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-RDP79-01090A000400010004-3
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 10
• Document Creation Date: November 9, 2016
• Document Release Date: July 27, 1998
• Sequence Number: 4
• Publication Date: July 5, 1949
• Content Type: PAPER

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WESTERN EUROPE BRANCH
OFFICE OF REpORTS AND ESTIMATES
CENTRAL INTELLIGENCE AGENCY
WORKING PAPER
BRANCH WEEKLY
NOTICE: This document is a working paper,
IMFTE 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 dissemi-
nation,
DATE: 5 July 1949
DOCUMENT NO.
NO CHANGE IN CLASS.
"e4c)ECLASSIFIED
CL .SS. CHANGED TO: IS S C
NEXT REVIEW DATE:
AUTH: HR 70-4
DATE/PILL. REVIEWER:
372044
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WESTERN EUROPE BRANCH
VOL. IV - No. n
25X6A
=BUY SUMMARY
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For week ending
5 July 1949
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SECRET
25X6A
AUSTRIA
B ection ear activit in Austria is likely to
result in e c ange n e po ca scene. Despite
undercurrents of new political interests, and the present
uncertainty regarding the regulations on the participation
of new parties in the October elections, the People's
Party and the Socialists are expected to continue a coali-
tion government in which the People's Party will retain a
majority.
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SECRET
At present, an effective government for
Austria is dependent in large part upon cooperation
between agriculture and industry Oooth represented by
the People's Party) and labor (represented by the
Socialist Party). Although each party strongly de-
sires to be the senior partner in the government, it
is unlikely that either would refuse the secondary
position, Aside from the dignity accruing from parti-
cipation in the government, and the opportunity such
participation affords for watching and checking the
other, each party desires to receive credit for
achieving and implementing an Austrian treaty.
Though the relations between the conservative
People's Party and rightist/regionalist and ex-Nazi
elements constitute a threat to future People's Party
Socialist cooperation, these relations will not affect
the present coalition government or prevent its re-
constitution following the October elections. Some
dissatisfied elements within the People's Party would
like to align themselves elsewhere, but no new party
which could serve this purpose has appeared; the
Socialists are, for practical purposes, invulnerable to
the threat of new parties.
The political amnesty resulting in the addition
of over 800,'e00 new voters to the electorate has inten-
sified pre-election campaigning. 17ithin this block of
new voters are several nascent political groups, unnamed
and still nebulous, but led by prominent ex-Nazis. The
People's Party has courted these new groups in the
attempt to ensure and, if possible, to increase its
majority in the next government. It has also played the
new groups against each other to forestall the emergence
of a new unified party which might prove capable of dis-
persing rightist strength to the advantage of the
Socialists. The apparent readiness shown by at least two
of the nascent groups to arrive at an alliance with the
People's Party would indicate their lack of assurance of
their independent political strene;th. Although Socialist
leaders are probably fearful that ex-Nazis will become
strongly influential in the People's Party, recent
Socialist protests against its government partner for con-
sorting with ex-Nazis are largely election propaganda.
There are no indications that the Socialists will withdraw
from the Government.
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FRANCE
A The excellent French bar ainin osition .n
the Franco- ov e ra e-agreemen nego a ens, re-
sumed on 28 June at Moscow's suggestion, reflects
the marked economic and political progress of France
since these discussions were broken off by the ussr
late in 1947. The French are likely to resist
successfully Soviet efforts designed to circumvent
ECA policy. The USSR retains, however, considerable
bargaining leverage for inducing French concessions
The French proposal to take sharply-reduced
tonnages of coarse grains and fewer tons of chrome
ores and chemical pastes underlines the improved
position of the nation since 1947 in these vital
production sectors; the desire for W more manganese
than previously requosted points up the average
monthly increase from March through May 1949 of
approximately one-third over the 1948 average in crude
steel production*
The French instructions would specifically deny
the USSR certain significant products which it has soli-
cited, namely, small eargc vessels and tankers, althougI
the Instructions make no reference to the Soviet requests
for electric motors, pumps, steel pipes, excavators ft or
cranes, some of which are restricted items. On the other
hand, the USSR has proposed to eliminate from its export
list items desired by the French, such as linen, lamp
black, and cotton linters. The USSR has also suggested
limiting the term of the anticipated agreement to the
balance of 1949 only, a tactic which the French are un-
likely to accept because it would leave France a heavy
debtor in this trade at the year's end, forcins; settle-
ment in dollars.
The French approach to the negotiations is
symptomatic of the Third Force Government's Increasing
confidence and over-all resistance to Soviet pressures.
The Government's "anti-trust" lana to stem the
current T---ia"-erararrrereemen s on price-fixing
are not likely to achieve this objective soon, although
they may appeal politically to the working class and left
of center groups and result in closer harmony within the
coalition, The cartel agreements are partially responsible
for the general failure of manufacturers' prices to decline,
which is one of the most stubborn remaining inflationary
factors causing labor unrest.
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The Governmontts present draft of proposed
anti-trust legislation provides for: (1) obligatory
registration of price-fixing agreements, (2) the creation
of a cartel commission, and (S) a definition of what is
prohibited, including a clause providing that all agree-
ments would be illegal which resulted in prices higher
than those which would result from free competition.
Some difficulty is being experieneed in achieving agree-
ment on the definition of an illegal price arrangement
Obligatory registration could serve in the long run to
consolidate and legalize, rather than prevent or invali-
date,, price-fixing and other restrictive business practices.
Moreover, in view of French Government inexperience in
this matter, registration night result in wholesale offi-
cial approval of highly restrictive agreements.
If the Government could* however, by some means
force prices down in the near future, it night be able to
avoid serious labor disturbances later in the year. Non-
Communist labor to date has not been generally willing to
unite with the General Confederation of Labor in unity of
action on wage demands, continuing rather to express its
desire for real price reductions.
FRENCH AFD SPANISH NORTH AND WEST AFRICA
US extraterritorial ri,,hts in Morocco are
jeopardize y e seem ng ?eterlinanE7=i'ance to
have them reviewed by the International Court of Justice
(ICJ). If the US should be stripped of these tights,
enjoyed since 1836, the Moors would find their legal
justification for obtaining their independence from France
weakened. Moorish sovereignty is presently recognized
only by the US and France. The precise definition of US
rights has been a source of latent friction between the US
and France since the Treaty of Fez in 1912 established
Morocco as a French protectorate Currently the issue has
taken the form of disagreement over French restrictions
upon the importing rights of US nationals in Morocco. If
France does take the case to the ICJ, it will be exposing
itself to an examination of its own status in Morocco,
particularly its application of the Treaty of Fez.
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BELGIUM
A Thfi_sAllnE9_91_28n_Kaalms to form a Belgian
p1ede to of King Leopold will
pave the way for a more moderate Catholic to attempt
the formation of a cabinet on the basis of less exact-
ing Catholic denands. The Liberals joined the
Socialists in refusing to support the Catholics in
effecting Leopold's return. If the Catholic Party is
now willing to call Leopold back only long enough for
him to abdicate in favor of his son, agreement on this
issue with both the Liberals and Socialists is possible.
The major point of negotiation between the Catholics
and the other two parties would then be economic and
fiscal policy. The area of disagreement with the
Socialists is much less than with the Liberals, unless
the latter are willinz to modify drastically the demands
stated in their election platform. Thus, the most likely
final result of the current negotiations among the parties
continues to be another Catholic-Socialist coalitian.
ITALY
Decisions taken at recent witionakmnareea
of three 77=77FATTIM7Firti6177-bhristiaiCD6Mocrats,
moderate Socialists, and Left-Socialists, have confirmed
Premier De Gasperils position, and have somewhat cleared
his way for important legislative action. The opposition
to De Gasperi in each of the three parties has become more
vocal, but has not gained in immediate effectivenens. The
left-wing Christian Democrats, who would prefer to substi-
tute one of their own group for Premier De Gasperi, enlarged
their representation on the Christian Democratic National
Council, but the 10 members of the new executive committee
of the Party are solid De Gasperi supporters. The left
win47 of the moderate Socialists, who differ with the Premier
on several major issues, was overwhelmed by a vote of 6e, for
the right wing at the Party convention, and will accordingly
have less influence on the Party's representatives !aa the
Cabinet At the Left-Socialist congress a non-Communist
faction broke away from the Party. The dissident faction hae
failed so far to persuade the moderate Socialists to leave
the Cabinet and join forces in a Socialist Party, independent
of the Communists but in opposition to the Government.
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Aware of his stronger position, De Gasperi AR7
now pursue a more aggressive campaign to implement his
expressed intentions on various basic measures,
particularly moderate agrarian and industrial reform; p and
labor legislation. He will equally realize that continued
delay or inadequate reforms may destroy his recent gaine.
PORTUGAL
A The Salazarxalmp in Portu al is threatened
with a larzrizimm. coma:Mice ue -o the steady in-
crease in the countryts adverse foreign trade balancee.
Portugal is now living on its reserves, and, unless
substantial relief is received, unencumbered balances o,
gold and dollar exchange will have vanished by the end
of 1949. There is little prospect for any change in the
trend of postwar years in which the adoption of such
austerity measures as greatly curtailed purchases of
foreign luxuries have failed to compensate for the decline
in exports, while minimum import requirements, almost
entirely for food, remain at a high. level. In the face of
growing business depression and tightening credit, public
cognizance of these factors is spreading, causing a
panicky state of mind which is dangerous because confidence
In Prime Minister Salazar rests basically on his financial
achievements in bringing the coluitry out of economic and
political collapse in 1926..
One of the immediate economic threats to
stability is seen in the sharp contraction in the largo Lt
source of Portuguese dollar earnings, cork exports.
Portuguese cork is being displaced in world markets, par-
ticularly in the US, as a result of underselling by the
Spanish producers under their special exchange rate.
Portuguese exports of cork to the US in the first half cf
1949 were down 25;7, from the 1948 level (1.7 million cor
pared to $2.4 million). The Lisbon Government is
seriously concerned over tho fast that Spanish cork is
being offered at prices 15 to 20 percent lower than
Portuguese cork?pretests to the Spanish Government have
been to no avail. Because of Portugalts stringent dollar
exchange position, the ECA mission and US, Embassy in Llebon
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have requested the opinion of ECA, the Tariff
Commission and other interested agencies, regard-
inc Spanish cork imports entering the US on virtually
a subsidized basis. Should it become necessary for
the US to apply countervailing duties against Spanish
cork, Spain would suffer a new loss of dollar ex-
change, and there would be introduced an additional
factor of strained relations between Portugal Spain
and the US.
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