How the Cold War was won... by the French

James Bond and George Smiley can eat their hearts out. Who really won the Cold War for the democratic world? The French, naturellement. This rather startling claim is made by the publicity for a brooding, brilliant, French spy movie which reaches cinemas next week. Although somewhat far-fetched, the boast that French intelligence "changed the world" does have some basis in fact.

The story of L'Affaire Farewell, how a French mole in the KGB leaked information so devastating that it hastened the implosion of the Soviet Union, is comparatively little known in Britain or even in France.

Due credit is given to the French, the once-reviled "surrender monkeys", by, of all sources, the Central Intelligence Agency. The CIA's official website still carries a compelling essay, written soon after the affair was declassified in 1996, by Gus Weiss, the American official who ran the Washington end of the case. He concludes: "[The] Farewell dossier... led to the collapse of a crucial [KGB spying] programme at just the time the Soviet military needed it... Along with the US defence build-up and an already floundering Soviet economy, the USSR could no longer compete."

The official version of events shows that the French taupe, or mole, was Colonel Vladimir Vetrov of Directorate T, the industrial spying arm of the KGB. In 1981-82, he gave French intelligence more than 3,000 pages of documents and the names of more than 400 Soviet agents posted abroad. The information, shared by Paris with its Nato allies, was deeply alarming but also hugely encouraging.

Colonel Vetrov, codenamed Farewell by the French, laid bare the successful Soviet strategies for acquiring, legally and illegally, advanced technology from the West. He also exposed the abject failure of the Communist system to match rapid Western advances in electronic micro-technology.

The case directly influenced President Ronald Reagan's decision to launch the "Star Wars" programme in 1983: a hi-tech bluff which would drag the USSR into an unaffordable, and calamitous, attempt to keep up with the democratic world.

Raymond Nart, the French intelligence officer who handled the case from Paris, reported that Colonel Vetrov approached the French because he had once been stationed in Paris and loved the French language. His original contact was a French businessman in Moscow and then a French military attaché and his wife. He passed on secrets by exchanging shopping baskets with the wife in a Moscow market.

The Russian never asked for money or for a new life in the West. He was an "uncontrollable man, who oscillated between euphoria and over-excitement", said Mr Nart. He appears to have been motivated by frustration with the Soviet system and, maybe, a personal grudge. He was eventually caught, and executed, after stabbing his mistress and killing a policeman in a Moscow park in February 1982. The case remains deeply sensitive, and mysterious, in Russia and France. The democratic Russia of Vladimir Putin (ex-KGB) and Dimitry Medvedev brought pressure on a celebrated Russian actor, Sergei Makovetsky, to withdraw from the French film, L'Affaire Farewell, which premieres at the Toronto film festival this week. A request to film in Russia was refused.

Former French intelligence officers came forward to try to sidetrack the film's director, Christian Carion (who made the Oscar-nominated Joyeux Noel about the fraternisation in the trenches in December 1914). The ex-agents told him that the Farewell case was not what it seemed. The whole affair, they said, had been concocted by the CIA to test the loyalty to the West of the Socialist president, François Mitterrand, after he was elected in May 1981.

Even Mitterrand came to believe this version of events, and fired a senior French intelligence chief in 1985. These allegations, officially denied in Washington and Paris, are almost certainly driven by jealousy among competing French spy services. Farewell was "run" – at the mole's own insistence – by a relatively small, French counter-espionage agency, the Direction de la Surveillance du Territoire (DST), which was not supposed to operate abroad.

The former French foreign minister, Hubert Védrine, a diplomatic adviser to President Mitterrand at the time, is in no doubt that Farewell existed. "It was one of the most important spy cases of the 20th century," he said. "At no other time since 1945 was the Soviet system exposed to the light of day so completely."

Mr Védrine rejects the implication – in the publicity surrounding the film rather than the film itself – that the Farewell case caused the collapse of the Soviet Union. But he, like the senior US official, Mr Weiss, argues that the information provided by the KGB mole was one of the catalysts for the demise of the USSR, nine years later. By making it even harder for the Soviets to compete with the West, the affair magnified doubts and tensions within the Communist hierarchy and assisted the rise – but also undermined the work – of the would-be reformer, Mikhail Gorbachev.

The film, L'Affaire Farewell, made in Russian, French and English, stars the Bosnian actor, Emir Kusturica, as the KGB mole and Willem Dafoe as the head of the CIA. To allow the researcher-scriptwriter, Eric Raynaud, cinematic licence with the story, Colonel Vetrov has been renamed, Serguei Grigoriev. The French agents are telescoped into one man, a reluctant businessman-turned-spy called Pierre Froment, played by Guillaume Canet.

The film, which has received glowing advance reviews, is far from being a James Bond car-chase thriller. It is more like a Gallic John Le Carré: part historical essay, part psycho-drama about the relationship between professional Russian spy and amateur French agent. The director, Carion, admits that he has guillotined parts of the story. He left out the professional French agent and his wife and he left out Farewell's attempt to stab his mistress as "too confusing". The effect is to downplay Colonel Vetrov's murky side and make the story one of anguished heroism, on both sides.

Russia's refusal to co-operate in the making of the movie is easily explained, Carion says. In 1983, 47 Soviet diplomats and journalists, identified as spies by Farewell, were expelled from Paris. Among them was a young diplomat called Alexander Avdeev. When the film was being planned, Mr Avdeev was back in Paris as the Russian ambassador. He has since returned to Moscow as Minister of Culture.

How significant was the Farewell affair? In the essay on the CIA web-site, Mr Weiss, a member of Ronald Reagan's National Security Council in 1981, gives a lengthy account of its importance to the US. Mr Weiss, who was put in charge of the US response to the Farewell leaks, was an intelligence officer for almost half a century. His words need to be treated with caution but he suggests that Farewell played a pivotal role in the winning of the Cold War.

"Reading the material caused my worst nightmares to come true," he said. The Soviet Union, under the cover of detente had extracted so many technical secrets from the West, openly and illegally, that in the 1970s "our science was supporting their national defence".

At the same time, the Farewell File revealed that the USSR was much further behind the West in computer technology than the CIA had believed possible. The US used the information to turn the tables, Mr Weiss said, "and conduct economic warfare of our own".

Sabotaged pieces of technology were leaked to Moscow "designed so that... they would appear genuine but would later fail"; "contrived [unreliable] computer chips found their way into Soviet military equipment, flawed turbines were installed on a gas pipeline (which later exploded) and defective plans disrupted the output of chemical plants and a tractor factory".

The former French foreign minister, Mr Vedrine, believes that the Soviet empire was already close to collapse in the early 1980s. Its economic model was no longer working. The Afghan war and military expenditure had crippled state finances. The value of oil exports had plummeted. Farewell, he says, did not cause the end of the USSR but it did "hasten the system towards its end".

Gus Weiss reaches the same conclusion. Unlike Mr Védrine, he will never see the cinematic version of events. He died in November 2003 in mysterious circumstances, officially classified as suicide. Mr Weiss, who had split with the Bush administration over Iraq, fell from the windows of his apartment in Washington. The apartment was in the Watergate building.