WESTERN EUROPE DIVISION OFFICE OF REPORTS AND ESTIMATES DIVISION WEEKLY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-01090A000400040006-8
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 12
• Document Creation Date: November 9, 2016
• Document Release Date: September 24, 1998
• Sequence Number: 6
• Publication Date: May 10, 1950
• Content Type: PAPER

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WESTERN EUROPE DIVISION
OFFICE OF REPORTS AND ESTIMATES
CENTRAL INTELLIGENCE AGENCY
DIVISION WEEKLY
VOL. VI - No. 18
For week ending 9 May 1950
10 May 1950
NO ncE : WORKING-PAPER
This document is a working paper, not an official
issuance, since it has not necessarily been coor-
dinated with and reviewed by other components of
ORE. It represents the formulative thinking of one
group of analysts in ORE and is designed to provide
the medium for transmitting their informal views to
other intelligence analysts of the US Government who
are working on similar or overlapping problems. It
is intended for the use of the addressee alone, and
not for further dissemination.
Included in this issue is this special article:
"Consequences of the Possible Departure of
De Gasperi from the Italian Government".
COPY FOR:
DOCUMENT NO
NO ,.CHANGE IN CLASS.
DECLASSIFED
ASS. CHANGED TO: TS $
NEXT REVIEW DATE?
AUTHiAH
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WESTERN EUROPE DIVISION
WEEKLY SUMMARY,
VOL. VI - No. 18
25X6A
For week ending
9 May 1050
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AUSTRIA
The current phase of the Austrian treaty itegotiations
reinforces the belrif that the cotiausion-oT a treaty for Austria probabry
depends on a broader agreement between the West and theUSSR than one
on the issues involved in the treaty itself. The SoViet tactics at the last
two deputies meetings were clearly designed to protract the talks
indefinitely. In Ns search for an excuse to delay the treaty, the Soviet
Deputy avoided the negotiations on payment by Austria, for services and
supplies rendered by the USSR in 1945 (Article 48 bisl, but shifted to
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still another pretext. In the deputies' meeting of 26 April, after a
eustained propaganda campaign by the Soviet occupation element
ariel the Communist Party within Austria accusing the Austrians of -
violating Allied Council decisions on denazification and demilitari-
zation, the Soviet. deputy proposed amendment of the text of Article 9
on denazification within Austria, which had already been agreed upon.
Me. also evaded a definite Western proposal to settle the outstanding
articles provided that Article 48 bis would likeNvise be decided. The
Soviet deputy used a 4 May meeting, called at his special request, as
a propaganda forum to repeat the charge that, abetted by the
Western. Powers, Austria has evaded denaeification wed demilitarization
agreements.
Although the Austrians will continue to make all
efforts to secure a treaty for their country, they realize that until the
'USSR is ready for one, Austria will be subject to continued occupation.
Facing tins prospect, the Western Powers will probably direct their
main efforts toward the amelioration of occupation burdens, without
diminishing the authority of the Allied Council or weakening their own
position in relation to the Soviet element.
The moderate recommendations of the International
Monetary Fund (IMP) mission vTarEave to be supplemeitia-Wi:?
measures-fiefore M-Yere is a complete solution of Austria's foreign exchange
problem. in order to arrest the deterioration which has occurred in
Austria's foreign exchange position since the devaluation of NovenZer
1949, the IMF now proposes that Austria should: (I) eliminate the rate of
14.40 schillings to the dollar which is a.pplicable to the importation of
some basic consumer goods, (2) at an appropriate time during 195041,
make a slight adjuetment of the effective schilling rate of 21.36 and the
premium rate of 26, and (3) end all subSidies, except those on graien
and fertilizer, by July 1950. Through this program, the IMF expects
Austria to be able to reduce barter trade and discourage retention
quotas and other special devices designed to maintain ;multiple ratesi
Although these steps are in the right direction, they alone would not
effect a substantial improvement in Austria's exports or stop the drain
on Austria.'s foreign exchange reserves because they do not bring the
official value of the schilling into line with its actual purchasing power.
SF,
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FRANCE
The trade agreement between France and west
.Germany, a step in tHelirection Tortialization, may ii?f
iiii-CFeiTsi commerce as much as expected, but apparently is already
helping to eliminate the heavy French deficit. ilk this trade. It was
anticipated that before its expiration on 30 June 1950, the agreement,
which became effective 10 February 1950, would build up the volume
a Franco-German trade to $500 million a year, whereas the rate attained
in February and March 1950 was only $370 million (about $20 million
above the 1949 figure). The French deficit in trade with Germany, how-
ever, was cut in these two months from $82 million for 1949 to an annual
rate of about $26 million. The agreement anticipated that the steady rise
of this deficit since 1946 would be reversed, and a trade balance would
be achieved.
? Since the war, Germany has become the second most
important_ source of French imports?ranking next below the US--but
France's growing need of foreign markets for its own farm and industrial
products was probably the dominant French motive in the negotiation of
this trade agreement. Coal remains the principal import from Germany,
although it may lose this position if French production creates the
expected surplus of coal within the next year or two. Other imports
anticipated under the agreement include electrical equipment, chemicals,
farm and mill machinery, and fabrics, almost all of which could be
expected to compete increasingly with French products. In February and
March 1950, however, a small drop in the rate of German exports to
France may well'indicate that greater German competition has not thus
far developed.
Under the agreement, the French are permitted to
attempt to double their 1949 rate of exports to Germany, wed in the first
two months have already boosted the 1949 rate by more than 25%,. The
largest export :item is to be wheat, of which more than 100,000 tons may
be shipped prior to 30 june provided the French reduce their price
approximately to biternational Wheat Agreement levels. Other goods to
be sold to Germany Will ifaclude machine tools, light trucks, titres,
phosphates, and fabricated iron and steel, all a which will compete, with
German products. The German motive for accepting a doubled volume of
these imports from France probably lay in the expectation that the German
competitive position in the French market would be better than that of the.
French position in the German market.
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The Franco-German trade agreement premotes xeater
trade liberalization in Europe by lifting quota restrictions on about 00%
of the total volume of trade involved. On the other hand, there is a
otaleguard" provision that restrictions can be reimposed, should domestic
Producers be "compromised.". Also, the agreement endorses contacts
between agricultural and industrial groups of the two countries, osten-
stbly for the purpose of overcoming trade obstacles but also affording an
opportunity to promote restrictive cartel arrangements. Finally, the
agreement does not touch upon tariffs, which the French are likely tO use
in lieu of quota restrictions against excessive German competition with
important French products.
France may be expected to interpose considerable
difficulties in the way of current U at'emps or e ective action by ERP
countries to control East-West trade. Official French sources have
recently alleged that to stop present shipments of 1-B items would cut
France's trade with eastern Europe by 25% and would work an economic
hardship on the country. 1,1-B items are those which the US concedes
can be exported in limited quantities to the East without great security
risks.) Furthermore? they claim that France must remain free to offer
these items in order to obtain goods which France requires from
eastern Europe. -
Should the imposition of 1-B controls cut this trade 25%,
as the French claim, actually less than 1% of all French exports wonld be
.affected. As this percentage would not materially affect the French
balance of payments position, it is difficult to believe that such a loss
would work an economic hardship on France. The second argument its
more credible, but it is almost impossible to determine the extent to
which eastern European countries will hold out for 1-13 goods in exchange
for their exports.
Recently, ECA has been concerned over French intentions
to send 2,000 tons of lead (on the 1-B list) to the USSR, inasmuch as ECA
has financed over $6fli million worth of lead imported into France azxl has
assisted An the rehabilitation of French North African lead Mines. The
French state that their stockpile of lead is far in excess of what they would
ordinarily keep, but that they could not have foreseen that this would be the
case when they requested ECA to finance imports of lead. Now they con-
tend that no other purchasers can be found for the surplus, and that the
asbestos they would receive in return is of greater strategic value o the
West.
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The French are likely to stand by these argument
with considerable deter mination, and will probably also show interest
.0/ a prospective Italian proposal that the West even consider exporn-
tng 1-A items (vital to security) to eastern Europe, providing it can
obtain in return goods of a higher strategic value.
The French will exert strong pressure at the Foreign
Ministers' meeting to obtainiiirm commitment from the US to share
We-biiiden of milirary operations in Indochina. The French argument
is that the loss of Indochina to Communism would gravely imperil KIS
and UK interests in all of southeast Asia, and that France cannot meet
obligations for western European defense imposed by the US wider the
Atlantic Pact while the bulk of the army and the major share of
military expenditures are allocated to the Indochina operations. There
is increasing criticism in French political circles of what are regarded
as US demands that the French Army fight for the freedom of the
Indochinese, thereby undermining the French Union. These demands are
seen in US efforts to induce the French to go beyond the 8 March Accords
and issue at this time an "evolutionary" statement promising complete
independence to the Indochinese.
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THE NETHERLANDS
The Dutch Cabinet's recent decision that western New
Guinea should remain un ? er u c an ori y may seriously endanger
Dutch-Indonesian cooperation. The Dutch attitude, set forth in a note
from the Netherlands Ambassador in Washington to the State
Department, was precipitated by the increasing Australian interest in
preventing the Indonesian Republic from acquiring control of New Guinea.
Negotiations are currently in progress between the Netherlands and
Indonesia on the future status of Ne; Guinea, and the Dutch already feel
that the Indonesians are not moving toward a solution satisfactory to
The Hague. The negotiations will no doubt be complicated when the
Indonesians learn of the firm Dutch attitude as expressed to the US.
ITALY
The postponement to date of most of this year's local
elections in Italy suggests apprehension on the part of the 15e Gasperi
riovernmeiirTET its popular strength may have declined, and that the
electorate might swing to the extremist parties. Evidence of such a loss
at the polls would weaken the Government's prestige and might adversely
affect its domestic program and its foreign policy of close collaboration
with the West. The other political parties, too, for tactical purposes have
not opposed postponement of the elections.
A spring series and a fall series of municipal elections,
as well as the remaining regional elections, had been scheduled fox 1950.
The Chamber of Deputies, however, passed legislation on 26 April which
would extend the term in office of the present municipal councils beyond
this year's expiration date. Legislative measures necessary to provide
for the regional elections, long overdue although expressly guaranteed by
the Constitution, have not been taken by Parliament. The unwillin less
of Premier De Gasperi's majority Christian Democrats to hold the
elections at this time could be explained by: (1) party concern lest the
slow progress achieved in carrying out socio-economic reform might be
reflected in a loss at the polls, particularly in depressed areas of central
and south Italy? and (2) the party's current efforts to achieve greater
cohesiveness and unity of action among its various groups, as illustrated
by the recent return of the Dossetti reformist left wing to active participation
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in party affairs. The Christian Democrats probably fear that an
extreme leftist victory at the local and regional elections in
Tuscany and Emilia would increase the capabilities of the Communists
tor cutting off north Italy from the rest of the peninsula when it suited
their purpose.
The apparent absence of opposition on the part of the
other polifical parties to the postponement of the elections is probably
due to their hopes of making a better showing at a later date. Saragat's
Soci.alist Workers Party (PSLI) is currently faced with the problem of
u.nification with the Unitary Socialist Party (P8U). Should the two
parties merge during this year, the potent1alities of democratic Socialism
for attracting various Italians who are reluctant to cast their votes for
either the Christian Democrats or the Communists should be substaitially
improved. The Liberals are engaged in maneuvers with other rightist
-
groups, such as, the Monarchists, attempting to take advantage of a wave
of reaction, against' the present administration. The Communists, too,
are seeking to increase their party and labor following. Although their
labor strength has declined since the 1948 elections, the economic
situation works increa.singly in their favor, causing them to feel that a
postponement of the elections would improve their chances at the polls.
All the opposition parties apparently believe that time
is working against the Government. This estimate is reasonable?, as the
outlook is poor for amelioration of the basic economic ills, particularly
unemployment, and for a successful resolution of the I lationaltst issue of
Trieste. The failure of the Government ill these matters would stimulate
a political swing to the extremist parties, an eventuality very unfavorable
to US interests.
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SPECIAL ARTICLE
CONSEQUENCES OF THE POSSIBLE DEPARTURE OF
DE GASPER! FROM THE ITALIAN GOVERNMENT
Premier De Gasperi's recent statement that he is continuing
in office despite poor health raises the question of the effect of his de-
parture upon the Italian Government. A summary answer is that his
absence would accelerate an already observable evolution toward govern-
ment exclusively by the Premier's Christian Democratic Party and, sec-
ondarily, toward government less responsive to popular control. The
other parties within the Government are even now being dominated by the
more forceful and more numerous Christian Democrats (CDs), partly
through Cabinet reorganization and partly because of dissension within
their own ranks.
Gasperi's genius for compromise and conciliation, which
holds the Christian Dernocratic Party together, has so far kept the
Republicans and moderate Socialists in the Government, despite their
growing resentment and despite Christian Democratic pressure for their
removal. The departure of Premier De Gasperi would probably impel
the minor parties to leave the Government.
Many CD leaders have urged a one-party government on the
strength of the CD's large plurality in the last elections. Much of the 1948
vote for the CDs, however was made up of ballots against Communism
rather than for the Christian Democrats in any positive sense. De Gasperi
has been anxious to maintain a Cabinet which could be termed representa-
tive of the democratic non-Communist forces. tirith De Gasperi gone, the
proponents of one-party government would probably assume command.
The nature of an all-CD Government would depend in a large part
upon which section of the party gained control, or whether the several party
groups were merged into a party coalition. The CD is composed of hetero-
geneous elements which fall largely into two main groups, One of these
embraces the centrists and rightists, including large property holders, in-
dustrialists, many members of the clergy and other conservatives. The
other, the "left wing", has the support of Catholics interested in social
reform, particularly members of Catholic labor unions and the Church's
organization of laymen, Catholic Action (sparked by its dynamic Vice
President, Luigi Gedda). De Gasperi has been adept at keeping the
left-wingers in the Party, although they resent their lack of representation
in the Government and await an opportunity to take the moderate Left
position in the Cabinet, now held by the Republicans and Socialists.
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Because the conservatives hold about two-thirds of the
party's strength and are now in power, one of their number can be
expected to succeed De Gasperi. This wing wishes to maintain the
status ono and would be as slow as politically feasible in implementing
the promised socics ecoll0Mie reforms. Their fear of inflation would
inhibit them from vigorously encouraging a strong investment program
in the sectors necessary to the rehabilitation of the Italian economy.
Outstanding among the likely conservative successors to De Gasperi
are Piccioni and Taviani, Party leaders who do not hold Cabinet posts,
Gonella, Party Secretary and Minister of Education, and Campilli,
Minister without Portfolio in charge of investments and employment.
Interior Minister Scelba, director of the Italian security forces, might
be another candidate, but he is unpopular even within his own Party for
the authoritarian conduct of his police. None of these mai, however,
nor any other conservative candidate, could receive the undivided
support of his wing under present circumstances and, consequently, any of
them might seek the backing of the Party reformists. An indication that
such backing could become essential is the recent election of four of the
"left wingers" as members of the 12-man Christian Democratic
Directorate, from which they had been excluded since :Tune 1949.
Popular dissatisfaction with economic conditions, reflected
in parliamentary opposition, press attacks, strikes and demonstrations,
would eventually challenge a predominantly conservative Government.
Were this challenge sufficiently powerful, the "left wing" Christian
Democrats might assume the leadership. Led by Giuseppe Dossetti,
professor of ecclesiastical law, they are militantly religious, and their
complete dedication to Roman Catholicism gives them influence even among
opponents of their socio-economic program. The Dossetti "left wing" aims
at bettering the depressed social and economic situation of the Italian
people. It urges an Italian economic structure resembling that of a corpo-
rate state, and could expect support from financial interests whose desire
for the formation of large industrial trusts would not be inconsistent with a
system of economic control along the vertical lines followed by the Fascist
corporate system. Such a system, because it encourages cartels, would be
An conflict with US policy. Another clash with US goals for Western Europe
might come about through Dossetti's formula of "total power for the
Chrtstian Democrats", which suggests an undemocratic political philosophy.
Furthermore, a Dossetti Government might seek a union of Catholic nations
rather than cooperate -with the Council of Europe as it is now constituted.
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The establishment of any all-CD regime, despite its
basically anti-USSR orientation, might jeopardize the political
stability sought in Italy by the US. Such a Government, representing
jle interests of a limited section of the population, would invite
increasing attacks from all opposition parties, and might be unable
to maintain political and economic stability? An all-CD regime could
fall easily into the authoritarian position into which the Communists
now are attempting to push the present Government. As the result of
either inaction on the part of the conservatives or the establishment
by the reformists of an unpopular system reminiscent of corporatvism,
a CD Government. would arouse widespread public discontent and would
offer the Communists a fertile field for exploitation. Skillful agitation
of a growing public dissatisfaction would greatly augment. the
Communists' popular support and would increase the possibility of
their eventual domination of the Italian political scene.
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