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-RDP79-01090A000400010016-0
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 7
• Document Creation Date: November 9, 2016
• Document Release Date: July 27, 1998
• Sequence Number: 16
• Publication Date: September 27, 1949
• Content Type: PAPER

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INESTM EUROPE. BRARCH
OFFICE OF REPORTS AND ESTIMATES
CENTRAL INTELLIGLITCE AGENCY
WORKING PAPER
BRANCH WEEKLY
NOTICE: This document is a working paper,
TUT an official CIA issuance. It has been
coordinated 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 publications It is intended solely for
the information of the addressee and not for
further dissemination.
DATE : 27 September 1949
DOCUMENT NO. __j
Sg4A ANGE IN CLi..P
DECLASSIFIED
CLASS. CHANGED TO. IS C
NEXT REVIEW DATE:
AUTH H 70
DAT~~ REYI~W~R: 372044
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S E 0 R E T
WESTERN EUROPE BRANCH
WEEKLY SUMMARY
25X6A
VOL. V "" No . 33
For week ending
27 September 1949
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B The problem of Austrian devaluation of the
schilLin& points up no San J e irge percentage or total
r s which are financed by ECA but also the fact that
the bulk of foreign exchange transactions do not presently
take place at the official rate. This situation will lead
to Austrian efforts to retain the present dollar-schilling
conversion rate for ECA imports, but to revalue the
schilling in toms of currencies which have been devalued.
Some 40%'of Austrian imports amounting to about
8% of all goods and services available to the Austrian
consumer are financed by ECA grants. A devaluation of the
Schilling in relation to the dollar would, therefore,
result in a rise in prices and in the cost of living, un-
l.es-s--domestic sales of ECA imports are subsidized. Since,
however, the financial position of the Austrian Government
is weak, it appears unlikely that such a program could be
successfully undertaken without some budgetary relief,.
perhaps through largor allotments of counterpart funds.
This would, in turn, require agreement by ECA, which so
far has refused the use or counterpart funds for such
subsidy schemes.
Actual commercial exchange transactions in
recent months have largely taken place not at a fixed rate,
but at multiple rates which have generally been much greater
than the official rates A devaluation in terms of currencies
other than dollars,, therefore, would not lead to important
price-level rises. The official establishment of a multiple
exchange rate showing devaluation in terms of other than _
dollar currencies would merely confirm actual practice.
Because the main function of the official dollar
rate today appears to lie in its use as a conversion factor
for calculating the schilling value of ECA imports from the
dollar area, Austrian devaluation represents the greatest
problem in terms of the dollar. To date the Austrian Cabinet'
has announced its intention of holding the 1 to 10 ratio of
the dollar to the Schilling, but has suspended other currency
transactions. Austria is now faced with the choices of:
(1) devaluing and adopting a unitary rate of exchange;
(2) adopting a single devalued rate for all currencies except
the dollar; (3) adopting a devalued unitary rate of exchange
but subsidizing ECA dollar imports; and (4) establishing
multiple exchange rates with the dollar pegged at approximately
the present rate. Since the first choice appears likely to
lead to price level increases with attendant political reper.
cussions, the Austrians will probably attempt one of the other
three courses of action.
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FRANCE
A Devaluation is aggravating French domestic problems
and bas deepened n ou s t We- TM n e $ to pro-
mote European solidarity. A single "official free" exchange
rato for the franc was established on 20 September,, amounting
to 350 francs to the dollar (compared to the previous "official
free" rate of 330, conwrcial rate of 272, and base rate of 214).
Although the main objective of the franc's devaluation is to
increase dollar earnings by expanding exports, real progress
toward this goal will depend mainly upon the Government's efforts
to reduce production costs and adjust manufacturers' methods
and products to meet US buyer demands. The realignment of the
franc will probably promote the already-apparent rise of prices.
Labor unions will press increasingly for Government
action to raise wages, place new controls on prices, and restore
collective bargaining. The Government, despite its internal
disagreements, will soon be forced to make a decision on the
wage issue, probably by approving Immediate payment of a special
bonus, and recommending to Parliament a gradual return to
collective bargaining. Any wage increases would add to the
Government's budget-making difficulties in October, because
such increases would have to be extended to nationalized
industries*
Britain's drastic unilateral action has caused the
French Government a considerable loss in prestige. The French
regard this action as detrimental to European economic coopera-
tion., which had been so considerably supported by the recent
sessions of the Council of Europe and by the work of OEEC.
B The Metalworkers' Union affiliated with the Christian
Confederation o or is likely to resort to unity
of action with the Communist-dominated General Labor Confedera-
tion (CGT) in the critical iron and steel industry. This
probability results from the strong stand taken. by the Metal-
worker Union Congress, which recently demanded the immediate
unfreezing of wages and a sliding wage-scale based on the
workers' family budgets.
Not only will these demands be unacceptable to the
Government, but the Secretary General of the CFTC warned
the Congress that the metalworkers should confine themselves
to what was "reasonable". In view of CFTC's financial
unpreparedness to initiate widespread strikes, the determined
Metaiworkerse Union is likely to act jointly with the GGT.
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A Plans for earl unification of the two Italian non-
Communist labor unions are pro ab y premature, and such a.
merger might be distinctly disadvantageous at this time. A
call for a unification congress to be held 8 November has
been issued by the Catholic-dominated Free Confederation of
Labor (LCGIL) with the support of some leaders of the moderate
leftist Federation of Italian Workers (FIL). The LCGIL, the
FIL, and an independent group have agreed to hold three
separate conventions in Rome prior to 8 November to discuss
a unity resolution.
The FIL was formed only four months ago when
Republican and moderate Socialist (PSLI) labor factions split
off from the Communist-dominated Confederation of Labor (CGIL).
Other Socialist labor factions have since left the CGIL but
have not as yet entered the FIL, whose situation is still fluid
and whose potentialities for attracting larger membership have
not yet been exploited. Its present membership is 400,000 to
500, 000 .
The Catholic LCGIL split off from the CGIL only one
year ago, and continues to gain In membership and Improve its
organization, although its potentialities have been more fully
realized than those of the FIL. Its present membership is
2.2 to 1.5 million. Although both non-Communist unions are
growing, taken together they are still outnumbered about 2 to 1
by the CGIL.
Because the LCGIL outnumbers the PIL at present by
3 to 1, any merger effected at current membership level will
place a heavy clerical stamp upon the new federation, despite
Vatican assurances of non-interference,, The possibility of
excessive clerical influence on the amalgamated group would
be feared by both present and former CGIL elements which
might be attracted to an independent FIL. Greater
difficulty would also be experienced by the FIL in attracting
the large body of unorganized corkers who find either
Comm mist or Catholic domination unpalatable
Unification at this early date could therefore be
effected only at the risk of compromising the FILts integrity
and potential to the prejudice of a more effective non-
Communist labor front which might be achieved at a later date.
B The recent speech of Italian Communist leader Palmiro
Togliatti will P ce an even greater strain on the allegiance
of the Longo CP faction that believes in strong measures, and
may subject Togliatti to censure by the Condnform. Togliatti's
remarks had a decidedly nationalistic and pro-constitutional
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S E C R E T
flavor, and, though strongly critical of the Church's
influence in the government, were conciliatory on the subject
of religion. The Communist leader charged the Government
with failure to Implement the promises of the Constitution,
but he bordered close upon Tito nationalism when he averred
that "snot a single vital question of foreign policy has been
resolved according to the interests and desires of the nation"
and that the Italian Government does "not place the interests
of the nation over everything else".
Although he criticized the Government for Its
clerical mature and orientation.. Togliatti offered assurance
that in its pursuit of a truly national polio' for Italy and
its adherence' to the Constitution, the Italian Communist Party
offers to all, Rvhatever their party allegiance, whatever their
religious faith--which we respect--whatever their social and
productive means of livelihood..oa way of unity between the
mass of people and democracy"',
These expressions of Togliatti r s very closely parallel
the views of Communist Senator Terracini, whom the Longo
faction has vigorously attacked before the Cominform for alleged
Titoism and bourgeois deviation. Togliatti gives no indication
in his speech of any effort on his part to reconcile the Longo-
Terracinl policy dissension, as he was reportedly instructed to
do by the Cominforma Rather, the support of the Terracin1
position implicit in Togliatti's statements will tend to make
the Longo direct action'ists in the Italian Communist Party
more restive than ever.
B The Vatican f s currently , active artici, Lion In
__ western R%2rn-naan pn es tends to d11+3 S role of the
moderate Socialist parties. Success in Its support of the
Christian Democratic Party In Italy In the 1948 elections has
encouraged the Church to similar overt political activity prior
to the recent German elections and presently in Austria, where-
elections are to be held next month. The governments of Italy,
Spain and Portugal have long been closely associated with the
Vatican, so that the recent rise of the Catholic parties to a
dominant role in Germany and Belgium has placed the Roman
Catholic Church in western Europe In a position of outstanding
political impor tance .
Now that the German Christian Democrats have formed a
coalition without the Socialists, members of the hierarchy are
more than ever anxious that Gern n7 be admitted to the Council
of Europe. The Church welcomes the Council as a weapon against
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Communism, but has feared domination of the Council by the
Socialists, The Vatican opposes even anti-Communist
Socialists as dangerously tainted with Marxism, and has
always been uneasy about Catholic-Socialist coalitions, even
when broadly--based governments appeared necessary to hold
popular approval.
The Vatican is putting pressure on the Catholic
parties of Europe to design a positive social reform programs
especially now that the Papal decree forbids Catholics to
follow the socio-eeonoratc program of the Communists, Such
pressure will encourage minority elements of the Catholic
parties that have long been eager to develop a social program
in complete Independence of the Socialists. This tendency
of the Catholic parties toward independent action, along with
tha political efforts which the Vatican can be expected to
make in the future,, will alienate the Socialists in or out
of the governments,, and will thus serve to divide the anti-
Communist and progressive forces and'make difficult the
attainment of important social goals.
SPAIN
B Increased international tension resulting from the
disclosure o the S s M OE explosion, will serve to
strengthen Franco's Internal position. Reports of the explosion
are expected to prompt new remarks by US political leaders
advocating $paints inclusion in European defense plans, Such
remarks will revive Spanish hopes of US financial assistance
and thus will restore to Franco at least temporarily the support
of many Monarchists and Army officers who had been wavering in
their allegiance because of the regimets failure to date to
obtain substantial foreign aid. In his public speeches and
through the official Spanish press, Franco has been explaining
this failure by-attributing to the US a subservient attitude
toward the USSR, an attitude found in the "weak" and
"unrealistic"' US policies,
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