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-RDP79-01090A000400040002-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 10
• Document Creation Date: November 9, 2016
• Document Release Date: September 24, 1998
• Sequence Number: 2
• Publication Date: April 11, 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,
NUrial 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: 11 April 1950
DOCUMENT NO 420#
NO
/>1
?HANGE IN CLASS. LI
- DECLASSIFIED
CLASS. CHANGED TO: IS S C
NEXT REVIEW DATE:
AUTH: Ht 7
)ATF/ REVIEWER: 372044
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WESTERN EUROPE DIVISION
WEEKLY SUMMARY
VOL. VI - No, 14 For week ending
11 April 1950
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AUSTRIA
Recent Soviet interest in communication facties
in Austria sugges s at I SS does ntiMEEiiiiaate an
51711Fir-Wdrawa1 of its forces from Austria. At the same time,
newly-acquired telephone facilities appear to be calculated to
improve the Soviet capabilities for zonal border control. The
USSR is evidencing a desire to get away from sharing tele-
communication facilities with Austria, and from using facili-
ties routed through areas controlled by other occupation
powers. It is also trying to extend Soviet-controlled
telephone lines along the western borders of the Soviet zone
and to tie in these lines more closely with facilities in
Hungary.
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Last fall, the Soviet element pressured the
Austrian Government into re-activating a former German
communication line from St. Poelten into Hungary. This
line does not go through Vienna, and functions for the
exclusive use of the Soviet occupation force. Early
this year, the Soviet element required the Austrians to
extend this line to Ehnsdorf? on the US-Soviet zone border,
and more recently has demanded its extension north along
the zonal boundary to points across from Bavaria. Currently,
the Soviet element is demanding that all communication
facilities servicing its border control posts, formerly
routed through the Linz exchange in the US zone, be routed
through lines within the Soviet zone having no Austrian
sUbscribers.
In the southeast section of its zone, the Soviet
element has demanded that the Austrian Government restore
a former German telephone line connecting Oberwart? in
southern Burgenland near the British zonal boundary, and
Ebeszeg in Hnngary. Soviet occupation officials have also
called for cable plans of the Guessing and jennersdorf area,
particularly of the lines serving gendarmerie and customs
offices. This area is in the southern tip of the Soviet
zone, a narrow strip between the British zone and Hungary
extending to the Yugoslav border. Soviet requests for
cable plans of an area have, in previous cases, soon re-
sulted in demands for the re-activation, or creation, of
lines having no Austrian subscribers.
It is notable that these Soviet moves have only
occurred after almost five years of quadripartite occupation
of Austria, and are simultaneous with soviet intransigence
on the four remaining unagreed treaty articles, which are of
relatively small importance to the Soviet Union.
Develo in, malad ustments of the Austrian banktra
maim may be part la 7 arresria?SrtiralThViiFfierireirc-Ferlit
control law. Over the past two and a half years, commercial
banks have been violating good banking practice by the amounts,
types, and terms of credit granted. Yet it is imperative that
Austria possess a sound bankily: system, even before the
salutary influence of ECA is terminated in 1952. Sound bank-
ing required that commercial banks restrict their loans .
principally to the short-term variety, rather than intermediate
or long-term. This principle appears to have been disregarded
by the Austrian commercial banks, which, by January 1950, had
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granted 271 mdllion schillings in credits of one to five
years, as contrasted with 450 million sehillings in credits
of more than five years.
In addition, the bulk of credit granted in the
form of large loans has been to a relatively small group
of privileged concerns, in violation of the rule of diversi-
fication of risk. This concentration of credit has caused
an acute shortage of funds for trades and small industries.
The Austrians expect that a substantial step in
the right direction will be taken by contemplated legislation
on credit control, which envisages: (1) limiting bank
liability to a fixed ratio of paid-in-capital plus specified
reserves; (2) requiring banks to maintain a specified
proportion of their reserves in liquid funds; (3) limiting
credit to individual users; (4) establishing adequate loans
procedures; and (5) increasing bank supervision by Governmental
authorities.
FRANCE
A A French Assembly resolution of 28 March callirmal
the Goverxmientto rrt?reIT.FrcITEFEal.
TEW-in71?Eirblaga larifiarregirnMt-ron in France. The
steady rise of prices from July 1949 to February 1950 has begun
to level lff, and the transition to collective bargaining has
been started without an anpreciable addition to exioting
inflationary pressures. Labor's deep resentment of its small
strike gains, however, is likely to reinforce its further wage
demands in the forthcoming contract bargaining. Even more
decisive for the course of prices in the coming months will
be the Government's credit and fiscal policies.
The recent Assembly resolution asked the Government
to raise Bank of France rediscount ceilings sufficiently to
permit an increase of credit to small and medium enterprises,
which would assist them in meeting higher tax and wage pay-
ments. In the second quarter of 1949, without any such formal
lifting of credit ceilings, the Bank of France applied the
regulations looselyta policy Which greatly increased the
inflationary dangers in the last half of the year.
Despite ECA's persistent pressure on the French
against any relaxation of safeguards risking a repetition of
this sequence of events, the Government will probably not be
Able to resist business' growing campaign for easier credit.
The Radical Socialists, who are sponsorins this demand,
can be expected to carry greater weight in the Government on
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this issue since the departure of the Socialists. More-
over, the slowly mountW unemployment total (though
still negligible) will lend oredence to new warnings of
excessive "deflation", warnings which were the immediate
impetus in the spring of 1949 to the relaxation of credit
controls by the Bank of France.
The French Government will continue to favor a
cautious ril-7FREWEI-TIRTE-Miman EigIrEBBITOpUlar
reae on to oe or enauer s recent "trial balloon"
proposals for a Franco-German union. Having successfully
negotiai:ed.accords with the Saar despite strong German
objections, France will now take more cognizance of German
attitudes and will endeavor to avoid further inclaents which
might excite German sensitivity. The French Foreign Office
plans to advise the Saar not to be hasty in aecepting the
invitation tendered it by the Council of Europe, hoping -that
by allowing the German Government more time to maneuver, the
Bundestag can be persladed that Germany dhould accept an
assoc .ate membership in the Council.
ITALY .
The weakened state of Socialist forces in Ital
is am hasized b the um o .rom e on erence
o n erna ona oc ?ar es 0) to the Italian
Socialist Workers Party (PSLI) to unify with the Unitary
Socialist Party (PSU) before 1 June, or face disqualifleation
as the official Italian Socialist Party. The factors which
have brought about this weakness would tend to make any
unification achieved through compliance with the ultimatum
largely superficial and unlikely to result in a real re-
juvenation of Socialist forces.
Several obstacles which have heretofore prevented
the unification of the PSLI and the Romita-Silone PSU will
continue to Impede such a merger. Among these obstacles are:
ay a conflict of personalities and a divergence of opinion
among the leaders of both parties as to the objectives of the
Government's foreign policy; consequently (2) the absence of
a sincere desire on the part of either party to achieve unity;
and (3) the unwillingness of PSLI to accede to the demand of
PSU that it withdraw from the Government before unification
negotiations.
Because of the fact that it has not held any of the
important economic posts in the Cabinet and its participation
has been. strongly opposed by both the right and left wings of
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13'
the majority Christian Democrats, the PSLI has been unable
to exert any appreciable influence on the Governmont/s
program of socio-economic, reform. There is not much like-
lihood that a unified Socialist party outside the Govern-
ment would be more effective as a force for reform.
Despite the feat that it would have considerably greater
popular support than either the PSLI or PSU alone,
disagreement among party leaders as to the consolidated
party's position in matters of foreign policy, personal
friction between Romita and Saragat, and constant fear by
each faction of domination by the other would probably
prevent the new party from offering strong, constructive
opposition to those aspects of the Government's program
which it considered unprogressive.
Only if Premier De Gasperi were to offer the now
party posts out of proportion to its strength and Importance,
would it have reasonably good prospects of being an effective
force. In view of the many pressures within the Christian
Democratic Party to reduce the participation of the minor
parties in the Government, such a gesture from the Prime
Minister seems most Improbable.
A_ApIlt in the Italian Communist Part (POI) and
the formati6E-61 a RM.-da1t-677E6n,- on orm ammunist
party continues to be a possrbility despite the recent
Party successes. Concomitant with its accent on violence
and direct action tactics, tho PCI is purging the ranks of
Its local leaders in Turin, Milan, and other Italian cities
where undisciplined or deviationist tendencies have been
expressed. At the same time some of these purged elements
are seeking to form a nationalist party.
The potential of the emerging group is at present
quite limited. No major Communist leader has yet been clearly
Identified with these deviationists. Also, as long as the
PCI can maintain its effectiveness of the past several
months, the nationalist group will not have a large appeal. If,
however, the Italian Government can .successfully cope with the
developing Communist offensive, the tendency of the PCI to
divide over the 18SV0 of nationalism versus Staliniem would be
reinforced.
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SPAIN
The milita arade in Madrid on 1 A ril
celebrating raneo s v c ory n CI pan s v ar?
strikingly revealed the Generalissimo 's decline in
popularity and prestige, even as it confirmed his ability
to remain in power over an exhausted nation. A year ago
it was announced that the anniversary parade would hence-
forth be held only every ten years, but evidently Franco
found it necessary to emphasize the fact that he is still
in control. Spectators were apathetic when Franco arrived
at the reviewing stand, and. the diplomatic corps was
sparingly represented at the event.
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SPECIAL ARTICLE
PREMIER BIDAULT"S PRODUCTIVITY" BONUS PROPOSAL
Premier Bidault's recent recommendation of bonuses
geared to productive efficiency will probably net help
greatly to reconcile the views of business and labor toward
wage increases, but it already has done much to focus public
attention on the chief problem besetting French production.
This problem Is to overcome 'the considerable obstacles to a
further rapid increase in national productivity (output per
marp.hour in all economic activities) as the principal
requirement for a steady rise in living standards. A1them01
France had succeeded by the beginning of 1950 in nearly
regaining its 1938 rate of productiont it must substantially
bettor that rate over the next?few years. In the 1930s,f
France's economy was declining, with serious social and
political consequences. Moreover, some other European nations,
with which France will now be in increasing trade competition,
are raising their respective levels of productivity faster
than France. US industrial productivity, Which is 1938 was
somewhat more tharEEBartlies that of France, is now
probabli nearer four times that level, and yet France hae
made its best record in this type of economic activity.
The Premier's bonus proposal appeared to be a skillful
effort to accommodate the'dharply divergent wage views of
labor, private management, and the administrations of the
nationalized industries. It might have been expected to:
(1) appease the workers somewhat and also afford their leaders
a pretext for abandoning the new hopeless strike effort;
(2) be acceptable to maragement, because it probably would add
at the most 3% to the recent 5..6% increase in basic wages,
while tending to boost efficienoy; and (3) enable the Govern-
ment to carry out politically desirable economiea in the
nationalized industries. The Governmant.is likely, however,
to be disappointed in these expectations, except insofar, as
some non-Communist labor leaders have grasped Bidault's
proposal as an opportanity for terminating strikes and as the
basis for further wage discussions. amall businessmen who are
greatly in the majority, are generally. unimpressed with the
need to increase productivity, and after the clear-eat failure
of the recent strikes, business as a whole is all the more sure
of its ability to hold the line on wages. Nanageznent will there-
fore tend to profess a desire to cutprices, especially on exports, rather than commit itself to a bonus which would raise
its wage costs. The workers themselves, far from being appeased,
are deeply dissatisfied with the slight concessions to their
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demands recently made or offered, and will object with
increasing vigor that Bidaultts plan, as applied to many of
the nationalized industries, would necessarily result in
reductions In employment as productivity is inoreased.
The public discussion resulting from Bidaultls
otatement will, however, give oonsiderable assistance to
ECAls long-term efforts to effect a profound modification
of French attitudes toward productivity. ECA has been
expanding its "Technical Assistance" program, under which
team of French workers inspect production in US factories,
and has also been emphang economic integration partly to
speed up an improvement in western Europe's productivity. The
French teama have in general returned to their jobs convinced
that French productive efficienc7 must be greatly boosted,
but their influence has so far been small. Furthermore, most
prominent leaders In business and in the Government give only
lip service to ECA' s appeal for economic integration, insisting
that it must follow, not precede, further improvement in
productivity.
There Is no question but that the French nation, must
become generally aware of the productivity problem and
acquire the will to tackle it. Even in the plants there is
widespread indifference to the problem and little cooperation
toward its solution between labor and management. French
workers can hope to have their real wages raised substantially
only if steady improvement in productivity is realized, but
many are still convinced that greater efficiency can lead
only to unemployment. The low wages of the majority, moreover,
leave them highly susceptible to Communist propaganda to the
effect that a drive for higher productivity is a capitalist
trick to exploit labor without granting compensating increases
In wages.
Even should these basic attitudes be rapidly modified,
however, the necessary major technical and -institutional
reforma will be implemented only gradually', and there is
cmasiderable doubt ehether they can be carried far enough in
the next two years to permit a steady rise in French living
standards after ECA aid iz ended. The capital equipment
necessary to modern efficient production has been acquired
In increasing volume, but considerable investment funds have
been spent on less economical equipment, such as steam
locomotives, and existing facilities 'are often far from being
used to best advantages Furthermore, the average French
production unit is relatively small and resists specialization
and research. The French entrepreneur bas a traditional
preference for security, whidh causes him to restrict his
operations and insist on a large profit per unit of output.
Finally, current Government policies are inadequate to force
price reductions by curbing the price-fixing and allocations
of production whidh are freely practiced by trade
associations in France and tend to perpetuate the many
inefficient enterprises.
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