WESTERN EUROPE BRANCH OFFICE OF REPORTS AND ESTIMATES WORKING PAPER BRANCH WEEKLY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-01090A000400010009-8
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 10
• Document Creation Date: November 9, 2016
• Document Release Date: July 27, 1998
• Sequence Number: 9
• Publication Date: August 9, 1949
• Content Type: PAPER

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WESTERN EUROPE BRANCH
OFFICE OF REPOR'T'S AND ESTIMATES
CENTRAL INTELLIGENCE AGENCY
WORKING PAPER
BRANCH WEEKLY
NOTICE: This document is a working paper,
san official CIA issuance. It has been co-
ordinated within ORE, but not with the IAC
Agencies. It represents current thinking by
specialists in CIA, and is designed for use by
others engaged in similar or overlapping
studies. The opinions expressed herein may
be revised before final and official publication.
It is intended solely for the information of the
addressee and not for further dissemination.
DATE : 9 August 1949
DOCUMENT NO.
1- ~-HANGE IN CLASS.
DECLASEIF ED
CLASS. CHANGED TO: TS 3 (;
NEXT REVIEW DATE:
AUTH: 1A
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WESTERN EUROPE BEANCN
WEEKLY SUMMARY
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VOL. V. ?- No. 4 For week ending
9 August 1949
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p3 Further progress, is likely In writing the Austrian
treater, although tssMgMuncer that complete accord will be
reached by the 1 September deadline. Despite appearances to the con-
trary, considerable advance has been made in narrowing specific areas
of disagreement. Those remaining, however, are the most difficult and
technical.
A solution to the complex problems of the German
assets in Austria continues to represent a most essential. part of any
settlement. Of paramount importance for Austria's future economy are
the inclusion of industrial and tran$portation equipment in the category
of i "wax booty" to be relinquished by the USSR, and an equitable division
of the oil lands and retention of a pipeline for common use. These
matters are still at issue, and together with the determination of the
properties to be included In the shipping Interests to be retained by the
USSR, appear to constitute the points where agreement will be. most
difficult. Compensation to U.N. nationals for losikes resulting from
Soviet retention of oil and shipping facilities is another matter for
agreement,
The remaining points in the German assets problem are
less complete. -Here the problem lies in getting the USSR to agree to in-
corporate In the treaty itself its oral interpretations of treaty articles.
These interpretations include the view that Austrian promissory notes
for lump-sum payments are neither Interest-bearing nor negotiable,
that Austrian law clearly applies to properties retained by the USSR,
and that export of profits and rents shall be t inet". In addition, the western
deputies desire to have the treaty include Soviet agreement that settlement
of future disputes with Austria shall be made in conjunction with a third
arbiter.
The other specific points of disagreement can probably be
settled with comparative ease, although they may await further progress on
the more complex issues. Austrian guarantees of minority sights, obligations
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toward displaced persons and refugees, and permission to employ
foreigners for aviation or war materiel activities within Austria
are of lesser importance in writing the treaty.
FRANCE
The Government is unlikely to stand firmly behind
certain major provisio s an "'economic and i program"
'which has been drafted by French Finance Ministry officials. This
paper has been offered to ECA in support of the recent French request
for an extraordinary counterpart release of 30 billion francs, which
would assure the Treasury sufficient operating funds until fall to offset
unexpectedly poor tax receipts and heavy demands.
There is probably no broad support within the
Government for the view, taken in the official program, that France's
principal economic objective in the coming months is the reduction of
European trade barriers, as urged by OEEC and ECA. The Government
is apt to seek refuge in the qualifications, found in the program, to a
unilateral removal of restrictions on certain imports. The Government
will probably not adopt a liberal policy this year, and will go no further
than negotiate with other nations for multilateral action in eliminating
trade restrictions.
Also, for political reasons the Cabinet is unlikely to
accept the Finance Ministry's expressed aim of making "everypossible
effort" to improve the situation of the nationalized industries, so that
they would not have to meet their deficits by drawing on the Treasury.
The General Confederation of Labor (CGS') will
increasingly obstruct t e overnment's a orts to achieve jreatr
Industrial p r uc ty, which is essentia &r urther progress tinder
ERP toward French four-year goals of increased production and a
balance of payments. The index of industrial productivity in 1948
averaged about 87% of 1938 (the all-time high was 105%, reached in 1937).
However, the Government's efforts in the past twelve months to organize
a program have been beset both by the problem of the extent of CGT
participation, and by management-labor friction. Partly as a result of
these difficulties, the French will probably fail to attain in 1952 their
goal of a production level somewhat in excess of the 1937 peak.
The Government has made little progress toward either
setting up instrumentalities to direct a program or obtaining ECA
assistance. During the winter of 1948-49, agreement within the Government
was impossible on the question of CGT representation on a proposed top
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directing committee. lean Monnet, Director of the Modernization Plan.,
proceeded independently with CGT representation, in his established
Working Group on Productivity, while the Ministry of Industry and
Commerce established another Productivity Committee, excluding the
CGT. Finally, in March a plan was announced to establish one committee
with CGT representation to supervise the program in general, and
another "limited" committee of Government officials only, who would
have sole competence In all matters concerning ERP. So far, however,
the general committee has not functioned, and management-labor friction
in the selection of "pilot" teams to visit U.S. factories has held up this
fundamental step. In addition, ECA has not acted upon a French request
for $2.9 million, submitted early in May 1949, to finance a fundamental
technical assistance project.
The CGT will continue to exploit the opportunities in
this situation for counteracting U. S. aid to France. Merely by taking
no part in the selection of "pilot" teams, it so weakens the representa-
tion of labor as a whole that the employers are encouraged to dominate
the process. Bence the requisite labor support is lacking, and the
first steps toward implementation of the productivity program are un-
satisfactory. Furthermore, to relieve unemployment the CGT on 27 July
aimed a direct blow at the production program by demanding a curtailment
of the workweek from 48 to 40 hours without reduction of take-home pay.
Acceptance of this demand would more than cancel the gains -- cost and
price reductions -- which the Government expects from increased produc-
tivity over the next year. The tactic is, moreover, cle*,verly calculated to
marshall the maximum rank and file support for a fall CGT strike offen-
sive. The Government will be able to resist this demand logically, if not
wholly effectively, by demonstrating especially that present unemployment
is far from justifying the CGT's demand, inasmuch as it does not exceed
1%? of the total working population.
The Communist-dominated General Confederation of
Labor (CGT) will pro a ne able to acc6le ate labor unity o action
t rough-Out a rest of the summer, but the CGT is not expected to
attempt to foment serious labor unrest until the fall. One recent
development has served to increase the tempo of joint labor action.
Socialist Minister of Labor Daniel Mayer, without previous consultation
with his fellow ministers, granted a vacation bonus to the already well-
paid employees of the social security system, which functions under his
ministry. Politically, his action weakened the harmony of the Government
coalition (moderates and conservatives were strongly opposed while the
Socialists firmly backed Mayer), and even resulted in a threat to the
existence of the Queuille Government, which was sustained by a very narrow
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margin just before Parliaflient recessed, In the field of labor, the
natural consequence has been an immediate increase in the number
of Joint labor demands for a general vacation bonus, and preparations
for requests for higher wages. In effect, Mayer's action has aided and
abetted the prime current objective of the CGT -- achievement of labor
unity, of action.
FRENCH AND SPANISH NORTH AND WEST AFRICA
within the modern e s A nion emoera slue Ju i9anif ste
Algerian) party, in Algeria, opens the way for a new threat to the
stability of French North Africa (F1 A). The dissension arises partially
from losses suffered in the recent cantonid elections, gravely affecting
the .morale of the party militants. The ranks of the party are now
divided and a schism is developing within the party's Central Committee
where a majority is believed to be opposed to the continued leadership
of Ferhat Abbas, blamed ass the major cause of the par ty'ss reverses.
Feeling has also run high asst Abbas since he presented himself to
President Auriol during. the latter a, visit to Algeria, after forbidding,
party militants to participate In any, way in the President's political
tour of inspection. Should Abbas be forced to resign, his successor
is likely to be Ahmed Boumendjel, No. 2 man of UDMA.
Some of the more active UDMA leaders now even favor
dissolution of the UDMA, and a subsequent affiliation by partly members
with the Algerian Communist Party, Should such a fusion occur it would
be the most striking example in FNA of nationaltst-Communist collab-
oration since the public acceptance in July by the Tunisian natibnaltst
labor union (UGTT) of official saffiliaatlon with the' WFTU. Either of
these affiliations contains a greater threat to the future stability of the
territories involved than any other recent polittcOl development in FNA.
B The U.S.s tands to lose its !!!!A Me diplomatic status --
I that of being the o ym a ion ennUed repres5enta ono Legs ion r
level in Morocco if France submits the U. S. -Moroccan Treaty of 486`8"''
to review by the International Court of Justice (ICJ). Furthermore,
Morocco stands to lose recognition by one of the two powers acknowledging
its sovereignty, (thy other power being France). France has been irritated
for decades by the existence of U. S. extraterritorial rights and treaty pri-
vileges In Morocco, and most recently has taken umbrage at the attempt of
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the U. S. Senate to deny access by France to ECA counterpart funds
for use in Morocco, as long as France continued alleged discrimination
against a small group of U. S. nationals engaged in the importing business
in Morocco. The French, if they now try to get the ICS to withdraw U. S.
extraterritorial rights by pronouncing the 1836 treaty anachronistic,
will be running the risk of a similar review of the Treaty of Fez (1912)
by virtue of which they established their protectorate over Morocco.
BELGIUM
A The possibility of a stable coalition Government being
formed becomes more remote as party negotiation s,Tbegun 1% -June., are
further prolonged, party differences are sharpened, and political con-
fusion is increased.
A Catholic-Socialist coalition which would, except for
differences on the royal problem, provide the most stable and construc-
tive Government, appears less likely now than at any time during the
current political negotiations. The major problem -- the return of
King Leopold seams to be no nearer a solution than a month ago.
Last: weeL, the Socialist and Liberal parties formulated more clearly
Me extent of the compromises they were willing to make, and although
some Catholic leaders probably were willing to accept a compromise,
or at least postpone a decision, the official Catholic Party stand and
that of King Leopold remain virtually unchanged. As a result, the
Socialists have withdrawn from the negotiations conducted by Catholic
leader Eyskens, and have called for Leopold's abdication. A successful
all-Catholic Cabinet is extremely unlikely, and a Catholic-Liberal
coalition would not only be difficult to form, but probably would be
extremely unstable, with the moderate and left-wing Catholics opposing
the economic laissez-faire of the Liberal Party. If such a Government
is formed and is able to reach a decision permitting Leopold's return,
such a move will be strongly opposed not only by the Socialists, but by
many Liberals as well.
ITALY
A The $200 million cut in 1949-50 ERP funds for Ital
proposed by an OEE-C working committee wo d have extensive adverse
repercussions. Economic activity would not be critically and immediately
reduced by the $200 million cut, certainly not to the extent foreseen by
the Italian Cabinet; but long-term rehabilitation projects and socio-
economic reform programs would suffer restriction, which would In the
course of the year considerably increase unemployment.
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The first result of the proposed cut would be the
pronounced and instantaneous psychological reaction of the Italian
public. Expectations would be disappointed, and the latent anxieties
regarding continuity of American aid would be aggravated. These
effects probably would not cause a complete change of Government,
but might force the resignation of one or more minor-party
ministers who have been closely associated with ERP and the U.S.,
i.e. moderate Socialists Lombardo and Tremelloni, who have economic
portfolios, and Republican Foreign Minister Sforza. In such an event,
these ministers would probably be replaced by conservative Christian
Democrats. This change, along with the increased susceptibility of
the surviving members of the present Government to conservative
attitudes would have a total effect of shifting the Government toward the
right. Among other consequences, such a shift would imperil the more
liberal aspects of the agrarian and other reforms scheduled for dis-
cussion in the next session of Parliament. Moreover, the development
of a vigorous investment program which is considered paramount to
the attainment of ERIC goals in Italy would seriously suffer from the
increased conservatism of the Government.
SPAIN
B Renewed Monarchist propaganda against the Franco regime
may be expected as a result o on Juan's re usa a further
Franco. At his meeting last year with Franco, the Pretender agreed to a
trial "armistice" because of verbal assurances from Franco that the
Monarchy would be restored within a reasonable time. Franco's speech to
the Cortes in May, which was notable for its failure to mention the
restoration, offended the Monarchists, and apparently convinced Don Juan
that Franco's assurances were not made in good faith and that further
dealings with him would be futile. Since June there has been noticeably
increased activity on the part of Don Juan's supporters in Spain. Special
efforts are being exerted to reach the younger army officers whose
economic difficulties, Don Juan's advisors believe, will make them par-
ticularly susceptible to propaganda against the present regime. Some of
these officers already have begun the secret revival of the "Juntas de
Defensa", mutual aid societies which in the past have been centers of
effective political agitation. Most of the general officers remain loyal to
Franco and have a considerable stake in preserving the status quo.
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PORTUGAL
Extraordinary measures recently taken by the
Portuguese Government to iiiin . n e .ry and financial stability
will prove to be very effective. The first step was to curtail private
credit in order to secure funds to meet the current obligations of the
Government, Most tariff duties and the tax on gasoline were increased
to provide supplementary funds. The Government will also attempt to
augment its revenues by taking a firmer line with tax evaders, black
marketeers, and smugglers.
In addition, the Government has armed itself to deal
with anyone opposing its economic policies. By decree, it has given
the Ministry of anterior direct supervision over the Council of Public
Security, which is empowered to take forceful action against any
person constituting a threat to the national security. The decree is
so worded that it is possible to interpret any action revealing an
unsympathetic attitude toward Government policies as a threat to
security.
To dispel public alarm over the country's financial
situation, the Ministry of Finance has issued a communique stressing
that there is no cause for concern over the Government's ability to
maintain a financial equilibrium, and justifying tariff increases on the
grounds that the income derived will, make it unnecessary to drain the
Treasury.
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