States which may over a period of time aff8ct in important, perhaps even crucial ways, the realization of our policy object ives in Spain. 1. The request for suspension of overfli~hts. Reference was made earlier to the rapidity an the categoric nature of the Spanish request for a suspension of nuclear overflights. The exact motivation behind the request is a subject for speculation; but it is clear that Spanish public opinion has been influenced in the direction of opposition to nuclear weapons by a variety of recent events distinct from the Palomares incident itself: the test-ban treaty, the Geneva talks, the emerePnce of China as a SEGHE'f1 ­ • -SF:enti:T Mau rid 1\ -7J() />age 9 and probably especially by the address of to the United Nations in which he made his plea for ,,no more war.,, The recent years have seen the GOS itself become more sensitive to the views of Spanish public opinion. While it is still prepared to disregard such public opinion when it is important to retain control on internal matters, the regime is more concerned with the attitudes adopted by the Spanish people than it previously was. 2. Spanish Objection to Overflights of Spain by NATO Aircraft Using Gibraltar. The Spanish objection on this score is not surprisine, since it served as a useful instrument in Spain's long-time quarrel with the UK over Gibraltar. However, in its note of January 21, 1966 to the NATO countries (less the UK), Sfain referred to a Soviet stdtement that Gibraltar was a NATO base, adding that the position of the USSR and its Warsaw f1.:l ct allies obliged the GOS uto appraise the possible consequences of the establishment on its territory of a military base in the service of an organization to which Spain does not belong.,, Although this statement was probably made primarily to show that Sfain cannot be taken for granted citation of the Soviet threat as an explanation of Spainls action left room for the conclusion that Spain's anti­Gommunist and pro-Western stand was being weakened in order to gain an advantage in a bilateral quarrel. J. The Attitude Displayed in General Franco"s Communica­tion on Viet-Nam. On August :20, 1965 General Franco replied to a letter from the President on Viet-Nam with a reply that was quasi-defeatist, quasi-neutrulist in its tone, in which, inter alia, he spoke about the Soviet Union as "a reallty with which we have rad to copeu, and of the need ,,to help (underdeveloped) nations to find their polit ical way just as we have found our own,,. The communi­cation also referred to Ho Chi Minh as ua natriot who cannot be indifferent to the annihilation of his ~ountry", and opined that ,,he could, without doubt, be the man of the hour needed by Viet-Nam." These views came as something of a surprise from a man whose self-created reputation for 30 years has been that of Communism"s most intransigent opponent. Alt.houe;h it would be unwise to put too much emphasis on one letter, cominr; from the Chief of State, it cannot be ignored.. And in the practical order, the Madrid A-736 Page 10 US has seen a sharp dichotomy between official Spanish statements of intentions to assist the free world effort in Viet-Nam, and their concrete actions in this regard. 4. S1nnish Wariness About Grantine US Re~uests for Facilities. In a number of cases, some of which have been mentioned elsewhere in this assessment, the previous official Spanish willineness to erant US requests for use of facilities in Spain has been replacPd by an attitude of reluctance or unwillineness to accede to US requests, or an attitude of more interest in bargaining hard to come up with the most that can be e; ained for Spain. With regard to NASA operations 1 the Embassy's opinions are contained in A-564, March 6, 1966. With regard to cooperation in military projects, instances are the S_r:anish refusal to permit the ·entry of nuclear-powered US naval units into ports other than Rota; refusal in granting 1ow level routes for fair weather training because of the Spanish contention that the U. S. would not pay claims arising from a previous exercise, ,,Steel Pike»; and delay in approving the last PHIBLEX exercise until a commitment was made to pay claims if national property was damaged. Conclusions The Embassy does not wish to convey an impression that Spanish-U3 rel~tions are in for an extremely difficult period for the proximate future, or that major changes are in prospect. However, we believe that Spanish enthusiasm for close identification with the US ms lessened and th~t this difference in attitude will be reflected in future in a progressively more critical and more demanctinr'3 attitude which the GOS will show when approached by the US with proposals for cooperative action. On some future proposals, the Emba 3sy forecast is that the US can anticipate refusals; on others inordinate delay; and on others still, success, but at a considerable price. .. SEC.UJir!P-­ •