THE CURRENT SITUATION IN FRANCE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP78-01617A003700130003-4
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 19
• Document Creation Date: December 27, 2016
• Document Release Date: March 14, 2013
• Sequence Number: 3
• Publication Date: November 14, 1949
• Content Type: REPORT

Declassified and Approved For Release 2013/03/14: CIA-RDP78-01617A003700130003-4
127
COPY NO.
SE ET FOR THE ASSISTANT DIRECTOR
FOR REPORTS AND ESTIMATES
,) 21
THE CURRENT SITUATION
IN FRANCE -PAA1
ORE 85-49
Published 14 November
ha. be=
L Yir: ? tr c21s through
? -i7VIEW PROGRAM of
.r ?
J. 1 ,:tt..alii.gence Agency.
rnite 21.?S4
laT9
191?1;0 11CDT:i.:-.c::.:E:1-.
sT?111,.
II
Vas;:-
nerno ,
CENTRAL INTELLIGENCE AGENCY
Declassified and Approved For Release 2013/03/14: CIA-RDP78-01617A003700130003-4
Declassified and Approved For Release 2013/03/14: CIA-RDP78-01617A003700130003-4
WARNING
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.
Declassified and Approved For Release 2013/03/14: CIA-RDP78-01617A003700130003-4
Declassified and Approved For Release 2013/03/14: CIA-RDP78-01617A003700130003-4
SECR
DISSEMINATION NOTICE
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
1. 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
Office of Secretary of Defense
Department of the Army
Department of the Navy
Department of the Air Force
Joint Chiefs of Staff
Atomic Energy Commission
Research and Development Board
Declassified and Approved For Release 2013/03/14: CIA-RDP78-01617A003700130003-4
Declassified and Approved For Release 2013/03/14: CIA-RDP78-01617A003700130003-4
THE CURRENT SITUATION IN FRANCE
SUMMARY
Former Premier Henri Queuille (Radical
Socialist?right of center) , who resigned 5 Oc-
tober as a direct result of labor's wage de-
mands, was succeeded on 14 October by the
Socialist Jules Moch and on 20 October by
Rene Mayer, a Radical Socialist, both of whom
failed to form governments because of political
maneuvering intensified by disagreements
over wage-price policy. On 23 October the
Popular Republican ex-Premier Georges Bi-
dault was designated by President Auriol to
succeed Mayer. The next government will be
based, as was Queuille's, on a middle-of-the-
road (Third Force) coalition. The domestic
policies of the Queuille Government tended
toward a resolute checking of Communism, re-
linquishing economic controls, and raising the
level of economic activity. While French in-
terests throughout the Union were defended
by this government, it also made progress in
negotiations for granting some dependent
areas?Vietnam, Laos, and Cambodia?certain
autonomous rights as Associated States.
Any Third Force Government faces a pre-
carious existence under even the most favor-
able circumstances. The Queuille Govern-
ment slowly acquired a measure of stability
down to Parliament's adjournment on 31 July,
but in August and September the political
groups comprising the Third Force became
more sharply divided, especially over wage-
price policies, and the government faced a
growing hostility of economic interests. The
more powerful of such interests are the labor
federations, the employers' association, and
the farmers' alliance. Although the coming
weeks are likely to be a period of political
crisis, a Third Force coalition will almost cer-
tainly be in power. De Gaulle's Rally of the
French People (RPF) , challenging the present
governmental system, has lost influence in
1949 although it remains a political party of
considerable strength.
Since the war France has achieved a sub-
stantial degree of economic recovery and over-
all economic progress, in which foreign assist-
ance has been and will continue to be an im-
portant factor. The reparation of war dam-
age is far advanced, and investment for recon-
struction and modernization is being main-
tained at a high level. The rate of industrial
production in the first six months of 1949
was more than 25 percent above that for
1938, while agricultural production in 1948
nearly equalled that in 1938. The serious
postwar inflation was temporarily brought
under control in the spring of 1949. Further
over-all economic progress will be slowed per-
ceptibly in the current fiscal year, as a result
particularly of the 1949 drought, increasing
competition for world markets, renewed infla-
tionary dangers, and prospective strikes. In-
dustrial production and the reduction of the
current account balance-of-payments deficit
with non-dollar areas will probably approach
the government's goals, but the outlook is less
favorable for improvement in the current ac-
count balance of payments with the dollar
area, as well as for agricultural production, a
sounder budget, and betterment of the stand-
ard of living.
Since France abandoned all hope of mediat-
ing the East-West conflict, the goyernment
and the great majority of the people have re-
lied increasingly upon collective security and
especially US military and economic power as
the ultimate guarantees of their national se-
curity. Thus the French have supported the
ERP, Western Union, the North Atlantic Pact,
and the Council of Europe. In addition,
French leaders have appeared to move slowly
toward eventual collaboration with Germany
Note: The intelligence organizations of the Departments of State, Army, Navy, and the Air
Force have concurred in this report. It contains information available to CIA as of
27 October 1949.
Declassified and Approved For Release 2013/03/14: CIA-RDP78-01617A003700130003-4
Declassified and Approved For Release 2013/03/14: CIA-RDP78-01617A003700130003-4
2 SE ET
in a federalized Western Europe. Soviet ex-
pansionism has been gradually met in a com-
mon front with the US and UK. In the next
twelve months, despite possible recurrences of
friction with these powers, no substantial
changes in French policy toward the US are
anticipated.
The Armed Forces together with the gen-
darmerie and police are capable of maintain-
ing security against any internal threat in
time of peace. The lack of heavy mate-
riel, and inability to produce it, will make
the Armed Forces incapable in the corn-
ing year of repelling a strong aggressor.
There is no prospect of any material increase
in military expenditures in 1950. The army
includes only two armored and three infantry
divisions up to strength. All nine existing
divisions require modernization of materiel.
The French hope eventually to be capable of
placing 20-30 divisions in the field in case of
war, but sustained major combat operations
would be possible for only a month or two.
The navy is in better condition than the army
or air force, but its combatant ships require
considerable modernization. The air force in
combat would be rendered ineffective by the
obsolescence of equipment and fuel shortages.
Communist infiltration, which is negligible in
the army and navy, is being gradually over-
come in the air force.
SiRET
Declassified and Approved For Release 2013/03/14: CIA-RDP78-01617A003700130003-4
Declassified and Approved For Release 2013/03/14: CIA-RDP78-01617A003700130003-4
THE CURRENT SITUATION IN FRANCE
1. Strategic Importance of France.
France is important to the maintenance of
US security because of its geographic loca-
tion, its pro-Western sympathies, its influence
on continental Western European affairs, and
particularly its essential role in the ERP.
France is a principal factor in the closer inte-
gration of Western Europe's economy and in
Western Union strategic planning, and, unless
overrun, would be of enormous assistance as
an ally of the US in the event of a war with the
USSR.
a. Military Aspects.
The military importance of France is shown
by the fact that its defense establishment is
larger than that of any other Western Euro-
pean continental power and is expected to
supply the largest share of the ground forces
under the Atlantic Pact. Given sufficient
military aid, France can build up a compact
and mobile army, improve its already good
(but small) navy, and increase the tactical
capabilities of its air force. France's key ge-
ographic location makes its airfields, its At-
lantic, Mediterranean, and Channel ports, and
its transportation system vital to a success-
ful prosecution of a war in Western Europe.
Their control by a power hostile to the US
would greatly weaken the security position of
the US.
Of almost equally great military importance
to the US is the strategic location of the over-
seas portions of the French Union. In addi-
tion to North Africa, the French have Asso-
ciated States and possessions of varying de-
grees of importance to US security in other
parts of Africa, the West Indies, the Far East,
and the Indian Ocean. US access to bases in
these areas would be of great value in event of
hostilities. On the other hand, if some of
these areas were controlled, even temporarily,
by an enemy or were not at the disposal of
the US, a serious diversion of US force and
effort would be required to seize and hold
them.
b. Economic Aspects.
Energetic French participation in the Euro-
pean Recovery Program (ERP) is essential to
European recovery. The violent efforts of the
Communists in 1947 and 1948 to disrupt the
French economy through strikes, primarily
in order to block or delay ERP, indicate the
importance with which the USSR regards the
French position in that program.
French assets of military value to the US
are: certain raw materials (bauxite, iron ore,
and potash from metropolitan France; rubber,
tin, iron ore, and tungsten from the overseas
territories), outstanding scientists and tech-
nicians, abundant skilled labor, and a growing
potential for arms production.
c. Importance to USSR.
France is important to the USSR in the
political, strategic, and economic spheres.
The USSR recognizes that France is a vital
link in US strategic planning, and that any
weakening of this link would benefit Soviet
plans. If France fell under Communist po-
litical domination, the political independence
of the Low Countries and Italy would be seri-
ously threatened and allied control of west-
ern Germany weakened. A Communist vic-
tory in France would give tremendous impetus
to the spread of Communism in Europe and
would provide substantial support for the So-
viet Union.
Strategically, Soviet access to metropolitan
France, North Africa, and other parts of the
French Union would provide the Soviet forces
with bases for attacking the US or US-held
bases and supply areas in the Atlantic and the
Pacific, would make it possible for naval ves-
sels and aircraft to operate against US ship-
ping in the Atlantic and Mediterranean, and
would make US counteraction difficult and
costly.
Economically, France is not essential to the
USSR or its Satellites in either war or peace.
However, inasmuch as Soviet over-all and
specialized production is far lower than that
of the US, control of France's industrial po-
S/ET
Declassified and Approved For Release 2013/03/14: CIA-RDP78-01617A003700130003-4
3
Declassified and Approved For Release 2013/03/14: CIA-RDP78-01617A003700130003-4
4 SET
tential would be of greater value to the USSR
than to the US. France's supply of trained
labor would also be useful.
2. Political Situation.
The French governmental system is repub-
lican in form and functions under the Consti-
tution of October 1946, which established a
bicameral legislature consisting of the Coun-
cil of the Republic (the upper house) and the
National Assembly. Both have representa-
tives from metropolitan France and the over-
seas territories. The main legislative power
resides in the Assembly of 621 deputies, while
the upper house, composed of 319 Senators,
has very limited powers. The two houses
jointly elect the President of the Republic,
who, although he has little executive author-
ity, often mediates differences among the gov-
ernment parties and can exercise some degree
of personal influence in the search for a pro-
spective Premier and in shaping his program.
The Assembly possesses considerable control
at one stage in the establishment of a Cabinet,
inasmuch as the Premier-designate must ob-
tain the Assembly's approval of his program
before he can name his ministers. Demands
for revision of the Constitution have been re-
current but will probably not be effectual ex-
cept in the event of a prolonged political crisis.
Gaullists in particular have pointed to a Con-
stitutional weakness which encourages Cabi-
net resignations and procrastination on con-
troversial issues; the weakness lies in virtual
failure to give the Premier power to dissolve
an irresponsible Assembly.
a. Present Government.
Premier Henri Queuille, a Radical Socialist
(right of center), resigned on 5 October 1949
as a direct result of labor's wage demands, and
was followed first by Jules Moch, a Socialist
and previous Minister of the Interior, and
then by Rene Mayer, a Radical Socialist
prominent in financial circles, who had served
in 1948 in the Schuman and Marie Cabinets.
The National Assembly confirmed Moch as
Premier on 14 October by a vote of 311 in
favor?one more than the minimum number
required for investiture?and Mayer on 20 Oc-
tober by a supporting vote of 341. Both Moch
and Mayer failed to form governments as a
result of political maneuvering intensified by
fundamental party disagreement on wage-
price policy. On 23 October Georges Bidault,
Popular Republican and former Foreign Min-
ister and Premier, was designated by Presi-
dent Auriol to succeed Mayer.
A coalition government is necessary in
France because of the multiplicity of political
parties, none of which by itself possesses much
more than one-fourth of the seats in the As-
sembly. The next government will probably
be based, as was the -Queuille regime, on a
middle-of-the-road (Third Force) coalition
composed of the Socialists, Popular Republi-
cans (MRP) , Radical Socialists, and certain
lesser elements of the right of center. The
relatively long-lived Cabinet of Henri Queuille,
established in September 1948, was in its mem-
bership and policies slightly more to the Right
than most of the postwar governments. Lo-
cal cantonal elections of March 1949, favor-
able to the Right, made its right-of-center
ministers more aggressive. The Queuille
Cabinet was somewhat larger than the aver-
age, with 16 Ministers, 13 Secretaries of State,
and 3 Under-Secretaries of State.
The Queuille Government's domestic poli-
cies, in general, tended toward: (a) a resolute
checking of Communism; (b) freer enter-
prise; and (c) raising the level of economic
activity. Queuille's policies with respect to
the French Union (the former Empire) em-
phasized preservation of French control.
Plans were slowly elaborated, however, for
granting such dependent areas as Vietnam,
Laos, and Cambodia certain autonomous
rights consistent with the postwar concept of
"Associated States" within the Union.
No Third Force Government during the
coming months is likely to move substantially
further toward freeing the French economy
of government controls, except perhaps to un-
freeze wages, and to decrease foreign trade
quotas. The gains against Communism will
be expanded. In Vietnam, French implemen-
tation of the 8 March 1949 accords with the
pro-French Government of Bao Dai will prob-
ably continue to be slow. At the same time,
military operations against Communist-led
nationalists will be intensified, with emphasis
upon defense of the Sino-Vietnamese border.
SE/ET
Declassified and Approved For Release 2013/03/14: CIA-RDP78-01617A003700130003-4
Declassified and Approved For Release 2013/03/14: CIA-RDP78-01617A003700130003-4
S jteE T 5
In addition, some further concessions to Viet-
namese nationalist aspirations may be forced
upon the French Government by international
events, or possibly political pressure in Viet-
nam.
b. Political Parties.
The Communists, although politically iso-
lated because of their open adherence to the
Kremlin, have the largest single party in the
National Assembly and still possess real polit-
ical importance because of their influence
over labor. The French CP and its affiliates
occupy 182 seats in the lower house, having
polled 27.5 percent of the votes in the last
elections (November 1946). The Commu-
nists have concentrated their efforts on nul-
lifying the effects of European economic and
defense programs by means of strikes and
sabotage. Their active propaganda machine
continues to attack the Atlantic Pact and
ERP, and advocates "peace" and collaboration
with the USSR. Because of basic economic
and social conditions, the Communists are
again capable of increasing and exploiting
labor unrest, and hampering French national
defense preparations.
The Popular Republican Movement (MRP)
is the second largest party in the Assembly,
with 150 seats. Since the November 1946
elections, however, it has lost a substantial
portion of its following to de Gaulle. Pre-
dominantly Catholic, it is left of center es-
pecially in its economic and labor policies.
The Socialists are the third strongest party
in the Assembly, with 99 seats. The Socialists
champion international socialism but are anti-
Stalinist. Although the Socialist Party forms
an important part of the present coalition, its
strength, traditionally drawn from labor, has
declined sharply since 1945. The party's eco-
nomic policies, which favor labor's demands,
nationalization, and a controlled economy,
and its demand for negotiations with the Com-
munist-led Viet Minh nationalists in the
French-recognized Government of Vietnam,
may be expected again to bring the Socialists
into serious conflict with Centrist parties this
fall.
The right-of-center Radical-Socialists were
the leading party in France before the war.
Now, in combination with the Democratic and
Socialist Resistance Union, they command
only 62 seats in the Assembly. Recent elec-
tions for the upper house and for depart-
mental councillors indicate a resurgence in
their popularity. The party supports es-
pecially small business and favors reduction
of governmental controls.
The recent grouping of Independent Repub-
licans with the Peasant Action Party joins to-
gether 35 deputies, headed by former Premier
Paul Reynaud.' This Rightist group advo-
cates free enterprise and represents an at-
tempt to capitalize on France's recent "swing
to the Right."
The very conservative Republican Liberty
Party has 32 deputies and, at times, tends to
favor the policies of de Gaulle.
General de Gaulle's followers were organ-
ized as the Rally of the French People (RPF)
in April 1947. The RPF claimed that it was a
rally for all classes and opinions, not a polit-
ical party. Its aims are to return de Gaulle
to power by legal means, induce Constitutional
reform?especially by strengthening the ex-
ecutive?give France a strong government not
hampered by "political considerations," and
remove the Communist menace. De Gaulle's
highly nationalistic foreign policy aims to re-
store French prestige and leadership on the
continent. In the municipal elections of Oc-
tober 1947, the RPF polled approximately 38
percent of the popular vote and thus emerged,
for the time being, as the largest political
grouping in the country. With its failure to
return de Gaulle to power, the RPF has taken
on more and more of the characteristics of a
political party. The RPF does not appear
likely to regain the vigor it possessed in late
1948 unless the Third Force receives serious
setbacks, such as a series of Cabinet crises, a
major Communist-led wave of strikes, and/or
an obvious failure to achieve important for-
eign policy objectives.
c. Pressure Groups.
Outstanding among influential groups are
the farmers' alliance, the employers' associa-
tion, the Catholic Church, and the leading
labor federations. The farmers and employ-
ers, together with the non-Communist labor
federations, exert a powerful influence on the
formation of the government's economic poli-
S yilet T
Declassified and Approved For Release 2013/03/14: CIA-RDP78-01617A003700130003-4
6
Declassified and Approved For Release 2013/03/14 CIA-RDP78-01617A003700130003-4
*SECIET
cies. The Catholic Church, traditionally the
dominant religious body in France, lacks con-
trol over government policy, the bulk of pub-
lic opinion, and notably the working class. It
is not likely in the coming months either to
force a reopening in national politics of the
chronic controversy over the control of
schools, or to produce, as a result of the Vati-
can excommunication decree, a perceptible de-
cline in membership of the Communist-domi-
nated General Labor Confederation (CGT).
The CGT is the largest federation of labor
unions, with a membership probably now re-
duced to considerably less than 3,000,000 from
the postwar peak of 6,000,000. It is the
French CP's most dangerous weapon against
French economic and political stability. The
bulk of industrial labor still believes that the
French CP and the CGT are the most effec-
tive defenders of working class interests, de-
spite the exploitation of labor unions for po-
litical ends. The current CGT campaign for
labor "unity of action" is encountering local
and some national success, and is likely to
make further progress on the national level
in the fall, if the government makes no sub-
stantial concessions on the growing demands
of all labor for bonuses and wage increases.
The non-Communist, pro-Government, and
Socialist-oriented "Force Ouvriere" (FO) came
into being when a split occurred within the
CGT in December 1947. The membership,
previously estimated from 700,000 to 1,200,000,
is probably now less than the former figure
in view of labor rank-and-file cynicism to-
ward FO leadership. The FO is less aggres-
sively led and has fewer financial resources
than the CGT. Its national leadership has
opposed the CGT's campaign for unity of ac-
tion but has not been able to prevent some
local unions from cooperating; by late Sep-
tember its leaders were thinking seriously of
calling widespread "warning" strikes.
The Confederation of Christian Workers
(CFTC), predominantly Catholic, has a rela-
tively stable membership of about 800,000.
Some of its local unions have taken advantage
of the national leadership's permission to join
the CGT in unity of action. While the na-
tional leadership of th'e CFTC Is convinced of
the practical necessity of cooperating with
the CGT in behalf of specific objectives, it has
tried to take precautions against Communist
control of the unity of action movement. At
the beginning of October, it was still attempt-
ing to obtain the participation of all major
national labor unions.
d. Stability of the Government.
Fundamental political and economic differ-
ences dividing the coalition parties, and their
periodic clashes within both the Cabinet and
Parliament, threaten any Third Force Gov-
ernment with a precarious existence even un-
der the most favorable circumstances. Im-
proving economic conditions, practical leader-
ship, and growing popular respect enabled the
Queuille regime to survive several sharp par-
liamentary attacks prior to Parliament's ad-
journment on 31 July. Subsequently it was
seriously weakened both by a growing internal
cleavage and by sharper attacks from eco-
nomic groups, as the results of its wage-price
policies; but it persevered through September
defying all forecasts of its early demise and
establishing a new record among postwar
governments. Jules Moch's investiture, with-
out any margin of support in the Assembly
and apparently without a formula likely to
satisfy both Left and Right on the wage-price
issue, did not presage an appreciably greater
degree of stability for his regime than Queu-
ille's enjoyed during September. The coali-
tion parties and the majority of the popula-
tion apparently prefer, however, to continue
with the Third Force, despite its inevitable
compromises and procrastination on current
problems, rather than risk introducing Gaul-
list or Communist influence into the govern-
ment. Hence, during the coming weeks?in-
creasingly likely to be a period of political
crisis?one or more Third Force coalitions
will almost certainly be in power. A substan-
tial improvement in over-all political stability
must, however, await election of a new As-
sembly, anticipated for the fall of 1951, and
unlikely to be held, as the result of any fore-
seeable crisis, earlier than 1950.
3. Economic Situation.
Despite chronic political instability, France
has achieved a substantial degree of economic
recovery and over-all economic progress, in
Sy1011ET
Declassified and Approved For Release 2013/03/14: CIA-RDP78-01617A003700130003-4
Declassified and Approved For Release 2013/03/14: CIA-RDP78-01617A003700130003-4
SET 7 ?
which foreign assistance has been and will
continue to be an important factor. This rate
of progress probably will decelerate during the
fiscal year 1949-50. Substantial improvement
over 1948 * in industrial production, invest-
ment, and in the balance-of-payments position
with non-dollar areas, and increased tourist
receipts are important objectives which have
fair prospects for attainment in this period.
The government's expectations are likely to
be disappointed with respect to agricultural
production, trade with the US, the budget,
and possibly the standard of living.
a. Achievement.
The achievement at mid-1949 was impres-
sive. The repair of war damage was far ad-
vanced, with government expenditures for this
purpose averaging about 15 percent of total
expenditures in 1948 and 1949. The best rec-
ord was made in production: the rate of in-
dustrial production in the first six months of
1949 was 12 percent above 1948 or more than
25 percent above 1938 (program for 1949-50-
12 percent increase over 1948) ; and agricul-
tural production in 1948 nearly equalled 1938,
the goal set originally for 1950 (present pro-
gram for the fiscal year 1949-50-15 percent
increase over calendar year 1948). These in-
tense efforts have utilized fully the available
labor force, so that unemployment, although
increasing slowly, amounts to only about 1
percent of the working population.
Investment for reconstruction and modern-
ization of equipment has been emphasized
somewhat at the expense of sound gains in
living standards and fiscal stability. Gross
investment is now being maintained at a level
somewhat above the best prewar year, 1929.
Total net investment (beyond maintenance)
increased rapidly in 1946 and 1947 before lev-
eling off in 1948. Most of this investment
(68 percent in 1948) was provided out of gov-
ernment funds owing to the scarcity of pri-
vate capital. For the duration of ERP, the
domestic monetary resources for the govern-
ment's investment expenditures will be met in
part by ECA-authorized releases (expected to
* The outlook for 1949-50 is generally expressed
in relation to 1948 in official French and US docu-
ments.
approach 50 percent of total investment ex-
penditures in 1949-50) from the franc counter-
part of ECA aid.
One of the most persistent postwar dan-
gers?inflation?was temporarily brought un-
der control in the spring of 1949. The wage-
price upward spiral apparently halted follow-
ing the gbod harvest and the tightening of
credit controls in September 1948, and after
the government's victory over the CGT in No-
vember in the battle against wage increases.
By June, wholesale food prices were down
nearly 20 percent below the November 1948
peak. During May and June the cost of liv-
ing was falling at the rate of about 1 percent
per month, and average wage rates were rising
only slightly. Also, the franc, after appreciat-
ing during the spring, remained fairly firm in
May and June. The black market in dollars
was reduced to insignificant proportions as the
dollar quotation dropped from a previous high
of over 550 francs to a low of about 340. Im-
provement in France's foreign exchange po-
sition and the slowly improving fiscal position
of the government contributed to the
strengthening of the franc.
In July, however, the first signs of renewed
inflationary pressures appeared. As a result
especially of the serious summer drought,
wholesale prices reversed their downward
trend, and the wholesale food index (exclud-
ing the sensational rise of fresh vegetables
prices) climbed about 6 percent in July and
again in August. During the latter month,
the inflationary danger became real as rising
retail food prices reinforced labor's wage de-
mands, as the likelihood of devaluation in-
creased, and as the black market quotation of
the dollar rose once more to nearly 400 francs.
Abruptly in September devaluation * pro-
duced a psychological, detonating effect on
this situation. Labor, anticipating a stronger
price rise, grew more restive. The rapid de-
terioration of political stability concentrated
public attention on the indications that wage
increases and strikes, as well as the steady
price rise, would probably make economic
* On 19 September, a single official rate of 350
francs to the dollar was established in place of the
previous base rate of 214, the commercial rate of
272, and the official "free" rate of 330.
sEyeeT
Declassified and Approved For Release 2013/03/14: CIA-RDP78-01617A003700130003-4
Declassified and Approved For Release 2013/03/14: CIA-RDP78-01617A003700130003-4
8 S EXE T
progress more difficult over the coming
months.
b. Outlook.
Over-all economic improvement, however,
will probably continue in the current fiscal
year though at a perceptibly reduced rate.
Industrial production will probably approach
the government's goals. Agriaultural pro-
duction will further improve but can be ex-
pected to fall far short of the goal of a 15 per-
cent increase over 1948, which was a good har-
vest year. The farmers are generally dis-
satisfied with the government's failure to in-
crease materially the price offered for the cur-
rent wheat crop and may resort to hoarding.
Under the best weather conditions, the vari-
ous crop targets for 1950 would require greater
attention to increased acreage plantings?dis-
couraged by the price of wheat?mechaniza-
tion, use of fertilizers, and consolidation of
small farms, at an accelerated pace not pro-
vided for in the revised annual program pre-
sented to OEEC in June 1949. Meanwhile the
prolonged drought is estimated to have seri-
ously impaired several secondary crops (par-
ticularly potatoes, sugar beets, and hay) , and
to have jeopardized the gradual improvement
in numbers of livestock. Substantial imports
of livestock feed and some wheat imports will
therefore be required, with a probable further
strain upon the foreign balance of payments
(see d below).
In other respects, too, economic progress
will probably be made, but under considerable
difficulties. Gross investment, expected by
the government to absorb nearly one-fifth of
the gross national product, may have to be
curtailed somewhat in order to reduce the
pressure for inflationary financing (see e be-
low) . A gradual reduction in the excess of
French imports over exports will probably
continue to be made, particularly as a result
of devaluation, but will be handicapped by
increasingly keen world trade competition and
rising French prices. The resurgent infla-
tion, in fact, although it is likely to be brought
under control before it results in serious dam-
age, is the most important adverse factor in
the immediate economic outlook. The Que-
uille Government late in August took reme-
dial action against the price rise, with an
emergency import program to lower restric-
tive quotas and in some cases tariffs affecting
certain foods and other consumer goods (no-
tably textiles, wines, and farm supplies).
These measures were shatply attacked by the
many interested economic groups which
warned of a resulting dangerous influx of
competitive goods, an excessive decline in
French prices, and hence a rise in unemploy-
ment. Before the program could reduce re-
tail prices decisively, devaluation powerfully
reinforced inflationary forces already in
existence. By September's end, it appeared
probable that labor would soon win a general
pay increase, inasmuch as the alternative of
government-imposed price reductions was now
thoroughly discredited. Hence, the pattern
was established for a renewed upward spiral of
wages and prices.
c. Special Problems.
While these handicaps are expected to be
overcome sufficiently to permit achievement
of a sizable increase in the gross national prod-
uct in 1949-50 over 1948, they with other fac-
tors will aggravate three fundamental prob-
lems besetting the French economy: (a) re-
duction of the deficit in the balance of pay-
ments on current account; (b) balancing the
internal budget without recourse to inflation-
ary financing; and (c) improvement of living
standards.
d. Balance of Payments on Current Account.
Equilibrium (at a high level of foreign trade)
in the current account balance of payments,
whereby France would become self-sustain-
ing?an ERP objective which France has fallen
far short of attaining?is essential for com-
pletion of the French recovery program. The
government aspires to reduce by over one-
third in 1949-50 the Union's 1948 current ac-
count deficit (see Table "A"), without materi-
ally reducing the volume of imports. This
plan assumes that: (a) Metropolitan France's
exports can be expanded in 1949-50 almost 40
percent over 1948; and (b) although the "in-
visibles" deficit will increase?mainly because
of interests payments on foreign debts?this
increase can be held to less than 50 percent
over 1948 by some improvement in the ship-
s74 ET
Declassified and Approved For Release 2013/03/14: CIA-RDP78-01617A003700130003-4
Declassified and Approved For Release 2013/03/14: CIA-RDP78-01617A003700130003-4
SE/ET 9
TABLE "A"
PERFORMANCE AND GOALS IN BALANCE
OF FOREIGN PAYMENTS
FRENCH UNION, CURRENT ACCOUNT
(in millions of dollars)
Net
Balances
Year for Metropoli-
tan France
Mer-
chan-
dise
In-
vis-
ibles
Net
Balances
for Over-
seas Terri-
tories
Merchandise
and
Invisibles
Net
Balances
for
French
Union
1938
?230
+241
?60
?49
1948
?1428
?102
?208
?1738
1949-50
?701*
?147*
?238*
?1086*
1952-53
?134**
? 33**
+167**
0**
* Revised French estimate as of June 1949
** Original French estimate submitted to OEEC in
1948
ping account and by an increase of more than
100 percent over 1948 in the credit balance on
tourist expenditures. Although some in-
crease in the overseas territories' net deficit
is considered unavoidable in 1949-50, the gov-
ernment hopes that, by a liberal long-term in-
vestment program, the exports of the overseas
territories can gradually be increased enough
both to ease Metropolitan France's raw ma-
terial imports requirements from non-franc
areas and produce finally a favorable net bal-
ance in the overseas territories' account with
foreign countries. While this progress is being
achieved, it is proposed to meet the French
Union's total balance-of-payments deficit (in-
cluding $1,086 million on current account and
$104 million on capital account) with ECA
aid, requested for 1949-50 in the sums of $880
millions of direct aid and $310 millions (dollar
equivalent) in drawing rights. Late in Au-
gust, however, the OEEC was considering re-
ductions below these requested sums?as
great as 20 percent in direct aid and 28 per-
cent in drawing rights?in anticipation of the
US Congress' action on the over-all ECA appro-
priation for 1949-50. Although Congressional
appropriations were higher than anticipated
by the OEEC, compensating adjustments in
present French plans appear to be necessary,
either by reducing the merchandise deficit or
perhaps negotiating a special loan or loans.
Performance during 1949 in reducing Met-
ropolitan France's trade deficit with foreign
countries on current account has shown great
improvement over 1948 except for trade with
the dollar area (see Table "B") . In the first
seven months of the year, exports to the dol-
lar zone paid for only 13.5 percent of imports.
The lag in the development of exports to the
dollar area is explained in large part by: (a)
high French prices of competitive goods; (b)
slow progress of the French in adapting pro-
duction to selective US demands; and (c) an
over-all decline in US imports. The result-
ing increase in the dollar deficit accentuates
the only serious remaining problem in respect
to foreign trade.
Metropolitan France has made some prog-
ress in controlling the deficit in the "invisi-
bles" account. Official dollar receipts from
tourism greatly increased in the first seven
months of 1949, especially because the black
market's attraction for dollars virtually dis-
appeared.
The overseas territories' current account
position (see Table "A") deteriorated steadily
in 1948 ($208 million deficit for that year),
and so far in 1949 is apparently continuing to
decline at a rate in excess of 15 percent a year.
Noteworthy causes of this trend are: the
heavy imports of machinery and consumer
goods; the drop in world prices of raw mate-
rials, which are the principal exports of the
territories; and the harassment of Vietnam's
economy by war.
The outlook is for appreciable reduction of
the Union's current account balance-of-pay-
ments deficit in 1949-50, although devaluation
renders difficult at this time any forecast of
the full extent of this reduction. It is un-
likely, however, that the government's June
1949 estimate of a 37 percent reduction below
the 1948 deficit will be realized. The improve-
ment will result from greater tourist receipts
and a high level of exports (a rate of almost
50 percent over 1948 was reached in the first
seven months of 1949). It does not, however,
appear that the programmed 12 percent reduc-
tion of imports will be actually carried out,
and this failure will offset some of the ad-
vantage of the exports performance. The
critical merchandise trade deficit with the
SEAT
Declassified and Approved For Release 2013/03/14: CIA-RDP78-01617A003700130003-4
I0
Declassified and Approved For Release 2013/03/14: CIA-RDP78-01617A003700130003-4
TABLE "B"
MERCHANDISE TRADE ACCOUNT
OF METROPOLE WITH FOREIGN COUNTRIES
(in millions of dollars)
With
US
Imp.
45.1
Monthly
Average
1948
Exp.
Bal.
Imp.
53.9
Monthly
Average
Jan.-July
1949
Exp.
Bal.
Imp.
48.8
July
1949
Exp.
Bal.
5.2
4.4
4.4
-39.9
-49.5
-44.4
Remainder dollar Zone
17.7
15.5
12.5
3.4
5.0
4.2
-14.3
-10.5
- 8.3
Sterling Zone
45.3
61.4
55.4
16.2
28.5
30.6
-29.1
-32.9
-24.8
Other
88.2
77.5
73.0
66.3
95.2
98.5
-21.9
+17.7
+25.5
dollar area will probably not increase over
1948. Finally, the overseas territories defi-
cit will probably increase by more than the
expected $30 millions over 1948.
e. Government Budget.
The second fundamental problem affecting
further economic progress-balancing the in-
ternal budget by non-inflationary means-is
somewhat closer to solution in 1949 than it
was in 1948. This year short-term borrow-
ing has so far involved only negligible sums,
whereas in 1948 about 12 percent of total
funds was raised in this way. Policies con-
tributing to this achievement have been some
tax increases, moderate cuts in expenditures,
and particularly recourse to the franc coun-
terpart fund, which is serving this year to
finance almost 60 percent of the total budget-
ary deficit. Performance in 1949 has not,
however, fulfilled expectations. The govern-
ment has several times narrowly avoided
financial crises which would have forced it
to abandon its commitments to Parliament
and to ECA not to resort to direct inflationary
financing. Unexpected deficiencies in tax re-
ceipts and higher deficits in the nationalized
industries forced the government to work
laboriously with Parliament in May and June
on Finance Minister Petsche's Plan for a re-
vision of the budget, and then to turn to ECA
late in June and again in early August for
extraordinary counterpart releases.
The outlook is for renewed fiscal difficulties
in the late fall, which though troublesome to
the government are not likely to impede eco-
nomic progress substantially. The extraordi-
nary counterpart release of 30 billion francs
announced on 8 August must be repaid in No-
vember. When Parliament reconvenes in Oc-
tober, the government will endeavor to pre-
sent it with fresh proposals for meeting the
1949 deficit, as well as a tentative 1950 budget.
Disagreement within the coalition, however,
will be accentuated, and will probably prevent
another salutary overhaul of the tax struc-
ture and administrative procedures, or
prompt and sizable cuts in the cost of the na-
tionalized industries and government contri-
butions to social security. Without such re-
forms the government's budgetary position
will probably not materially improve in 1950.
Indeed, it could worsen considerably should
gasoline tax receipts continue to fall far short
of expectations and/or the financial burden
of military operations in Vietnam, intensified
in 1949, be increased. On the other hand,
total counterpart funds will probably not be
substantially less in 1950 than in 1949 as a
Sy E T
Declassified and Approved For Release 2013/03/14: CIA-RDP78-01617A003700130003-4
Declassified and Approved For Release 2013/03/14: CIA-RDP78-01617A003700130003-4
SE/T
result of the cut in ECA aid, inasmuch as de-
valuation has led to a 30 percent increase in
the number of francs deposited in the fund for
each dollar's worth of ECA goods received.
But should ECA resist more strongly later
French requests for counterpart releases to
cover indirectly current operating expendi-
tures, and should important economies con-
tinue to be politically inexpedient, the gov-
ernment may have to resort to some further
inflationary short-term borrowing as well as
curtail somewhat its sizable investment pro-
gram.
f. Standard of Living.
Such minor policy retrenchments will
probably be found preferable, for reasons
of political expediency, to any material re-
duction of standard-of-living objectives for
1949-50. The continuing social unrest in
France, prolonging Communist capabilities
for exploiting organized labor for political
ends, is a major potential threat to the na-
tion's political stability and economic prog-
ress. Hence the modest official goal for the
current fiscal year?the same total per capita
consumption of goods and services as in 1938
(representing an increase of only 6 percent
above the second half of 1948 and only one-
fourth of the total increase planned for the
remaining three years of the Four-Year Pro-
gram)?will probably be emphasized at the
expense of full export, or fiscal, or invest-
ment objectives, or any combination of these.
This goal, moreover, will be found more diffi-
cult to attain than was anticipated in mid-
1949, as a result of the drought, prospective
industrial production losses through strikes,
and the impact of the price rise on purchasing
power.
Even full realization, however, of the de-
sired average per capita consumption of total
goods and services in 1949-50 would probably
not mean that the continuing inequalities of
the postwar period had been materially cor-
rected. In 1948, availabilities of manufac-
tured goods reached levels well above 1938,
but foods were 18 percent and housing 10
percent below 1938. Even in 1949-50, there
are expected to be somewhat smaller quanti-
ties of edible oils, cotton goods, and gasoline
11
than in 1938, while a few consumer goods,
such as coal and shoes, will be in considerably
shorter supply. More serious, perhaps, is the
uneven distribution of real purchasing power,
aggravated by the postwar inflation and per-
sisting as a result of strict wage controls, the
black market, and hoarding by farmers. Real
progress toward overcoming these various in-
equalities in the French standard of living will
be slow and must depend on pressure for gov-
ernmental action, resulting from the inter-
play of interested economic groups.
g. Summary.
The favorable factors responsible for the
over-all record of economic progress achieved
by the French had by September 1949 consid-
erably outweighed the handicaps. In the
coming twelve months further progress will
be made, but unfavorable factors?the ef-
fects of the drought, resistance to increased
productivity, fiscal difficulties, labor unrest,
and the precarious political situation?will
persist and in some respects be aggravated.
In addition, ECA dollars, hitherto the chief
means by _which France has met its dollar
deficit, will be reduced while that deficit rises.
In 1949-50, therefore, shifts in economic
forces will probably slow up economic
progress.
4. Foreign Policy.
After France abandoned all hopes of medi-
ating the East-West conflict, Frenchmen came
gradually to base the security of the nation
mainly upon US military and economic power.
The government and the great majority of
the people now rely upon collective security
as exemplified in Western Union and the At-
lantic Pact, prompt US military aid, and ECA
assistance. Foreign Minister Schuman has
consistently worked with US representatives
for a sound diplomatic and economic partner-
ship based on mutual cooperativeness and re-
spect. In September 1949, this goal was sud-
denly clouded, though perhaps only tempo-
rarily, by a series of international develop-
ments. President Truman's announcement
of an atomic explosion in the USSR fostered
an underlying apprehension of the French na-
tion that US aid might be effective only after
France was again crushed. The US-UK bilat-
SE/ET
Declassified and Approved For Release 2013/03/14: CIA-RDP78-01617A003700130003-4
Declassified and Approved For Release 2013/03/14: CIA-RDP78-01617A003700130003-4
12.SECT
eral approach to the sterling crisis and to de-
valuation of the West German mark rendered
the French noticeably more critical of their
American and British partners. Meanwhile,
the French Government has been adjusting
by degrees its attitude toward Germany.
From the nation's virtually unanimous dis-
trust that was the pivot of its traditional for-
eign policy, French leaders have appeared to
move toward a desire for eventual German
collaboration in a federalized Western Europe.
French public opinion, however, does not yet
by any means reflect a unanimous shift in
this direction.
a. East-West Conflict.
The chief immediate challenge to French
sovereignty?Soviet expansionism?has been
gradually met in a common front with the US
and UK. Early in July 1949, Schuman ad-
vised US Ambassador Bruce that France
would Unpose formal restrictions on East-
West trade, to the same degree as that prac-
ticed by the UK, although implementation of
this decision was still being impeded in Sep-
tember by disagreements between the Minis-
try of Foreign Affairs and the Ministry of In-
dustry and Commerce. In the complex Ger-
man question, France's primary aim has been
to prevent a revival of German domination in
Europe. This has led the French Govern-
ment into many sharp disagreements with
the US and UK over types of security controls
which these three powers should exercise in
Germany, for example, through the Interna-
tional Authority for the Ruhr and the Military
Security Board. Disagreements were also re-
current in connection with the establishment
of a West German Government. Since the
painful accommodation of differences in the
early 1948 negotiations leading to the London
Agreements of that year, however, the French
have acceded to compromises, though often
reluctantly, and have shown a growing sense
of responsibility for strengthening Western
Europe against the Soviet threat.
US arguments for freeing European trade
and travel have produced extensive French
cooperation with the OEEC in easing the tour-
ist's obstacles and moving toward the sup-
pression of import quota restrictions (certain
restrictions affecting 15-25 percent of trade
with ERP countries are to be suppressed 1
October) . The French have, however, no-
ticeably lagged in steps to implement the eco-
nomic union with Italy, negotiated in 1948.
In all major phases of trade relations with
foreign countries and the overseas territories,
France's growing dollar deficit has been an
important factor (see "Economic 'Situation").
b. The Council of Europe.
Distinguishable from but not inconsistent
with this "pro-US" policy, has been the strong
French encouragement of the solidarity of
Western Europe including Germany. In the
negotiation and implementation of the Brus-
sels Treaty of 1948, the French have demon-
strated their conviction from experience that
to join with their neighbors in a timely dec-
laration and mutual defense measure against
possible aggression is the first essential of an
adequate foreign policy. Their persistent and
successful opposition to British views of the
projected Council of Europe highlighted the
conviction of important French leaders that
the long-range need was for the development
of not merely organs for cooperation among
the governments, but a union of the peoples
of Europe.
c. Probable Developments.
No substantial changes in French foreign
policy toward the US are to be anticipated for
the next twelve months, despite possible re-
currences of friction with the US and UK.
Even should the reduction in ECA assistance
be accelerated, substantial US military aid be
denied, and/or the USSR engage in a pro-
longed peace offensive, Third Force leaders
are not likely to shift their ultimate reliance
upon US power or diminish materially their
cooperation toward the ultimate objectives of
US policy. At the same time, however, the
French will probably attempt to exert stronger
leadership for economic cooperation among
continental Western European countries. The
Third Force type of government will un-
doubtedly continue to act upon a fundamental
distrust of Soviet political aims, and hence will
be prepared in any further efforts toward a
trade agreement with the USSR to sacrifice
SET
Declassified and Approved For Release 2013/03/14: CIA-RDP78-01617A003700130003-4
Declassified and Approved For Release 2013/03/14: CIA-RDP78-01617A003700130003-4
Sy T 13
the conclusion of any treaty in order to pro-
tect Western interests.
Should the Third Force coalition be aban-
doned in the coming year, however, important
changes in French foreign policy are likely,
although any foreseeable government would
continue to be oriented fundamentally toward
the West. A government dominated by the
non-Communist Left, although it would not
wish to weaken France's solidarity with the
West against Soviet expansion, would prob-
ably curtail materially French defense expend-
itures. A Rightist government would work
to demonstrate greater French independence
and prestige within the broad framework of
a common policy with the West.
5. Military Situation.
a. Internal and External Security.
The French Armed Forces together with the
gendarmerie and the police are capable of
maintaining the internal security of the coun-
try against any threat which might arise
during peacetime from either the Communist
paramilitary organization of approximately
60,000 or General de Gaulle's 30,000 followers
organized in the "Service d'Ordre." Serious
lack of heavy materiel, and inability to pro-
duce it or essential replacement parts, would
prevent the Armed Forces from repelling a
strong aggressor. The morale of the Armed
Forces, which number approximately 650,000
men, is generally good.
b. The Army.
The French Army is composed of approxi-
mately 470,000 men, organized into nine di-
visions?two armored, five infantry, one air-
borne, and one Alpine-75 regiments, and 89
battalions. Of the divisions the two armored
and three infantry are up to strength, the re-
maining four are undermanned and low on
equipment; all require modernization of ma-
teriel. The heavy demands of the war in
Indochina have necessitated the diversion of
much materiel and manpower to that theatre,
where France maintains an army of 130,000.
The remaining troops are deployed as follows:
140,000 in metropolitan France, 54,000 in the
German and Austrian Zones of Occupation,
90,000 in French North Africa, and 56,000
elsewhere. Trained manpower is available to
form eight more divisions within one year of a
general mobilization, but no equipment exists
in France for arming them. French planning
is directed toward the eventual establishment
of an army capable of putting between twenty
and thirty divisions in the field in case of war.
Under current conditions, paucity of materiel
replacements would limit major combat opera-
tions to no more than a month or two. Com-
munist infiltration of the army has been sys-
tematically reduced under the Chief of Staff,
General Revers. The army is loyal to the
present government.
c. The Navy.
The French Navy is in better condition for
combat than is the army or air force. Its
personnel, which are loyal to the government
and little troubled by Communist infiltration,
numbers approximately 55,000. Its 84 com-
batant ships, aggregating approximately 260,-
000 tons, are maintained in fair condition,
but require considerable modernization, espe-
cially in fire control and electronics equip-
ment, to be fully effective. Chief deficiencies
are anti-aircraft and anti-submarine capabili-
ties. Existing reserve personnel is adequate
to permit the expansion of the fleet in an emer-
gency. Serious deficiencies in modern aircraft
and other equipment strictly limit the effec-
tiveness of the Naval Air arm.
d. The Air Force.
Although the French Air Force possesses
slightly fewer than 3,000 planes, of which 453
are in tactical units, fuel shortages and the
obsolescence of its aircraft would render it
ineffective under combat conditions. The UK
however, is furnishing some jet fighters to the
French, who hope to produce about 300 Vam-
pires themselves by the end of 1950. With
modern planes and equipment, the air force,
whose strength is approximately 71,000 could
become an effective tactical organization.
The air force as a whole is believed to be loyal
to the government, but the degree of Com-
munist infiltration is higher than in the two
other services. Efforts to lessen the incidence
s o4rE T
Declassified and Approved For Release 2013/03/14: CIA-RDP78-01617A003700130003-4
Declassified and Approved For Release 2013/03/14: CIA-RDP78-01617A003700130003-4
14 SE
of Communism were started in January 1948
and are continuing with considerable success.
e. Police and Security Forces.
The gendarmerie (approximately 30,000)
and Republican Security Companies (10,000)
organized into eight "super-prefectures" for
metropolitan France, have, on numerous oc-
casions in 1948 and 1949, demonstrated their
ability to maintain order and prevent serious
disturbances.
ET
f. Future Developments.
No immediate increase is expected in the
capabilities of the Armed Forces to defend
France from invasion, even within the frame-
work of the Atlantic Pact. A gradual growth
in combat effectiveness will occur only if mili-
tary aid in the form of heavy materiel be-
comes available. France is not expected to in-
crease its military expenditures greatly dur-
ing the next year.
SE/ET
Declassified and Approved For Release 2013/03/14: CIA-RDP78-01617A003700130003-4
Declassified and Approved For Release 2013/03/14: CIA-RDP78-01617A003700130003-4
Document No.
'0 TZANGE in Cl
D-nLASSIFIED
Clasa. ClIkNOED
DDA Mem
Auth: DDA RE'
Date:
Declassified and Approved For Release 2013/03/14: CIA-RDP78-01617A003700130003-4
Declassified and Approved For Release 2013/03/14: CIA-RDP78-01617A003700130003-4
U. S. GOVERNMENT PRINTING OFFICE
4392-STATE--1949
Declassified and Approved For Release 2013/03/14: CIA-RDP78-01617A003700130003-4