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

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-01090A000400030007-8
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 11
• Document Creation Date: November 9, 2016
• Document Release Date: July 27, 1998
• Sequence Number: 7
• Publication Date: February 21, 1950
• Content Type: PAPER

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WESTERN 'EUROPE DIVISION
OFFICE OF REPORTS AND ESTIMATES
CENTRAL INTELLIGENCE AGENCY
WORKING PAPER
DIVISION WEEKLY
NOTICE: This document is a working paper,
OT~an official CIA Issuance. It has been
co-ordinated within ORE, but not with the
IAC Agencies. It represents current think-
ing 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 offi-
cial publication. It is intended solely for
the information of the addressee and not for
further dissemination.
DATE : 21 February 1950 DOCUMENT NO.
N HANGE IN CLASS. ^
DECLASSIFIED
CLASS. CHANGED TO: TS 5
NEXT REVIEW DATE:
AUTIT
A` Ii REVIEWER 372044
'r 1% z 01 .1
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8 E 0 R E T
1~'41EE LY SUMI1 Uff
25X6A
VOL0VI No. 7
For week ending
21 February 1950
R E T ~
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AUSTRIA
B An moves b the Western Powers to ease the
or ccu. ationns on us i aroma necessarily n a "l
cone era on o o" quacMartite control mechanism
in Austria. Although this mechanism is flexible enough
to allow some changes to be made by the three +estern
Powers alone,, any changes that would constitute tri-
partite withdrawal from authorized four--power controls
would improve the ability of the Soviet element to act
unilaterally, should it fail to join the West in new
policies.
Under existing agreements, members of the Allied
Council (AC) for Austria may be either military or civilian;
the high Commissioners in each zone may also be e5 ther
military or civilian. Changes to civilian personnel would
probably receive Austrian acclamation only if the Western
Powers gave strong assurances of continued support for
Austria and maintained their determination to achieve a
treaty.
The various staffs of the AC, which correspond
generally to the Austrian Governmental Ministries, are
established by the Control Agreement and exercises some
control functions over the Austrian counterparts. Without
Soviet agreement, a Western withdrawal from these staff
functions would not actually ease the occupation burdens
on Austria on the governmental level, but would permit the
USSR to exercise the authority of the staffs with no
opposition. The same situation is applicable in regard to
annual quadripartite determination of occupation costs,
although the British and French could follow the present
US practice of receiving its allocation but renouncing
actual payment; the Austrians would undoubtedly approve
such a move.
Western efforts to relax the occupation seemingly
can be effective only in the western zones, where the degree
of occupation control has already been reduced. A curtail-
ment in requisitioning, suspension of military government
courts, and increased authority for the Austrian police
appear to be the type of measures which are feasible.
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S E C R E T
B Austria will probably be reluctant to liberalize
further its 1ra e with western Europe unt1l It s a ned
greater SWEET economic strength.. To date, the Austrians
have complied with the OEEC objectives of liberalizing intra-
European trade,, and have reduced quota restrictions on
imports from participating countries by 54.2% of the 1948
volume. The Austrian Government, nevertheless, is now
taking the stand that further relaxation of trade controls
with western Europe must be limited, because of the trend of
Austria's trade with the East. In this trade., Austria is
presently being compelled to deal mostly through large
commercial monopolies established by the Soviet Satellites,
and has, consequently, stated that trade controls are
necessary to maintain a bargaining position in such
transactions,
Although this 3s the official policy explanation,
there are also critical domestic considerations. A complete,
or even partial, removal of import restrictions at this
time would enlarge-Austrians deficit with western Europe,
and thus jeopardize its limited foreign exchange holdings
If restrictions should be further relaxed, imports from
western Europe would tend to be at a high level, because of
the high cost of Austrian production, and because of the
profitable re-export opportunities to the East. At the
same time, the vulnerability of Austrian industry to foreign
competition would threaten to increase unemployment.,
Furthermore, any considerable relaxation of trade regulations
would weaken the Austrian Government's control over internal
production, and thereby enable the USSR to increase its
already considerable purchases of industrial materiel in the
Austrian inland mavket0
The Austrians are gravel?- concerned with thE- con-
tinued lag in their export trade' Inadequate industrial
modernization, and continued high costs of production still
hamper a real trade recovery. Although Austria is not likely
to modify its trade policies now, responsible Austrians
realize that, in the long run, the Austrian economy be
viable only with a greater economic integration of Eurcpe.
FRANCE
A The French Ooverrmient will take strong measures
to counter a mnun s e or a to
disrupt vne unloading
and distribution of MDAP equipment. Although the Goveri nt
Will riot be able to forestall all Communist attempts to
obstruct the defense program, it will be able to prevent
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SECRET
serious interference. Protective measures to cover
operations at Cherbourg, the principal delivery port,
will probably be adequate to prevent major sabotaged
The timing of the recent protest incidents
at Toulon, Nice, and Marseille reveal that the French
Communist Party (PCF) has organized special "commando"
bands of Party militants and thugs. and has widely
dispersed these groups throughout France so that they
can go into action suddenly in the least-expected places.
This complicates the problem of countering possible sabo-
tage attempts, as police elements cannot be deployed in
advance to prevent all such disturbances. The success of
possible countermeasures will depend particularly on the
decisiveness and speed with which action is taken., as was
demonstrated during the recent strike at Marseille when
the prefect immediately threatened to recall the work,
cards of striking longshoremen, and to hold up the normal
unemployment indemnity, and did permit the temporary free
hiring of dockers. Here the strikers returned to work
after a very short period On the other hand;, in Nice a
large gang of militants invaded the dock area and threw
machinery they believed destined for Indochina into the
water, while the prefect pleaded with them. to "remain
calm".
The super-prefect system organized by former
Minister of Interior Moch, which functioned so effectively
in checking the 1948 strikes, will probably again form the
basis of plans for controlling Coimnunist-led subversive
activities, but the tactics have not been disclosed.
Workers in the railroads, arsenals, and other nationalized
industries will be deterred from promoting the Communist
campaign by the Govern=ent's warning that anyone ref ising
to perform his regular duties will be subject to dismissal.
The Government's will to crack down on Communist
sabotage of the French defense program is strengthened by
several factors: (1) the determination to show that the
Government, despite present political instability, has
firm control of the internal situation and that the Co=manist
hold over French labor has been greatly weakened, even though
labor discontent continues; (2) the strong Governmental
objective to re equip and 'modernize the_ Preach nil i nary. forces;
and (3) the fear that cr$ti es of France's projected role. in
MDAP might succeed in cutting off arms shipments, D L the
event of large scale Communist interference,, on the pretext
of preventing materiel from falling into Communist hands.
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S E C R E T
I3 Prospective French "anti-trust" legislation will
tend on balance to promote, not avereomo, high pr ce levels
and business practices harmful both to national economic
stability and to the cause of foreign trade liberalization.
Thus, the Governmont, which is expected to defend the
legislation in Parliament, will in this respect work
against rather than to:?rard MS-objectives In western
Europe. The French public seems almost totally unaware
of the substantial influence of these agreements on retail
price levels. The probable alignment of leftist with
rightist deputies in support of an obviously "phony" anti-
trust bill will demonstrate that basic obstacl,3s face US
efforts to modify French institutions in order to help
solve longterm economic problems"
Agreements among competitors in France are wide-
spread and traditional,, and have long been fostered by
Government policies. Even labor has approved the principle
of cartel arrangements as a national tradition, accepting
the special protection for management's interests as com-
plementing safeguards for labor against interruptions of
employments Such agreements control manufacturers', whole-
salers', and retailers' prices and markets, and limit
quantity as well as improvement in quality. Hence these
agreements have served powerfully to prolong the postwar
inflation in France, and have contributed importantly both
to the lag in real wages and to the income disparities under-
lying labor's chronic unrest. They also encourage business
to resist many of the concrete steps necessary to increase
productivity and rationalize production. As a result,
business demands that if additional governmental trade
barriers are to be removed, it be allowed to strengthen
.private international cartels, in order to maintain effective
protection against foreign competition.
The anti-trust bill has been termed unobjectionable
by spokesmen for business and, as law,, would probably help
rather than hinder business to develop cartels for its own
special ends. The bill itself lays down no standards for
distinguishing between trusts which, on balance, favor, and
those which injure, the public interest,. It does not even
establish an agency with adequate power to proceed against
trusts which may be harmful to the public interest. The
proposed "National Commission for the Control of Private
Trade Agreements" will only investigate and recommend; real
power will rest with the Minister of Finance and Economic
Affairs, Furthermore, registration of cartels would not be
compulsory, and a cartel which registered voluntarily and
received official sanction would be in a position to re-
quest a Government decree ha t the agreement among its
members must be observed by all companies engaged in the
same economic activity?
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S E C R E T
It is clear, moreover, that the Government
officials promoting this legislation are not intent upon
effecting a reduction of price levels. The cartel
connzission's power merely "to oxemine" the incidence of
agreements n prices and on purchasing power was preferred
to a proposal of the } onnet Modernization Plan officials,
Who were convinced of the adverse effects of price--fixing.
These officials had urged that a semi-autonomous, quasi-
judicial body be established with power to void harmful
agreements and penalize the participants.
FRENCH AND SPANISH PIORT i AND WEST AFRICA
B The recent irregular actions of the S anish Lone
authorities appear to be o a piece with the outcry surround-
.ng the alleged Arab uprising of 4 February, and probably
reflect the personal policy of General Varela, High
Commissioner of Spain in Morocco, more than that of the
Spanish Government. Madrid, however, is no doubt still
piqued at having; been forced in 1945. to give up control of
Tangier, seized during the war, and has shown no inclination
to curb Varela. Two instances of interference by Spanish
Zone police in the internal affairs of Tang:'cr are particu-
larly flagrant and damaging to the prestige of the interna-
tional administration. First, Spanish police agents without
the knowledge of Tangier authorities entered the International
Zone and made off with the personal property of an expe;'.led
Spanish national. Second, Spanish agents virtually kidnapped
five Spanish political refugees and took them from Tangier to
Spain, where they were imprisoned. One confessed agent in
this affair claims he acted officially under the orders o:'
the Spanish Director of Security at Tetuan; he has boon jailed
on a charge of carrying arms illegally., and interfering wi-~,h
the public functions of the International Zone. Concurrently,
Spanish border police have stopped US and other official cars
leaving the International Zone, and, regardless of the
diplomatic status of the occupants, have subjected the cars to
harassing searches, although persons and pouches have not beeA'i
touched. The incident of 4 February Is given as the reason
for these searches, which have continued despite a written
protest by the US Minister to General Varela. For the second
time this year, the mangier Committee of Control, now headed
by the US Minister, may be convened in extraordinary session
to consider a situation resulting from Spanish policies.
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Fla in. nationalism throw.bout French North
Africa has been jven a shot in i e arm by an rgy1;' n
act . nim3.cai to the French. After the Egyptian nationa-
listic WAFD Party returned to power last month, its leader,
Prime r inistcr Nahas Pasha, openly telegraphed to I.Iessali
IIadj, fiery and mystical Algerian nationalist leader, a
think;-veiled appeal to revolt, urging' other Arab states
to assist Algeria in attaining 'complete independence and
entire liberty." The influence f the Moroccan. nationalist
leader .bbd-el-lrim in Cairo can be detected in this latest
unfriendly gesture of the Egjp tiara Government leveled at
France's position in North Africa. Present and previous
Egyptian Governments have indulged in similar hostile
activity, questioning French hegemony in North Africa, and
echoing the Soviet line urging early "colonial liberation"
in Africa.
The I?e therlands desire for the rosumptI on of close
B
ties wi tT. vi stern Germany will be at least partia lt- net by the
expansion o tch-- ernan trade under a new agrooment signed
on 2 February. This agroe ont calls for an increase in the
aggregate value of trade between the two countries, to be
achieved in part by a substantial liberalization of "etch im-
ports f ram Gcrriany. Although the recent favorable Dutch balance
with Germany may increase rMthin the next few months, the
Netherlands is expected to have a trade do-fi.cit with Gemrnany
by the ',ii e she trade a ;reoent e.:pires on 1 September lP54.
`!h1: ~~ro':~a`:Iy will, result from: (1) ditch payments for capital
goods which have been deferred until dolivcry; (2) use of the
Inr~onosian credit in Gc~:2kr zart'_Ls held by the Netherlands for
Indonesia; and (3) clocor surveil lance of transit trade to
prevent the of non-Latch r..oou.s in trade agreement
accounts.
Along vr3 th the trade ner otiations, so-ie agreement
was roac-hed on the T1hi.ne shipping problem, with Gornany re-
cog=,n.izin ; the right of the Dutch to enga~,e in foreign carrying
trade on Germany's inland waterways. The formalizing of
:agreements regarding the_ use of the Rhine, ho overp and a solution.)
of tile ir'o'.)lom of control of i.;hc currencies use_- in pa-vr1 g or
inland shipments probably will take considerable time.. despite
the recent agreement. The Dutch necessity for German trade
according to the pattern of prewar years, when the Dutch had
a net favorable balance with Germany from invisible receipts
to pay Its deficit with Belgium, probably will cause the
Netherlands to press for increased Dutch-German trade and
commercial ties.
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S E C R E
I TALY
B The Italian Government will face difficult in
financing a re orm an investment program m t is
belatedly planning, and in balancing political and
-economic demands in implementation of the program.
The plan has six components, to which priorities
have been assigned. The first three are motivated pri-
marily by socio-political necessities. First priority has
been given to agrarian reform. The peasant riots have
finally forced the Government to take action, and the ~tpro-
jected reforms will require the expenditure of about 1,,~l
billion over the next few years. Second priority has been
given to public works to alleviate conditions in southern
Italy and Sicily., for which about .',`200 million a year for
the next ten years is being prograrvied. Third priority
has been given to badly-needed low-cost housing; the present
inadequate allocation of about Q100 rzilllon a year is to be
expanded.
Priorities four to six are given to investments in
industrial and associated fields. The Importance to the
economy of such investment has been made apparent by the
decline of the export trade during the past six months, and
by the recessionary tr.4nd which has become more evident In
the last several months. Over $1 billion has been programmed
for 1950-51 alone to expand industrial production and improve
Italy's competitive position in world markets The const-
ruction of thermoelectric plants, expansion of metallurgical
plants, and modernization of industrial equipment are in-
eluded in these programs.
The gross investment, however, required for these
six projects (over and above normal budgetary requirements)
iwoi ld, amount to almost 20/1of of the estimated national incame,,
Even with aid from the lira counterpart fund, it is doubtful.
that domestic funds can be found without having recourse to
inflationary financing, to which the Government is strongly
opposed. Therefore, it is probable., in view of the order
of priorities, that the industrial investment necessary to
reduce unemployment, to increase the availability of capital
and consumer goods, and to.absorb the increased consumer
spending power injected into the economy by the first three
programs, will be alighted. Without industrial investment,
however, not only will the productive capacity of Italy be
left unimproved, but also the reforms of the first three
priorities will prove more difficult of implementation.
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B The feeling; in Italy of frustration and futilit
in the even o an East-West conflict is being n ensiffed
as Me resu of the 5- ec sion Eo r wake the H-bomb; it will
lead to an extension of neutrality sentiment among the
Italian people. Italians, except for strongly pro-US forces
and militantly pro-Soviet elements, have for some time been
apathetic at the bleak prospects afforded by a third world
war which neither victor nor vanquished would survive.
As the prodigious strength of the two protagonists
grows ,(Italians expect the USSR as well as the US to have
the Habcinb in the not-too-distant future), and Italy's in-
ability to-tip the balance either way becomes more apparent,
the majority of Italians will tend to think increasingly in
terms of neutrality. Such thinking is not altered by the
prospect that Italy will be overrun by the Soviet invader;
Italians believe that whatever role Italy plays, the country
would in any case eventually be liberated by the US. Many
Italians are willing to accept this line of reasoning in
order to banish from their minds the spectre of catastrophic
destruction.
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