REVIEW OF THE WORLD SITUATION

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP67-00059A000500070003-6
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 15
• Document Creation Date: November 11, 2016
• Document Release Date: August 20, 1999
• Sequence Number: 3
• Publication Date: November 17, 1948
• Content Type: REPORT

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REVIEW OF THE WORLD
SITUATION
Published 17 November 1948
CENTRAL INTELLIGENCE AGENCY
sieReroo
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This document contains information affecting the na-
tional defense of the United States within the meaning
of the Espionage Act, 50 U.S.C., 31 and 32, as amended.
Its transmission or the revelation of its contents in any
manner to an unauthorized person is prohibited by law.
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1. This copy of this publication is for the information and use of the recipient
designated on the front cover and of individuals under the jurisdiction of the recipient's
office who require the information for the performance of their official duties. Further
dissemination elsewhere in the department to other offices which require the informa-
tion for the performance of official duties may be authorized by the following:
a. Special Assistant to the Secretary of State for Research and Intelligence, for
the Department of State
b. Director of Intelligence, GS, USA, for the Department of the Army
c. Chief, Naval Intelligence, for the Department of the Navy
d. Director of Intelligence, USAF, for the Department of the Air Force
e. Director of Security and Intelligence, AEC, for the Atomic Energy Com-
mission
f. Deputy Director for Intelligence, Joint Staff, for the Joint Staff
g. Assistant Director for Collection and Dissemination, CIA, for any other
Department or Agency
2. This copy may be either retained or destroyed by burning in accordance with
applicable security regulations, or returned to the Central Intelligence Agency by
arrangement with the Office of Collection and Dissemination, CIA.
DISTRIBUTION:
Office of the President
National Security Council
National Security Resources Board
Department of State
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Department of the Army
Department of the Navy
Department of the Air Force
State-Army-Navy-Air Force Coordinating Committee
Joint Chiefs of Staff
Atomic Energy Commission
Research and Development Board
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REVIEW OF THE WORLD SITUATION AS IT RELATES TO THE SECURITY
OF THE UNITED STATES
1. The situation in China has deteriorated to the point where its stabilization by
the Nationalist Government is considered to be out of the question. A coalition gov-
ernment, with a non-Communist front but with control securely in Communist hands,
is the most likely political development. Such a government would probably present
itself as a continuation of its predecessor and would seek corresponding international
benefits. The consequences of a Communist triumph in China will be sharply felt in
the peripheral areas of Japan, Korea, and Southeast Asia, where the morale of Com-
munist groups will be stepped up and closer coordination of their activities can be
expected. Action to protect US security interests in the Far East will for some time
have to be confined largely to the peripheral areas. Longer term possibilities with
respect to China itself need not, however, be entirely dismissed. The capacity of the
Chinese Communist Party to stabilize China is untested and it is considered that the
problems of stabilization may offer opportunities at a later date for the re-establish-
ment of discreet US influence.
2. The relations of the USSR and the Satellite States of Eastern Europe are con-
sidered to be in a condition of uneasy stability. In view of this, the USSR is obliged
to measure the actual degree of reliable control it exercises in this area as an essential
to the development of its general policy for Germany and Western Europe. In particu-
lar, it is believed that the Satellite States cannot at the present time be used as a
reliable base for more than political and economic operations. Controls would have
to be drastically increased to ensure support for military operations.
3. In the Near East initiative lies almost wholly in Israeli hands and the Arab
States are uncomfortably suspended between the over-stimulated opinions of their
citizens and their suspicions of each other.
4. Significant Trends: (a) World Labor is now clearly aligning itself in terms of
the East-West conflict; (b) the Conference of Commonwealth Prime Ministers has
ended on a note of of unexpected solidarity; (c) the current trend toward an admitted
partition of Germany is being accelerated by economic, political, and strategic
considerations.
5. Particular situations are noted in Paraguay and Peru, in Greece and Turkey.
Note: This review has not been coordinated with the intelligence organizations of the Departments
of State, Army, Navy, and Air Force.
The information herein is as of 14 November 1948.
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REVIEW OF THE WORLD SITUATION AS IT RELATES TO THE SECURITY
OF THE UNITED STATES
1. FAR EAST-CHINA.
The long-anticipated crisis in China has unmistakably arrived. Its main features
conform approximately to the pattern that was anticipated-military defeats, economic
collapse, political defections, and a general sense of the desirability of peace at any
compromise. Of unusual significance, however, has been the superior military capa-
bility which the Communist armies were able to build up and the success with which
they have kept the initiative they recently seized. The military and political develop-
ments of the past month suggest a degree of coordinated strategic direction that has not
been generally assumed in appraising Communist strength.
Aside from the question of whether or not this more highly organized authority
and power can be effectively applied to the larger problem of pulling China together
under a Communist or a Communist-dominated government, there seems to be little
room left for doubting its ability to bring military operations north of the Yangtze
River to a successful conclusion. The factor of time is clearly working for the Chinese
Communists, and there is no sign that they do not fully appreciate the advantages
this puts into their hands. It can be assumed that, within the limits set by logistics,
maximum pressure on the Nationalist Government will be maintained and no breathing
space will be allowed for the reorganization of an opposition.
North of the Yangtze River, this pressure is essentially military. South of the
Yangtze it consists of taking advantage of the general political and economic disin-
tegration (a) by holding out political opportunities to wavering Nationalists and (b)
by propaganda activities designed to fit a popular desire for peace and stability. In
these circumstances, it is highly improbable that, even with increased aid from the
US, the Chinese National Government can stabilize the situation sufficiently to give
any hope that the present progressive breakdown can be reversed.
It is, of course, likely that various efforts will be made to effect such a stabilization.
Chiang Kai-shek might be replaced by a group of Nationalist leaders; but any such
attempt to preserve a continuity of Kuomintang influence cannot lead to anything but
a weaker government than the present one. Chiang might seek to preserve some-
thing by fleeing with his present government to some less easily accessible region
than Nanking; but such a move would irrevocably close out any credit the Nationalist
Government still has with the Chinese people. While either or both of these courses
may be tried, the likely development will be a steady drift toward negotiation and
a compromise settlement. As effective Nationalist resistance comes to an end, this
drift will probably become a coherent movement and will be more and more widely
accepted as offering the only reasonable alternative to the present confusion.
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While the Chinese Communists cannot be expected to agree to a compromise that
would keep them from collecting the benefits of their success, they will probably see
good reason to negotiate with such nor -Communist political leaders as may desert the
hard-core of Nationalists who are whc lly committed to an anti-Communist position.
The bait of a "coalition" government is ' )eing dangled and there is no compelling reason
why dissident ex-Nationalists, minor party leaders, non-Kuomintang officials, and
aspiring regional politicians should not take it. The Chinese Communist Party has
consistently presented itself in China as the only real seeker after the national inter-
est. Its positive achievements in the exercise of authority have not perceptibly run
counter to Chinese social tradition or to long-established peasant interests. Its links
with the USSR have been successfully played down and obscured. This policy has
been effective in that only a small proportion of Chinese are aware of the implications
of a political coalition with the Communists and are accordingly prepared to support the
hard-core Nationalists in resisting it.
A Communist-dominated coalition, possibly proclaimed as a successor government
to the Nationalist, must be considered as a very likely next step. Such a government
might well be headed by a non-Communist and leave a number of its departments in
non-Communist hands. It would claim international recognition on the ground that
it represented a natural development of political authority and not a revolutionary
rupture. This claim would be supported by the maintenance of correct external rela-
tions, by a policy-in considerable part sincere-of avoiding the alienation of US
opinion, and by an obvious absence of general internal resistance to its authority.
But, behind this facade, it is reasonably certain that the key points of control at all
levels of the government would be in Communist hands and that the basic and con-
sistent aims of the Communist Party would be pursued.
The significance of a Communist success in China to the security of the US need
not be stressed. The general principle of preventing the consolidation of China by an
ill-disposed political force is clearly understood. The possibility of opening Asia to
effective Soviet influence, through the channel of a politically dominant Chinese Com-
munist Party, is fully appreciated. The possible effect on the alignment of voting
states in the UN Security Council of the appearance of a Chinese representative who is
also Communist-instructed, should probably be noted for future examination.
But, for the short-term, the peripheral consequences of a Communist success in
China are perhaps more important than the situation in China itself. Within China,
it is unlikely that any action taken by the US, can reverse an unfavorable trend.
But, on the periphery of China-in Korea, in Japan, and in Southeast Asia-possibili-
ties still exist for attempting such a reversal. However, in these areas, each of which
presents its own internal problems, an estimate must be made of the effect of events
in China on these problems.
a. Japan: for the time being, the effect would probably be felt in connection with
the reorganization of Japanese economy. In so far as plans to this end assumed China
as a source of raw materials and as a consumer's market, they may have to be con-
siderably modified. This in turn might involve an indefinite prolongation of US sub-
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sidies and economic commitments. More generally, however, the security situation
would enable the Japanese to emphasize the value of Japan as a strategic defense
against the expansion of Asiatic Communism beyond the mainland. This value would
provide the basis for a still more forcible claim on financial aid and would lay the
groundwork for the questions as security guarantees, the reconstruction of an indus-
trial potential, and the reorganization of Japanese manpower for defense purposes.
b. Korea: an adverse effect on the stability of the US-supported Republic of
Korea can be anticipated. This will follow more from a build-up of morale among
Korean Communists than in consequence of direct economic and military aid. A
strong sense of success will be passed on, particularly to the southern Communist under-
ground, as a conviction that victory is inevitable. Correspondingly increased apprehen-
sion can be expected to affect the judgment and policy of Republican political leaders
in the South. There is a strong actual and spiritual kinship between these leaders
and the Chinese Nationalists who are being dispossessed. Their apprehensions may
well express themselves in the form of oppressive and even terroristic security measures.
If the direction of such measures fall into the hands of extreme Rightists, they might
easily be carried to a point where the progress that the South Koreans have made
toward responsible government will be wiped out and any possible popular base for a
Republican regime destroyed.
c. Southeast Asia: the problem in this area falls into two parts. The first con-
cerns the direct channels and assistance that will be opened to Communist groups
already operating in these areas. Since Chinese Communists are active in all of these
groups, it must be anticipated that a closer and easier liaison will be developed with
the Chinese Communist Party and hence with Soviet Communism, and that the possi-
bility of a more comprehensive and coordinated strategy for undermining European
and US influence will exist. The second problem concerns the Chinese minority groups
that are dispersed throughout the region. These groups total about 61/2 million
people and exercise considerable economic power through their control of small-scale
commercial enterprise. Historically, this minority has been organized in relation to
political alignments in China itself, and therefore reflects the influence and propaganda
of the Kuomintang and of the Communist Party respectively. It is possible that these
established political alignments may be maintained in Southeast Asia after they have
ceased to be significant in China itself, for a retreat of Kuomintang personnel and funds
may create a Party structure in exile; and it is certain that Communist groups will
be strengthened and increased. In general, however, it is considered that these minori-
ties-after an attempt to remain neutral-will begin a cautious reassessment of their
political allegiance and will, especially if there is a Coalition Government in China to
which they can attach themselves, fall in line with the possible political developments
that have been described earlier.
This tendency may be speeded up if local governments in Southeast Asia
seize on this moment of uncertainty to bring their Chinese minorities under restrictive
control with the object of preventing Chinese encroachments on their sovereignty and
of furthering their own nationalist aims. A vigorous effort in this direction might well
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oblige Chinese minorities to align themselves with whatever dominant government
emerged in China and was able to make effective diplomatic representations on
their behalf.
In each of these areas there is, in addition, the question of the effect of these
possible developments on US influence and US interests. There is no doubt that US
policy with respect to Nationalist China has been watched with close attention-in
particular that aspect of policy which apparently linked aid with checking Communist
expansion. It is inevitable that the governments, parties, and politically conscious
groups in the states bordering China should come to a negative conclusion about the
effectiveness of such a policy. This conclusion will probably raise serious doubts about
the advisability of relying on US assistance as a counterbalance to the demonstrated
success of Communist forces. The propaganda advantages of this situation will cer-
tainly be fully expoited against the US and the need for a countereffort is clearly
indicated.
For the immediate future, US action in the Far East is probably limited to the
maintenance and-if possible-the improvement of the US position in the peripheral
areas. With respect to China itself, immediately useful courses of action appear to be
blocked. However, for the longer term, factors do exist which allow time to recon-
sider the situation. The fundamental problems of demographic pressure and a dis-
organized and inadequate economy will not be solved merely by the substitution of one
regime for another in China. The Chinese Communists do not have personnel equipped
even to begin to deal with such problems, nor can such personnel be provided by any
known political coalition. The Chinese state will not be quickly converted into a
"going concern" under Communist direction. Material and technical assistance from
abroad will be as much needed as before and the finger will continue to point to the
US as the only likely source of supply. Channels exist for exerting judicious pressure
by these means and a competition with the USSR for superior influence even in a
Chinese Communist government need not be wholly dismissed.
It is still not certain that the Chinese Communist Party is an absolutely
reliable instrument of Soviet policy. There are some indications of differences of
opinion within the party in respect to the degree of orientation toward the USSR that
is desirable. While these do not give hope for an immediate serious split, the mono-
lithic control that the USSR is demanding from the Communist parties of the West
has not yet been realistically tested against the regionalism and social incoherence of
modern China.
The essential security interest of the US in the Far East consists in preventing
the organization of that region by governments whose orientation and comparative
power weaknesses will combine to make them serve the purposes of an expanding
Soviet power. The dangerous factor in the success of the Chinese Communists, both
in China proper and in their increased capacity to influence events in neighboring
countries, is that a start has now been made in this direction. It cannot, however, be
concluded from this that the ultimate threat to US security has been made and that
a correspondingly comprehensive answer must be immediately found. A dangerous
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trend, capable of development into a serious threat, is clearly indicated; but the total
situation is still far from being irreversibly unfavorable. The organization of China
and its periphery into a political group through which the USSR can threaten US
security requires the formulation and implementation over a long period of time of
complexly related policies. That the Chinese Communists represent this type of author-
ity and are capable of this type of long-range operation is still untested. Even if they
should be, the conversion of China into an effective center of power assumes that China
possesses-in unexploited form-the fundamental attributes of a modern power system.
This assumption is considered questionable. The security problem before the US is not
one that demands a comprehensive solution in the immediate future. It calls instead
for the firm maintenance of positions peripheral to the area of collapse and for the
steady development of new sources of influence within the area.
2. EASTERN EUROPE AND THE USSR.
The competition between the West and East for the heart of Europe comes more
and more openly to depend upon the reality of the power-actual and potential-that
can be brought effectively to bear. Soviet policy, in both its strategy and its tactics,
cannot be divorced from its status in Eastern Europe.
At the present time, Soviet policy in Europe is focused on Germany. In connec-
tion with this policy, the USSR must calculate the adequacy of its control over the
belt of states that lies between the USSR proper and Western Europe. This belt com-
prises simultaneously a "defense in depth" and a jumping-off point for either ideological
or military aggression. From the Soviet point of view, eastern Germany is part of
the northern sector of this security belt.
The importance of the states making up this belt varies in relation to specific
tactical objectives. Thus, with Soviet attention fixed on Germany, Poland and Czecho-
slovakia are of prime significance. As long as the main objective is the industrial
potential of Western Europe, the Balkan Satellites are a secondary consideration. In
the strategic view, the Kremlin can afford to move slowly in dealing with Tito in
Yugoslavia.
But, although Yugoslavia may be of secondary importance in terms of the strat-
egy of a Soviet policy in Germany, the Yugoslav schism has far-reaching political
significance in relation to the over-all problem of dominating the belt of Satellite
States. It represents a direct challenge to both the concept and methods of control.
As such, it has made a deep impression upon the Satellite peoples, stirring latent nation-
alisms and facing local Communist leaders with the dilemma of reconciling the arbi-
trary political and economic demands of the USSR with local exigencies.
Whatever previous estimates may have been made by the USSR of the effectiveness
with which the Satellites were controlled, doubts have been raised. These doubts have
expressed themsleves in the Communist purges in Poland and Czechoslovakia; and it is
significant that these doubts are apparently being stifled by a stricter use of the tech-
niques of party discipline and police methods rather than by basic modifications
of policy.
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The general uneasy stability of Eastern Europe, though revealed chiefly by political
controversy and nationalist unrest, derives in a considerable degree from economic
unbalance. The doctrine of non-participation in the European recovery program,
which the USSR forced upon Eastern Europe, was not accompanied by commensurate
Soviet aid. Soviet insistence on a rapid collectivization of agricultural production
in countries where the traditional political objectives of predominantly peasant popu-
lations were the private ownership of land, has created tensions which increase as
familiar standards of living decline and as hopes are not realized. Ideological loyalty
cannot be secured in these circumstances, and its lack is made up for by firmer methods
of control.
It is clear that the integration of a Soviet Eastern European Empire is far from
complete, and that a genuine assimilation of the Satellite States on terms satisfac-
tory to the Kremlin is still remote. This does not imply that there is not a sufficient
degree of domination to proceed with the execution of a policy for Germany and West-
ern Europe, but it does imply that Soviet policy does not have an absolute and certain
foundation and that the need to estimate the degree of control that exists cannot
be overlooked.
The effort of the US to stabilize Western Europe and revive the western zones of
Germany, obliges the USSR to examine the degree of control it must maintain in East-
ern Europe in order to use that area as a secure base for operations in Germany and
against the West. If political and economic stability increases in the West, disparities
of all kinds will appear between the west and the east of Europe-availability of con-
sumer's goods, reduction of social tensions, re-establishment of individual freedoms.
Such disparities, by casting doubt on the efficacy of Communist ideology, will affect the
speed with which the Satellite States are being assimilated and will probably force ever
increasing controls in order to preserve a position of relative strength. Hence, the rate
of rehabilitation in Western Europe will directly determine the tempo of Soviet efforts
to consolidate Eastern Europe.
As long as an unfavorable basis for comparison exists, Soviet control in its Euro-
pean security belt will never be wholly satisfactory. If the USSR ever decides to play
its trump card and incorporate the area with the Soviet Union, it will be a sign that
the situation is considered to be seriously insecure.
At the present moment, it is evident that the USSR is dealing with a condition
of uneasy stability in Eastern Europe and that its expansionist policy is to some degree
inhibited by the uncertainties of this situation. With particular reference to the
German focus of this policy, an additional uncertainty is introduced by the attitudes
of an insecure Poland and Czechslovakia toward Germany. In precisely the same
sense that French uneasiness interferes with a wholehearted policy of reviving west-
ern Germany, Polish and Czech uneasiness cuts across the policy of creating a Soviet-
oriented government in eastern Germany. This deep-rooted fear of putting the means
of future aggression back into German hands is apparently stronger than any con-
cept of international Communism. Yet, from the Soviet point of view, the establish-
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ment of a strong Soviet-controlled German system in eastern Germany is a prerequisite
to achieving Soviet aims for Germany as a whole.
In view of these considerations, there are grounds for concluding that Soviet
tactics in Europe will continue to be developed by political rather than military means,
and that Eastern Europe is at this moment a base suitable only for operations short of
war. If Soviet policy reaches the point where it accepts the necessity for large-scale
military operations as well, it will be obliged drastically to increase its control over the
Satellite States in order to ensure their effective support.
3. NEAR EAST.
The situation in Palestine has now reached the point where it is stalemated inter-
nationally but leaves local initiative in the hands of the Israeli state. A series of well-
designed military fait accompli have broken down whatever theoretical balance wac
being preserved by the UN truce, and it is now doubtful if the Security Council is will.
ing to make or able to execute the judgment that would be needed to reverse the
process. By all the usual calculations, the Arab position has deteriorated to the point
of being untenable, but religions and nationalistic feeling may result in its being main-
tained even in the face of fact. This deterioration, though apparently appreciated by
Arab political leaders-each in terms of the interests of his own country and parties-
is not generally understood by an over-stimulated public opinion. In consequence, the
members of the Arab League, while maneuvering to find a scapegoat among them-
selves, are at the same time prevented from making realistic adjustments to the fact
of Israeli strength by their fear of political repercussions at home.
In these circumstances, even though the Israeli can probably drive the Arab
armies out of Palestine, fix the borders desired, and force a negotiated settlement, the
relative peace that would thus be secured for the state of Israel would be more than
counterbalanced by the increased instability of the rest of the Middle East.
4. SIGNIFICANT TRENDS.
a. World Labor.
When the "cold war" was joined, one of its key problems became the effort to
influence what went on in the minds of men, and one of the most important aspects
of this problem was the body of opinion and action represented by world labor. The
World Federation of Trade Unions (WFTU) was the stage for a significant effort to
merge trade unions of the Soviet type and unions of the Western Democratic model in
an organization that would focus on common labor objectives and that would pursue
them in an atmosphere of working-class solidarity. This aspiration and the ambiguities
it permitted, gave Soviet-Communist strategy a chance to try to substitute an inter-
national Communist loyalty for the dispersed loyalties of national labor organizations.
A conscious resistance on the part of Western labor organizations has devel-
oped, probably as a natural but delayed consequence of the broader East-West conflict.
Important signs of the growth of an organized resistance have been accumulating for
some months. Efforts to enlist labor support for the European recovery program
have moved considerably beyond the original official idea of setting up the European
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Trade Union Advisory Committee (TUAC). The American Federation of Labor, for
example, sponsored the establishment in Paris of a committee of exiled labor leaders
from Eastern Europe. Subsidiary labor groups-International Metal Workers, Trans-
port Workers, Mine Workers, the French Force Ouvriere and the British Trade Union
Council (TUC)-have publicly expressed doubt about the activities of the Communist-
oriented Secretariat of WFTU.
Supplementary support for this trend was given by the breaking up of Com-
munist-Socialist trade union coalitions in France and Italy; by the purging of Com-
munist executives in American, British, and Latin American labor organizations; and
by the increasingly outspoken definition in Western Europe of Communist labor as
dominated by Soviet policy rather than by the interests of the nation of which labor
was a part. Catholic trade unions have also sought to revitalize themselves and to
find ways of removing the anti-clerical antagonisms that had previously made it
difficult for them to work in conjunction with other labor groups.
Most recently, and of considerable significance, the British TUC has recom-
mended that all WFTU plans and activities be suspended for one year. The recom-
mendation is coupled with a threat to withdraw from the WFTU if the World Federation
does not comply. The American Committee for Industrial Organization (CIO) will
apparently follow suit. The motive behind this action is the increasing certainty that
WFTU is being used by Soviet-Communism as a channel for bringing international
labor into opposition to ERP and organizing it to support Soviet policy aims. Soviet
reaction has been immediate, and it is evident that the possible formation of a new
international labor organization, oriented to Western policy, is viewed with alarm.
Soviet propaganda has already discovered a conspiracy to destroy working-class
solidarity.
In general, the development here described is still in its early stages. The
factors that set it in motion are far from being consolidated. In particular, money is
not available for rapidly organizing this trend into a strong and coherent body of
labor opinion. Hence full advantage cannot be taken of its value as a counterbalance
to Soviet propaganda and Communist activities in areas of political and economic
instability. The trend, however, has reached the point where it opens a valid channel
to one of the most important sectors of opinion in the democratic world.
b. The British Commonwealth.
The outstanding fact of the recent conference of Commonwealth Prime Minis-
ters was the unmistakable evidence of fundamental agreement about the basic prob-
lems of contemporary international relations. Contrary to expectations, recognized
grounds for disagreement were not developed at the expense of the superior value of
making a common cause. The facts of the present East-West conflict were accepted,
not obscured; and the necessity for adjusting to these facts was admitted.
The Prime Ministers endorsed Great Britain's commitments under the Brus-
sels' Pact as being in the Commonwealth interest. They concurred in the need to rearm
and in the obligation to combat Communism by progressive social and economic meas-
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ures. Finally, they agreed to improve the machinery for mutual consultation at all
stages of relevant policy formulation.
Though no formal attempt was made to resolve intra-Commonwealth issues,
the degree of basic unity that was revealed made their solution seem less pressing.
The intangible consequences of this conference cannot be precisely measured. It
adds to the potential political power of Great Britain and of the individual members
of the Commonwealth by forcing others to assume once more a solidarity that was
being questioned. It indirectly serves US interests by providing a clear channel for
coordinating one large sector of foreign relations. It adds to the British capacity to
influence Western Europe.
c. Germany.
A draft constitution for the Western Zones of Germany is being completed by
the main committees of the Parliamentary Council. In the Soviet Zone, the People's
Council has recently approved a draft constitution for eastern Germany. Each is
theoretically designed to be suitable for extension to a Germany unified according to
Western or Soviet doctrine. Their simultaneous presentation reflects the current
acceleration of the trend toward partition, a trend that is given impetus by economic
developments and by strategic considerations. The long implicit competition between
the West and East for control of a central position in Europe and of the power potential
that goes with this region is now much closer to being openly joined.
For its part, the USSR appears to be compensating for the increasing economic
difficulties of its Zone and the widespread political apathy that greets its efforts to
win popular support by strengthening its economic and political controls and by a
reorganization and expansion of its German-Communist security forces. The impli-
cation is, not that the USSR has modified its objectives in Germany, but, that it is
prepared to accept the fact that it may be obliged to employ broader and more direct
coercion for their achievement.
The West, in contrast, pursues its objectives by economic means and by seek-
ing to reduce its controls over German political life. A comprehensive development of
this policy, spearheaded as it is by the incorporation of western Germany in the Euro-
pean recovery program, is not easy. At all stages, it runs into the fears of Western
Europe about the restoration of German industrial-military capacity, and into the
related question of reparation. The hesitations introduced by this point of view are
often beyond the reach of logical argument and negotiations must wait on. the pressure
of events for their removal.
5. PARTICULAR SITUATIONS NOTED.
a. Latin America-Paraguay and Peru.
Recent events in these two countries have illustrated two types of possible
consequences that are likely to follow from the basic social and economic instability that
prevails in much of Latin America. In the case of Peru, the new regime cannot be
expected to achieve more than a short-term stability; and the chances for the re-estab-
lishment of a more broadly based, democratic government-the prerequisite for long-
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term stabilization-have been reduced by the outlawing of APRA, the most popularly
based party in the country. In the case of Paraguay, the extreme weakness of the present
government invites an expansion of Argentine influence. Argentine investments in
Paraguay will encourage the use of pressure to ensure the type of stability that will
protect these investments. The serious split in the Paraguayan Army-an unusual
development in Paraguayan politics-facilitates the use of pressure, and channels for
exerting it are available in the large number of important Paraguayan exiles who are
now gathering in Argentina.
b. Greece - Turkey.
Military operations against the guerrillas have slowed almost to a standstill
and, in view of the unlikelihood that effective international action will emerge from
the current UN discussions, a solution of the military aspects of the Greek problem
cannot be expected in the near future. This check to publicized expectations has
lead to a new wave of inflationary pressure and made the whole unstable structure of
economy and public morale increasingly sensitive to sabotage and disruption. Politi-
cal disunity has also raised its customary head-probably as a consequence of an
atmosphere of deterioration-and agitation for a non-political "service" government
may enter into the maneuverings that have begun. The effect of these unfavorable
developments on US security interests are partly balanced in the same general area
by the benefits which US aid is beginning to produce in Turkey. Military training pro-
grams and service reorganizations are well under way there and considerable modern
equipment has been received. Official and public morale is correspondingly high.
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U. S. GOVERNMENT PRINTING OFFICE
3192-S-1948
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