The MacNeil/Lehrer NewsHour

Intro

JIM LEHRER: Good evening. The leading headlines this New Year's Eve are these. Israel calls for international sanctions against Libya. There were two failed assassination attempts in Lebanon, and the U.S. trade deficit went up again. The details of these stories are in our news summary coming up. Robin?

ROBERT MacNEIL: And after the news summary, three experts give us a closer look at Qaddafi's Libya -- Moscow ally, home for terrorists, potential target for U.S.-Israeli retaliation. Next, a documentary report from Northern Ireland on an attempt to ease religious hatred. And, finally, three of the nation's top economists share their predictions for the state of the economy in the New Year. News Summary

LEHRER: Libya is a wicked country led by a man with blood on his hands, said the prime minister of Israel today. Shimon Peres called on the rest of the world to join Israel in imposing sanctions against the Libya of Colonel Mammar Qaddafi. Peres said Palestinian terrorist Abu Nidal, who was responsible for Friday's attacks at the Rome and Vienna airports, is in Libya now. In Washington, State Department spokesman Charles Redman reinforced Israel's position on Libya.

CHARLES REDMAN, State Department spokesman: We're ready to engage in any efforts that we can in order to fight this scourge of terrorism from wherever it may come and that we do believe that international cooperation, greater international involvement is very useful and, indeed, in many case crucial to that effort, and we're certainly prepared to cooperate in whatever way we can to reach that end, including economic and diplomatic measures, security measures and the like.

LEHRER: Egypt cautioned against Israeli reprisals for the airport attack. Egypt's foreign affairs minister said such action would halt the Middle East peace process. Robin?

MacNEIL: Overseas there were also these related developments. PLO leader Yasir Arafat condemned terrorist attacks on innocent civilians and said some Arab governments were pushing Palestinians into them. He didn't specifically mention last Friday's attacks at Rome and Vienna airports but the PLO office in Egypt was quoted as saying that Syrian and Libyan intelligence services were responsible. Arafat's statement also vowed to keep up the PLO's armed struggle against Israeli occupation.

In Beirut, the Islamic Jihad, or Holy War, threatened new suicide attacks against Israeli and American targets. The shadowy organization claims to hold American and other Western hostages in Lebanon.

Also in Lebanon, gunmen attempted to assassinate President Amin Gemayel, but failed. Eight of his bodyguards and aides were wounded in an automobile ambush, but Gemayel wasn't in the car. The attack came hours after the latest ceasefire was agreed in a Syrian-backed effort to end the civil war. Another assassination attempt was made against the Christian commander who signed that agreement, but it also failed.

LEHRER: The U.S. trade deficit continues to go up. The Commerce Department said today it was $13.68 billion last month, the third-largest monthly total on record, and an increase of 19.5 over October. Analysts said much of the increase was caused by an upsurge in the purchase of imported oil.

And, speaking of imported oil, Mexico announced a 90-per-barrel decrease in the price of its crude oil, one half of which is sold to the United States. The Mexican announcement said the price adjustment was done to keep Mexico's share of the import market stable.

MacNEIL: The South African government today banned all leading anti-apartheid organizations from holding meetings for six months. President Botha, in a New Year's message, urged his countrymen not to despair after a turbulent year. He acknowledged pressure from abroad for faster changes in the apartheid system, saying, "The world at large still demands more of us and virtually overnight without contemplating the disastrous results for our country." Black activist Winnie Mandela was freed on bail today after spending a night in jail. Here's a report by Michael Buerk of the BBC.

MICHAEL BUERK, BBC [voice-over]: It was the second time in eight days Mrs. Mandela was brought to court for going back home to Soweto. It took longer today, arguing over the terms of her bail. In the end her lawyers were told it would be a condition she didn't try to go back to Soweto again. The convoy took the road for Soweto but swung off into Kagiso township where she could legally go. It pulled up outside the home of Aubrey Mokoena, one of her oldest friends. It was to be a refuge where she and her lawyers could work out what to do next, and where a growing crowd gathered to see the woman the state has made famous.

[on camera] The legal situation is now as complicated as only the South African system can make it. The decision Mrs. Mandela has to make, though, is simple: does she defy the authorities again or not?

[voice-over] The wave was all defiance, but she made no immediate move to resume her fight with authority. Outside the crowd had begun to turn into a demonstration. It wasn't long before the police arrived, and a by-now-familiar confrontation developed. The crowd dispersed. We were arrested for what appeared no legal reason. We were eventually released. An appropriate way to end the year reporting South Africa.

MacNEIL: In Afghanistan Western diplomats reported that the Soviet Embassy and a housing project came under rebel rocket fire as the country ended its sixth year under Soviet military occupation. The report said the rockets caused little damage to the embassy compound.

LEHRER: And that ends our summary of the news of this day. A discussion of Libya and what to do about it is next, then a report from Northern Ireland on an unusual high school, and a look at the economic year ahead with Alan Greenspan, Lawrence Kudlow and Lester Thurow. Dealing with Qaddafi

LEHRER: Colonel Qaddafi is shaking in his boots this morning. That's what former Israeli foreign minister Abba Eban said today in Tel Aviv. He said the shaking was caused by the Reagan administration's new hard line against Libya and its role in terrorism, particularly the attacks at the Rome and Vienna airports in which 18 people died; 120 were wounded. What can and should be done to and about Libya is where we go first tonight. State Department spokesman Charles Redman today detailed what the United States has done already.

CHARLES REDMAN: For our part we have taken a number of steps concerning Libya, that we have been leading an effort for a number of years to exert economic and political pressures on countries supporting terrorism. For example, in the case of Libya, our sanctions included cutting off the sale of militarily useful aircraft, spare parts, oil-pumping equipment. So I believe there are still things that could be done if the international community is willing to come together and act.

LEHRER: There have also been reports the U.S., Tunisia and Egypt, among others, would love to overthrow, assassinate or otherwise depose Qaddafi. Robert MacNeil asked Qaddafi about that in an interview last month.

MUAMMAR QADDAFI, Libyan leader [November 27, 1985]: No one can make a coup against the whole people, who is carrying all the authority now in Libya. It is gemahiriya, it is the state of masses. There is no government to make a coup against it, no president to make a coup against it, no ruling party to make a coup against it. But also these countries are not my enemy. We distinguish between the rulers, governments, and the peoples. The peoples are with me. Tunisian people, Egyptian people, Chaddian people. All these peoples are for me and support my revolution. And we are not concerned about the intends of the governments and the rulers. They will disappear in future.

MacNEIL: Would you like to help them disappear? Let's take President Mubarak. You call President Mubarak a traitor to the Arab cause for making -- continuing the deal, the peace with Israel. What do you want to do with President Mubarak? Do you want to overthrow him?

Col. QADDAFI: If he is supporting our enemy and this support will create turmoil for the future of our nation we have to support the Egyptian people and to incite these people to make revolution. and to form the Arab unity, and Arabs must stand in one rank against their enemies.

LEHRER: We take the discussion now to two American experts on Libya, Joseph Churba, editor of a monthly newsletter called "Focus on Libya." He's a former foreign policy and defense adviser in the first Reagan administration. And Lisa Anderson, a professor of political science at Harvard University's Center for Middle East Studies, who specializes in the study of Libya. Ms. Anderson, do you think Qaddafi is shaking in his boots?

LISA ANDERSON: Probably not. Clearly, he's concerned about international attention, but probably as much gratified by it as worried by it.

LEHRER: Gratified?

Ms. ANDERSON: Sure. Once again he's the focus of worldwide attention and this, in his view, focuses attention on his revolution, which is what he wants.

LEHRER: Do you agree with that, Mr. Churba?

JOSEPH CHURBA: I heartily disagree with it. I think he is very vulnerable. He recognizes that he is vulnerable internally and externally with the exiled political opposition that have been mounting operations against him. This increases his isolation not only regionally but internationally and also shifts the premium for some kind of a Western action against him.

LEHRER: And you think what the United States has done and what Israel has done in the last 24 hours, he's very scared right now, right?

Mr. CHURBA: I think he's frightened to death of what the United States may do, because if the British or the Italians or the French or the Americans invade Libya or conduct a military strike against it, I would anticipate that this would precipitate his downfall and that a new leadership would emerge with fundamental change in Libya.

LEHRER: Ms. Anderson, you don't see it that way?

Ms. ANDERSON: Well, I think from his point of view he's seen the United States repeatedly say that they'd like to see his downfall, repeatedly call for actions against him since at least the beginning of the Reagan administration, if not earlier, and nothing has yet come of that. So it's certainly true that the possibility exists that the United States and Europeans or other countries in the Middle East would now act, but from his point of view many of the opponents of that regime have cried wolf before.

LEHRER: I want to get back to the military possibilities in a minute, but what about, Ms. Anderson, the possibility -- what possibility still exists in the diplomatic and economic area to put pressure on Qaddafi to quit being a bad boy?

Ms. ANDERSON: Well, first of all, the United States has exhausted many of the possibilities by having already imposed economic sanctions, already severed diplomatic relations for all intents and purposes and so forth. They have -- this administration has several times tried to encourage the Europeans to follow suit. If that were now possible, then there could be a concerted action against the Libyan regime. Short of that, however, the individual actions the United States -- has taken most of the diplomatic and economic actions that are available to it, and the Europeans have yet to see the problem as serious.

LEHRER: Mr. Churba, do you agree that only concerted action in the diplomatic and economic area would do any good?

Mr. CHURBA: I think that we can precipitate his downfall with the economic weapon that we have our disposal. To wit, I disagree with what she says. We have not applied our full measure, of potential.

LEHRER: What can we do?

Mr. CHURBA:We still have trade. We have banking and oil interests in Libya. If we were to wipe these out, to eliminate them, we would then acquire the moral leverage with which to turn around and talk to the Europeans and insist that from now on they conduct their trade, if they have to trade with Qaddafi, on the basis of a cash basis only. Cash basis alone, as the Russians are demanding today and getting away with it. The Soviets are demanding cash basis only.

LEHRER: From Libya?

Mr. CHURBA: From Libya. The West Europeans are dealing on a barter basis. This would increase --

LEHRER: Bartering what for what?

Mr. CHURBA: His oil for their goods.

LEHRER: Well, how extensive -- excuse me.

Mr. CHURBA: This would increase and intensify the pressure, the economic pressure against his own regime.

LEHRER: How extensive are the U.S. nancial and economic interests in Libya right now?

Mr. CHURBA: I think they're pretty extensive.

LEHRER: Like what?

Mr. CHURBA: A major oil company operating there. There are credits that are extended to nationals, Korean nationals, for $3 billion credit; major engineering firms in the great water project are American; the credits are coming from the United States. The oil industry is still active and alive along with the banking industry.

LEHRER: Well, why doesn't all that stop?

Mr. CHURBA: That's a good question.

LEHRER: Who do we ask that?

Mr. CHURBA: We have failed -- we have failed to create the kind of environment in Libya and in that region that would allow the Libyan opposition to free their country.

LEHRER: Ms. Anderson, what do you think the impact of that would be, if the United States did do what Mr. Churba suggests?

Ms. ANDERSON: First of all, I think it's worth pointing out that that's been suggested several times in the last couple of years, and one of the problems is that it runs into legal tangles in the United States in terms of what kinds of things we can restrict and so forth. Were it possible, however, to completely restrict American involvement in the Libya economy, I think in the short run that would create certain kinds of problems for the Libyan economy and the government. But it's already become clear that there are numerous other countries that are willing to step into the breach. They did that when we withdrew most of the workers; they've done that in supplying the oil equipment that we no longer supply and so forth. So I think it would be a short-term problem, possibly, for the Libyan government, but in the medium-term I don't think it would be too effective unless we could also get the Europeans to cooperate.

Mr. CHURBA: I just don't think you can get the Europeans to cooperate --

LEHRER: Never?

Mr. CHURBA: -- unless we demonstrate our capability and our will, which is to gain the moral leverage over the Europeans to shift from a barter-basis trade to that of cash basis, which he doesn't have. His revenues have declined very sharply, his oil revenues, and his modernization plans are suffering tremendously.

LEHRER: So he is vulnerable, you think.

Mr. CHURBA: He's extremely vulnerable. He's never been more vulnerable than he is today economically, politically and externally.

LEHRER: Ms. Anderson, why does Muammar Qaddafi do what he does? If Abu Nidal is actually in his country and he is supporting these terrorists, why does he do it?

Ms. ANDERSON: Qaddafi is one of the few leaders in the Arab world left who appears to a sort of absolutist position on Israel. That is to say, views the struggle, the Palestinian struggle, as one requiring the complete destruction of Israel. Therefore, he finds the more radical of the Palestinian groups more congenial and is also interested in underlining the position of the moderates; that is, those people who are willing to talk to Israel, who are willing to discuss the resolution of the problem in terms of the occupied territories and so forth. So in that sense Qaddafi is, on the issue of Israel, something of a throwback and feels himself most content in supporting radical opposition to Israel and simultaneously, in doing that, in embarrassing the more moderate governments and more moderate factions of, for example, the PLO.

LEHRER: Mr. Churba, people understand -- people in this part of the world, at least, sometimes have trouble understanding how a man like Qaddafi or anybody could support, and say it was heroic, as he did, for these people to come in with machine guns and shoot down innocent people in airports. Can you help us? Can you add anything to what Ms. Anderson has said to understand why ths man feels ths way?

Mr. CHURBA: This man is a genuine leader. He is the only Arab leader that knows what he wants and has been getting away with his activities for the past 17 years. He wants to create a Muslim-Arab African empire under his leadership. He wants to do away with the state system that divides the so-called Arab world. He wants to emerge as the dominant leader, and he has systematically used terrorist subversion and Soviet support to promote his geopolitical ambitions. He is very wise in the application of his terror and his methodology. I do not discount him. I think he's a formidable person. He is not crazy, as he is depicted by the irresponsible press. He knows what he wants. He wants the radical transformation of Arab society across the board, as he has indicated in his gemeheria philosophy. He knows what he wants.

LEHRER: Thank you. Robin?

MacNEIL: The Libyan equation is complicated for the United States by Qaddafi's ties with Moscow. For more on that we talk to Uri Ra'anan, chairman of the international security program at the Fletcher School of Law and Diplomacy and co-editor of the forthcoming book on international terrorism entitled Hydra of Carnage. He joins us tonight from public station WBGH in Boston.

Mr. Ra'anan, how close, first of all, are Libya and Moscow?

URI RA'ANAN: Well, you can look at itterms of armaments, and you can look at it in terms of legal ties. The Soviet Union does not have a treaty of friendship, cooperation and mutual assistance with Libya, unlike its relations with Syria and Iraq, where they do have such a treaty. On the other hand Libya, like Syria, has become something of a bridgehead for very important Soviet weapons systems way in excess of anything that the Libyans themselves could possibly use. For instance, just one example, there are almost 540 combat aircraft, Soviet-built combat aircraft, in Libya. Now, the strongest, largest of the Warsaw Pact allies, the one that has a confrontation line with NATO, Czechoslovakia, has 100 combat aircraft less than Libya, and Libya's, incidentally, include the best that there is, Flogger E & F, Forbat-A, you name it. But secondly, the Libyan armored force includes no less than 300 T-72, the best of the currently available Soviet tanks. The Poles only have 50 of them.

MacNEIL: Well, why? What purpose does Qaddafi serve for the Kremlin?

Mr. RA'ANAN: Well, I believe that these are in fact pre-positioned weapons for eventual use, should the opportunity arise, by Soviet forces, including the Soviet air force, including the Soviet marine division and other units that could be brought in very quick time to the area and then pick up the stuff that is already pre-positioned. Let me mention, by the way, that of the 540-odd combat planes, only about 80 or 85 are actually being flown by the Libyans. All the others are in storage, obviously awaiting different personnel to come in.

MacNEIL: In the present political context, does Moscow support, for instance, the Abu Nidal terrorists if, as alleged, they are operating out of Libya?

Mr. RA'ANAN: You know, I think we often draw very sharp distinctions which are not that sharp in the Middle East. For instance, one of the terrorists was reported as having said that he had also been in contact through Damascus with Abu Moussa, who is an entirely different faction. It is the anti-Arafat faction within Fatah itself. And there was a time, not long ago, long after the split between Arafat and Abu Nidal, when some of Abu Nidal's people, together with Arafat's and other groups, were being trained at Simferopol in the Crimea. In 1981 there were almost 200 officers and NCOs being trained jointly, together, side by side. So I'm not so sure that the divisions are quite as sharp as we in the West like to make them. Remember, Abu Nidal was not long ago in Iraq. He then moved over from Iraq to Syria; the two countries are not friendly at all. And then from Syria he went on to Libya. My feeling is that the Soviet Union likes to have a finger in the pie, some with Abu Nidal, some certainly with Abu Moussa because he is a friend of the Syrians and the Syrians are still the preferred Soviet weapon in the Middle East, some also within Fatah. For instance, Farouk Kaddumi, who is usually considered to be the foreign minister of Mr. Arafat's, has very close ties with the Soviet Union to this day.

LEHRER: If Libya were attacked, say, by Israel or the United States, again, in the current atmosphere, would the Soviet Union go to war to protect Libya?

Mr. RA'ANAN: I don't think so. I think that the fact that there is not a treaty of friendship and mutual assistance would be utilized by the Soviets not to come in directly. They would utilize surrogates. One of the surrogates, the country that does have such a treaty with Libya, is North Korea. And it's quite possible, for instance, that North Korean pilots might be introduced.

MacNEIL: But the Soviet Union -- it would not be a threat or a disincentive for American or Israeli policymakers, you think, to consider that they'd find themselves fighting the Soviet Union?

Mr. RA'ANAN: The Soviet Union would try to make the most of the long shadow, the long projection of armed strength to deter so that they could come in afterwards and say, "You see? We saved you by simply threatning." There would be threats. Whether there would be actual physical intervention I doubt. I'm not so sure about Syria. That's a very different affair.

MacNEIL: Well, thank you. Jim?

LEHRER: Mr. Churba, what do you think the Soviets would do if the United States, Israel or any combination thereof took a military act against Libya?

Mr. CHURBA: We would have to draw a sharp distinction between an Israeli attack and an American or European attack. An Israeli attack would very clearly be counterproductive. It would consolidate the internal opposition; it would convert the issue from one of terrorism to an extension of the Arab-Israel conflict onto North Africa; and Qaddafi -- it would play into his hands. But apart from that the Israelis would lose the opportunity for the legitimate exiled political leadership now headquartered in Egypt and in Europe to --

LEHRER: What do you think the Soviets would do?

Mr. CHURBA: -- to succeed power and to make fundamental changes at a time when they are also at their strongest position. And I would think that an Israeli strike would forego that option. But an American or a European strike would precipitate his downfall.

LEHRER: What do you think the Soviet Union would do in that eventuality?

Mr. CHURBA: I think they have something like 65,000, 70,000 East bloc personnel in Libya as advisers, as technicians, and as military people. I believe they would use them. You see, Qaddafi has alienated not only the middle class, the businessmen, by stripping the country of its entrepreneurship, he's also alienated the clergy, the Sanussi [Sunni] leadership, who consider him a heretic, and he has also alienated the army which he does not trust.

LEHRER: Well, you would --

Mr. CHURBA: But to your question. The army would be ineffective against any European or American strike, but the East European, the bloc personnel, the Soviet and East German security, would be very prominent in the resistance in such a strike.

LEHRER: Okay. Ms. Anderson, what do you think the Soviet Union -- you heard what Mr. Ra'anan said. Do you think the Soviet Union would not -- in other words, if there was a strike, it would not be going to war with the Soviet Union?

Ms. ANDERSON: Yeah, I don't think so. I don't think the Soviet Union has that kind of commitment to this regime. My interpretation of the military equipment, Soviet military equipment, in Libya is that it was bought with dollars earned by petroleum and that that has been one of the attractions of the relationship from the point of view of the Soviet Union. Certainly I don't think the Soviets have made the kind of commitment to Qaddafi or to Libya that they've made to Syria, and I don't think that they would respond to a military threat.

LEHRER: All right, let me ask you this, then, Ms. Anderson. In terms of isolating -- everybody talks about isolating this man Qaddafi. Besides the Soviets, who are his other friends? Who would come to his side in case of a real major conflagration of some kind?

Ms. ANDERSON: I don't think he has very many friends at this point. I think he relies on the fact that he does have, as Professor Ra'anan pointed out, he does have the sort of deterrent effectof Soviet ties and East bloc ties in general. He does have an extremely efficient domestic intelligence service which has prevented thus far a successful internal coup against him, and he relies on the fact that after a certain point his longevity itself suggests the continued longevity of the regime. But I don't think in much of the world, apart from isolated cases of, I agree, the North Koreans and people like that, that's not a particularly strong crowd of supporters. I don't think he has a lot of friends.

LEHRER: Professor Ra'anan, do you agree?

Mr. RA'ANAN: Well, I would like to mention one more detail. The Daily Telegraph, a very responsible newspaper, on the 15th of December, only two weeks ago, carried the story that Soviet personnel had increased from 1,400 to 2,000, largely in connection with the installation of SAM-5 anti-aircraft batteries. However, it also went on to say that some of these additional Soviet officers were there, and I quote, "to train Abu Nidal." That was two weeks before the recent outbreak, and I have no independent confirmation, but I do think it's a very serious newspaper, and they usually take trouble verifying their sources.

Mr. CHURBA: If I may say so?

LEHRER: Yeah.

Mr. CHURBA: If I may say so, with regard to the Soviet factor, the Russians are extremely conscious of the fact that Qaddafi's internal base is eroding very fast. There's a very strong possibility that they may make a pre-emptive coup against him and install someone more pliable and more suitable for their purposes, like Major Jallood, who is Qaddafi's principal lieutenant and who has run the Soviet portfolio for the last 15 years. They may do this to avoid, pre-empt, a coup by the junior officers --

LEHRER: You're saying they don't like him a lot better than we do?

Mr. CHURBA: They would prefer somebody whom they could depend upon and who's predictable and who does not have a charisma of his own. This is not -- I think it very serious that it is now today a race between a Soviet pre-emptive coup along the lines that took place in South Yemen and in Afghanistan before their invasion and the legitimate exiled political leadership that is now coalescing around a former foreign minister, al-Huni, Abdel Monein al-Huni, who is now coalescing the political opposition Eygpt.

LEHRER: All right, Mr. Churba, thank you very much. Professor Ra'anan in Boston, thank you, Ms. Anderson in New York, thank you. Robin?

MacNEIL: Still to come on the NewsHour, a report from Northern Ireland on an effort to eliminate religious hatreds at the school level, and three leading economists tell us how prosperous a new year they think we'll have. Lessons in Brotherhood

MacNEIL: In Northern Ireland today some 200 Protestants began a five-day New Year's march to protest against the recent agreement with Britain giving the Irish Republic a say in Northern affairs. Here's a report from Ian Webster of the BBC.

IAN WEBSTER, BBC [voice-over]: The Young Unionists, given a sendoff by the leaders of the two main Unionist parties, left Londonderry with some 80 miles ahead of them. Their protest march to the headquarters of the Anglo-Irish secretariat in Belfast will take five days and pass through six major towns. The planned route shouldn't lead the demonstrators through any contentious areas.

Rev. IAN PAISLEY, Protestant leader: Well, it'll show Mrs. Thatcher that the youth of Ulster are not of a different mind from the older people, that we're all united in our opposition to her treachery in regard to democratic rights for the citizens of Northern Ireland.

MacNEIL: While plenty of people on both sides in Ulster remained adamant in their views, there are attempts at reconciliation between the Protestant and Catholic communities. One of them is happening in an experimental high school in Belfast. Here's a report from special correspondent Ann Tyerman.

ANN TYERMAN [voice-over]: Boys and girls from all over Belfast arrive for school at an inhospitable spot outside the city, but they're only just starting their longer journey across the bitter and ingrained divisions within Northern Ireland. For here Catholics and Protestants worship and study together at this high school, Lagan College. It's an extraordinary innovation. In a province where schools are segregated both by sex and by religion, Protestant and Catholic school systems exist side by side. They never meet.

DONAL O'CALLAGHAN, Lagan College: The children will come together from their different religions and they will learn to live together in what, after all, constitutes one third of their life, and if they can live together in that setting, in the school setting, then we think that they'll be able to carry that through into their working lives and adult lives.

TYERMAN [voice-over]: From a small handful of children who started here under armed guard four years ago, its numbers have grown to over 400 today, housed in an ever-increasing number of temporary structures. And from this year it's now fully government funded. Despite its evident lack of facilities, its waiting list is full for the next 10 years. Many of these children come from inner-city areas like this where one in five people are out of work. Over a third live in public housing, and average incomes are less than $200 a week. This is an environment where trust and optimism have rarely taken root, where distrust and intolerance thrive and where, in many streets, the only bright spots are the sectarian slogans of hate and menace.

Northern Ireland has been torn by conflict for the past 16 years. The childhood of these boys and girls has been marked by the Troubles. The parlance of the playground is of rival paramilitary groups -- the Irish Republican Army, the Ulster Volunteer Force, and so on.

TEACHER: In your families, have there been people affected by the Troubles since 1969? John?

JOHN, student: Our next door neighbor. He was an Army -- in the Army, and he was blown up, I think, in 1975, in and he lost his sight.

2nd STUDENT: My brother's friend when he was three, he was in Tyne, he got shot in the leg by the IRA.

TYERMAN [voice-over]: Nearly half the class had personal tales to tell. That's why the school wants them, rather than those privileged enough to be insulated against the violence.

Mr. O'CALLAGHAN: We find that our social base has broadened tremendously and we take from all areas, even from the most depressed areas and the areas that one might call more polarized areas and we get children in those areas and we feel that we've broken that mold.

TYERMAN: So the parents are really rather brave people, aren't they, experimenting on their children in a way?

Mr. Mr. O'CALLAGHAN: Well, the original parents exceptionally they were incredibly brave because they were going into strictly unknown territory. They had no governmental support. They didn't even have a building. They began in a Scout hall, and they were prepared to send their children into second level education in those circumstances. So, yes, they were incredibly brave.

TYERMAN [voice-over]: Isabel Lee helps to manage a delicatessen shop in East Belfast. She's a Protestant and is well-pleased with her decision to send her youngest child Dorothy to Lagan College.

[interviewing] Did you think it was brave of her to do so?

ISABEL LEE, Protestant parent: No, I don't feel I'm brave. I feel the parents perhaps who started were brave and the teachers who left the established educationlal system, who took a cut in salary when they went, I felt they were perhaps brave, but once we saw it, I mean, it was going to be, we knew, such a success, there was no bravery involved with us.

TEACHER: Do you hear your parents talking about it at home? What sort of things do they say at home?

Ms. LEE: We had the choice of any school in Belfast and we chose Lagan College, because the teachers were so dedicated and it was such a happy school, and I felt that I just wanted Dorothy to be there.

TEACHER: Why do you think that, Dorothy?

DOROTHY LEE, student: Well, we're not getting any say in the way our country's run and I think we should, and say how our country's run.

TEACHER: When you say "we", who do you mean, everybody?

DOROTHY: Well, just the public.

TEACHER: Everybody who lives in Northern Ireland?

DOROTHY: Yeah.

TEACHER: All right. David?

DAVID LAVERY, student: To know that there's terrorists going shooting people. We need to stop that.

MARGARET LAVERY, Catholic parent: We feel this has worked out very well for David, and it's principally David we're thinking about. We're not trying to be pioneers. We're really concerned with our son, his happiness and his education.

TYERMAN [voice-over]: David Lavery is breaking away from his family's Catholic tradition. His parents, Charlie and Margaret, run a bar in central Belfast. They would have liked an integrated school for their older daughters and were delighted when the college opened.

CHARLIE LAVERY, Catholic parent: When we said to his primary school that he was going to a mixed college we had all sorts of interviews and things which were unexpected.

Ms. LAVERY: They obviously didn't approve mixing it like that and they tried to persuade us not to send him. They didn't say, really, anything bad about Lagan College, but they felt that he wouldn't be getting a proper education, religious education, there, which is a natural thing, really. But they can't understand that people must mix and must get to know each other. I think the Church encourages division. You know, they feel we get on better if we're leading separate lives, that we don't know the other religion.

TEACHER: Once you begin to pray for others they cease to be your enemies by the simple act of praying for them.

TYERMAN [voice-over]: The children on the whole do come from religious families, so the common disapproval of their various sectarian primary schools was a disappointment to their parents, but they still kept their faith in the school and the tolerance it promotes.

BRIAN LAMBKIN, Lagan College: From day to day you don't notice the difference in particular. I mean, it's a normal school, and it's as boring or as interesting as any other school. But I think that what's different about it is the hidden curriculum that's at work all the time, the fact that here you have Catholic and Protestant teachers cooperating with each other in the same project and Catholic and Protestant pupils working together in the same classrooms. And it's not a visible effect from day to day, but it's there all the time.

TYERMAN [voice-over]: Lagan College is having some effect. This year four more schools opened on similar lines. Outsiders watched the school's progress keenly. At best, they are skeptical. At worst, they feel it represents a betrayal of religious values.

Ms. LEE: If we had felt the school had been bad academically or we hadn't been happy with every other aspect, we wouldn't have sent her there just for integration. But, as I said, integration made the school what it was and it made our choice even better.

Ms. LAVERY: I feel that David can lead the way, you know, and people like David and his friends, and we're taking a chance but, you know, I feel you have to start somewhere, and if it's small it's just a little small acorn but something out of it might grow, and we're happy to be involved with it.

Mr. O'CALLAGHAN: If we can prove within the educational field that this sort of sharing together is a force for good, then perhaps those in other areas of life in Northern Ireland might be led to share what we have and to learn to live together and work together might be just a good idea all around.

CHOIR DIRECTOR: It's a beautiful melody, a beautiful Irish melody. Feel where it's right. Don't just --

TYERMAN [voice-over]: Many members of the choir are Protestants, singing for the first time in the Catholics' own language.

CHOIR DIRECTOR: I want you to feel it. Let's try it again.

TYERMAN [voice-over]: Next week they will be singing this song in an inner-city Catholic church. Singing, praying and learning together is what this school is all about. But whether such aspirations can have any fundamental impact on the centuries-old cycle of intolerance and violence has yet to be seen. Forecast '86

MacNEIL: As 1985 draws to a close there are mixed signals about the future course of the economy. Yesterday the administration forecast solid 4 economic growth next year, with continuing low inflation and declining unemployment. But many private economists are more pessimistic. Their caution is based in part on 1985's sluggish performance. Although final figures aren't in, economic growth this year is expected to be less than 3, due largely to a record annual trade deficit of around $150 billion. On a more positive note, inflation remained low in 1985, running at less than 4 and unemployment steadied at 7. Interest rates fell as the prime rate dipped below 10 .

For a look at how the economy is expected to perform in 1986, we talk with three leading economists with very different forecasts. They are Larry Kudlow, president of Rodman and Renshaw Economics in Washington. Mr. Kudlow was formerly chief economist at the Office of Management and Budget during President Reagan's first term. Lester Thurow, professor of economics at the Massachusetts Institute of Technology and the author of several best-selling books on the economy. He joins us from public station WGBH in Boston. And Alan Greenspan, president of Townshend and Greenspan, a New York-based consulting firm. Mr. Greenspan previously served as chairman of the Council of Economic Advisers during the Ford administration.

Mr. Kudlow, to you first. The administration is predicting 4 growth next year. You think it will be even higher, five to six percent. What do you base that on?

Mr. KUDLOW: Well, I think there are a number of factors which oddly enough have been overlooked in some of these year-end forecasts. The first and perhaps most important is the big rally we've had in the stock and bond markets over the last 18 months where stock prices have gone up by about 40 and bond prices by something like 35. My argument is essentially this. This is a strong, wealth-creating process, and is going to generate considerable purchasing power and spending power. And, interestingly enough, technicians in the stock market suggest that consumers, or the so-called retail investors, have been selling into this rally. That means they're piling up cash balances which I believe will be used to spend in the economy, and all this is happening when inflation is rather low, so it's real cash balances and real wealth that's being created. I think this is going to have a major impact.

MacNEIL: Is your prediction all on the positive side, or do you see any danger signs?

Mr. KUDLOW:

Well, I do see some danger that next year the inflation rate may go up as economic growth goes up. On this score my particular concern is the very rapid growth we've had in the money supply over the last 12 or 13 months, about 11.5 M1 nd about 8 just currency and demand deposits. And, second, on this inflation problem, I'm concerned that the depreciation of the dollar, which has been hailed as a stimulative -- and indeed it is to some extent in the short run stimulative -- that nonetheless the dollar's fallen by 20, 22 percent in the last year, and this may cause an increase in import prices which, if spending picks up in the domestic economy, could spill over and raise the domestic price level. So it's a double-edged sword. On the one hand I think Beryl Sprinkel is right, real growth will be strong next year; on the other hand, I'm a little worried about the outlook for inflation and perhaps interest rates as well.

MacNEIL: Mr. Greenspan, you're much more pessimistic. Very moderate growth in the beginning of the year trailing off to negative growth even at the end of the year. What is your reason for that?

ALAN GREENSPAN: Well, even though I recognize the positive factors which Larry Kudlow just outlined -- and they are positive factors -- there is just no evidence that any of this has as yet really galvanized the economy. More importantly, where you would expect some strength is not so much in the consumer area, which is not likely to respond very much to the stock market, because it usually doesn't, where the growth has got to come is in capital investment. And all of the evidence which we see at the moment is that capital investment is not only very slow but what strength that exists in that market, is only in the short term; what's on the order books, what is committed for the second half of this year is very weak. I do think that's going to pick up, but it's going to require an extraordinary acceleration to get this economy moving very rapidly. At the moment it is very sluggish; I think it will continue that way, although I think it will quicken. I'd like to believe that we're going to get the type of quasi-boom which Larry Kudlow is talking about. At the moment there's just no evidence of that.

MacNEIL: Are we likely to get into an actual recession? If there is negative growth it would mean a recession. Is that what you see at the end of the year?

Mr. GREENSPAN: It's difficult to make that judgment, largely because we are in a type of economy which we have not seen at any time in American history, where the dollar is an extraordinarily potent force in economic activity and federal government deficits are threatening very serious damage to the longer term.

MacNEIL: So you can't rely on the past as a good guide?

Mr. GREENSPAN: You cannot rely on the past, and that's a very difficult thing. I think we're fooling ourselves if we believe we can look a year ahead and have some real solid judgment as to what's going to happen. What does concern me is that the Gramm-Rudman-Hollings bill, which is presumed by the financial community to significantly reduce the budget deficit, will not do so.

MacNEIL: Can we come back and discuss that separately in a moment? I'd just like to get Lester Thurow's prediction here. As I gather, you are neither as optimistic as Mr. Kudlow nor as pessimistic as Mr. Greenspan. Where do you come down?

LESTER THUROW: No, I think '86 will look pretty much like '85, with a growth rate somewhere between two and three percent. The key thing that I would focus on is what Alan just mentioned, and that is that '86 is going to have a lot of uncertainty because it's going to be dominated by that value of the dollar. You can't have Larry Kudlow's boom with a $150-billion trade deficit, because if consumer demand boomed it would simply flood into imports and it would be booming products for Japan but not necessarily booming products for the United States. And you've got the Federal Reserve Board basically acting to offset that international trade deficit by lowering interest rates, and if you really thought Gramm-Rudman was going to work, if that's a deflationary thing on the economy, because it means we're either going to cut taxes or raise expenditures. See, I would tend to agree with Alan a little bit that there's some weak growth ahead, but it's probably in '87 as opposed to the end of '86.

MacNEIL: Do you see a danger of a recession?

Mr. THUROW: I think if you imagine that the United States government is going to cure its budget deficit and Japan and Germany are not going to simultaneously stimulate their economies, that's a recipe for a worldwide recession sometime in '87.

MacNEIL: Let's just have a go-around on this. Mr. Kudlow, why are these other guys so wrong to be so pessimistic, in your view?

Mr. KUDLOW: Well, of course you'll see in the end the facts will bear somebody out, but I'm reminded, Robin, somewhat of the situation in late 1982 and early 1983, at the time I was in the administration. We had a big debate about the outlook with the low-growth versus fast-growth group. At that point people were talking about big trade deficits and large budget deficits as inhibiting factors for growth, and the consensus as it is today was for a sub-par year. On the other hand, people were ignoring the fact that the stock market was booming, the wealth-creating was occurring, the bond market was improving, interest rates were coming down and so was inflation. We have to weigh all these factors. I think it's a question of emphasis, frankly. And I'm not so sure I agree that we don't see any evidence of it so far. The fact is the second half here in 1985 was growing at slightly better than 3 real GNP, which is close to the long-term trend growth of the U.S. The first-half growth was only about two, 2.2 percent. It looks to me like the second quarter was the low point at 1.1 , and we're gradually making our way ahead. I think early '86 is going to be surprisingly good, and I think once again we're overlooking the wealth-creating effects and this important reduction of interest rates which has occurred in the last year or so.

MacNEIL: You didn't comment on that before. He mentioned the wealth-creating effects of the huge stock market boom which presumably gives the corporations more money to play with, a 40 increase in the value of the stocks. What about that?

Mr. GREENSPAN: Well, there's no question that it's not only that, which is a positive factor, but when stock prices go up, the cost of capital to the business community goes down. That is very crucial to initiate an expansion of capital investment, which is socrucial to any type of expansion for 1986.

MacNEIL: Well, that would be a good sign.

Mr. GREENSPAN: It's certainly a good sign, but I would argue further. I would say were that not happening we would be in really serious trouble. So it's a question of the base from which you start. My concern is that American business is so debt-ridden at this particular stage that unless there was a positive force from such a thing as lower long-term interest rates and higher stock prices, then we would have nothing in the way of growth at all. I am contemplating some moderate growth for the same reasons that Larry Kudlow is, but I just don't believe that there is enough financial capacity in the system, nor a set of incentives adequate to give us the really extraordinary expansion which he is contemplating at the moment.

MacNEIL: Let's go around on a couple of the factors that one or two of you have mentioned. First of all, the falling dollar, Mr. Thurow. What danger do you see in the falling dollar?

Mr. THUROW: Well, at some point --

MacNEIL: It's supposed to be a good thing. The administration wants it to happen, was criticized when it didn't want it to happen. Now it does and it's supposed to make American exports cheaper and imports more expensive.

Mr. THUROW: Well, it's a good-news, bad-news thing. It makes inflation worse but it returns some of that demand to the United States which helps keep the economy going in real terms and lower unemployment. The real problem is that the dollar is still over-valued. At the current value of the dollar, American industry is not competitive. It's not as bad as it was last March, but the current value of the dollar is only enough to stop the trade deficit from growing. It isn't enough to push it down. And at some point -- nobody knows whether that's 1986 or 1987, or even longer -- the United States is going to build up such debts, international debts, that the rest of the world will lose confidence in the dollar, then you have a flight from the dollar and then you have a crash in the value of the dollar, which has all kinds of ramifications on the international financial situation. But the key thing to point out is that nobody can tell you when. We know the United States cannot borrow an infinite amount of money, but nobody knows the magic moment when the Europeans and the Japanese say, hey, those Americans have borrowed a little bit too much; we shouldn't really lend them any more.

MacNEIL: Mr. Kudlow, did I understand you to be saying the dollar has come down far enough, 20 to 22 percent?

Mr. KUDLOW: I think the dollar has come down far enough. I'm a little worried it's come down too much, and my judgment is we don't know if the dollar is undervalued, overvalued or what. That is essentially a market judgment that can only be made based on underlying fundamentals. I get very nervous about governments, or even individuals, saying where these currencies should be. My particular concern about the dollar is that lowering the dollar will perforce raise import prices, and if indeed we're going to have improvement in consumer and business spending next year, as suggested in my scenario, then these import prices may well spill over into domestic price increases as domestic producers try to expand profit margins --

MacNEIL: And an even lower dollar would make that worse?

Mr. KUDLOW: It would make it worse, and at some point what is going to happen here is not only will the inflation rate go up, as I believe it may, but inflationary expectations, which had been quiescent in recent years, may flare up again, therefore causing interest rates, particularly longer-term interest rates, to rise.

MacNEIL: Finally, we have a minute to discuss the thing that made so much political noise this year, the Gramm-Rudman-Hollings bill that you mentioned, the attempt to mandate deficit reduction. What is the danger you see in that?

Mr. GREENSPAN: The danger is that it won't work. There is going to be a political firestorm this summer or next summer when it becomes clear precisely what that bill is supposed to do, and unless I misread how Congress behaves, they are going to try to do something to fend it off, but because they're in an election year they cannot ask for its repeal, and we are in a major confrontation with respect to the deficit. And my concern is that we will break apart in a political way, which will make the financial community terribly concerned about our ability to solve this problem.

MacNEIL: Mr. Thurow, what's your feeling about Gramm-Rudman?

Mr. THUROW: Well, Gramm-Rudman clearly can't work. It's a doomsday machine. My example of that is if you believe Gramm-Rudman, Gramm-Rudman literally says that we will at some point in time close 40 or 50 percent of the federal prisons and let all those people out. My question is, whose neighborhood are we going to put all those rapists and murderers in? The whole point of Gramm-Rudman is to be so absurd that it will persuade the President and Congress to do something sensible. and whether that kind of a threat is going to work or not, I guess I am, like Alan Greenspan, very dubious.

MacNEIL: Well, gentlemen, we have to leave it there. We'll call you all back and mark your tests next year. Larry Kudlow, Lester Thurow and Alan Greenspan, thank you.

LEHRER:The Lurie cartoon is next. Afghanistan is what it's about.

[Lurie cartoon -- Afghanistan acquires balls and chains for each year of Soviet occupation, 1980 through 1985. For 1986, the USSR brings it a New Year's present of...a ball and chain]

Again the major stories of this New Year's Eve day. Israeli Prime Minister Shimon Peres called the Libya of Muammar Qaddafi a wicked country and called for international sanctions against it. There were unsuccessful assassination attempts against the president of Lebanon and a Christian faction leader, and the U.S. trade deficit went up again in November to the third-highest monthly level ever. Happy New Year, Robin.

MacNEIL: Happy New Year, Jim. Happy New Year to all of you. We'll be back tomorrow night. I'm Robert MacNeil. Good night.