WESTERN EUROPE DIVISION OFFICE OF REPORTS AND ESTIMATES DIVISION WEEKLY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-01090A000400040011-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 13
• Document Creation Date: November 9, 2016
• Document Release Date: September 24, 1998
• Sequence Number: 11
• Publication Date: June 14, 1950
• Content Type: PAPER

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WESTERN EUROPE DIVISION
OFFICE OF REPORTS AND ESTITUITE5
OENTM L INTELLIGENCE AGENCY
DIVISION 17EEKL!
VOL. VI - No. 23
For week ending 13 June 1950
14 June 1950
NOTICE: W70fflaNG-PAPE1Z
This doc,.Anent is a working paper, not an official
Issuance, since It has not necessarily been coor.-
di.nated with and reviewed by other cori1ponents of
ORE. It represents the formulative thinking of one
group of analysts in ORE and is dosignod to provide
the mo dium. for transmitting their infornal views to
other Intelligence analysts of the US Govexm ent 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 the following Special
Article:
New Economic Problems in France and their Effect
on Some ECA Policies"
DOCUMENTNO.
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WESTERN EUROPE DIVISION
VOL. VI -- No, 23 For week ending
25X6A
13 June 1950
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 5X6A
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S E C 1 E T
The 1950-52 ECA investment ro ram for Austria is
not likely toac z eke the carte ae_ iaAustrian
ontr u e en s and a to Austrian Pconomic rehabilitation
(provided the occupation status quo is maintained), and to the
maintenance of Austria's governmental stability and pro-
Western political orientation. The program does not appear to
fulfill entirely the collateral objectives of directing the
long-term economic orientation of Austria toward western
Europe, facilitating western European trade liberalization, and
achieving maximum utilization of the limited investment funds
available.
In general, there appears to be an overemphasis on
public works, such as railroads, public buildings, roads, and
bridges, and underinvestment in agricu.ltur?e, forestry, electric
power and non-ferrous metals, sectors where investment would
contribute the most to long-term Austrian viability. Further-
more, too much stress is being placed on types of industrial
production that Indicate that the Austrians believe, probably
unrealistically, that Eastern markets will exchange Austrian
industrial products for food. Although some improvements have
been made in correcting this investment pro gram Imbalance,
further progress is desirable. Additional investment in
agriculture, for instance, represents the best possibility of
reducing Austria's dollar Imports by 1952. The proper develop-
ment of Austria's timber resources, as well, would go far toward
expanding Austrian exports. This will reauire unpleasant
political decisions. The reduction of some 6,000 saw milling
establishments Into a few economic units will be resisted by the
politically important farmers. Austria's hydroelectric resources
also have great potential value for foreign exchange earnings,
and greater stress will probably be put on them, Maxim= develop-
ment, however, of this resource depends ultimately on Investment
aid outside the ECA program., Lastly, greater attention must be
directed to tourism, which promises to be Austria's largest
single earner of foreign exchange.
The obstacles which have prevented a fully effective
investment program are several. First, political temporizing on
the part of the Austrians has resulted in the scattering of
investments over too wide an area of the economy. Second, the
flight of domestic capital (largely to Switzerland) from profitable
enterprises, and even from some nationalized Industries, has
further reduced the low level of domestic capital formation, and
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will probably hamper the achievement of the self-financing
targets of the program a Third, and mo s t important, the
problems engendered by Soviet occupation, causing the lose
of revenue and production, a poor investment climate, and
additional expense to the Austrians, makes it improbable that
even with a fully effective ECA investment program a balance
of payments would be achieved by the 1952 target date. Soviet
sensitivity to discrimination" In the eastern zone has
led to a disproportionate amount of investment in immovable
public works in that zone. This investment will make a
relatively slight and indirect contribution to overall Austrian
economic viability but would, at least, limit Soviet acquisi-
tions in the event of future seizures of assets.
FRANCE
v; u~ rtztu
unaer consideration b
ECA for incrVas n
r
g
anee
of ar exports could br ng a sub
-Ta-h reduction in that
t
coun
ry s dollar trade deficit.
During the first four months of 1950 some improvement in dollar
trade was noticeable over 1949; dollar exports covered 196 of
dollar imports for the period January-April, against 132 for
1949? But this obviously is far from alleviating the dollar gap
problem, and is a result more of reducing imports than of In-
creasing exports, which is the real crux of the problem.
present policy of exhorting the French to greater The
creating committees and of efforts., of
seriously inadequate. publicizing the problem has been
The T;CA Mission, therefore, proposes a whole new
approach centered around direct, personal appeals to Foreign
Minister Schuman and Finance Minister Petsohe who would be
asked to press for determined action by the French, in place of
a paper program. The action envisages: (1) a comprehensive
study of the dollar gap problem as it applies to France alone;
(2) the activation of the Franc--Dollar Committee, or its replace-
ment; (3) the assignment of actual export targets for individual
firms; (4) the establishment of credits and guaranties on market-
ing risks for exporters; and (5) the refunding of social welfare
charges to exporters to the dollar area.
The concrete incentives for the exporter are of especial
value, and would have far more immediate effect upon the attitude
of French exporters (which has been one of the
blocks to increasing exports) than any number of poster campaign
on the benefits to France of exporting to the dollar areagaigns
Publicity would continue to be prominent in the program, but
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would be directed toward convincing the individual exporter
that sales to the dollar area are as profitable to him
personally as sales in other markets. The French Government
would have to play its part in removing psychological, as
well as physical, barriers to trade; it has tended in the past
to take the view that difficulties beyond French remedial
action were responsible for the inadequacy of dollar export,.
A direct approach to Petsche and, especially, to
Schuman would probably go further toward achieving major
progress than would any other method. Both of these men have
the influence and the drive necessary to push forward the
Mission's program,,
B The Socialist Part- is unexxsectedl maki life
difficult for ae rentovernment coa o "i-ts efforts to
secure passage of a IT rec ass ng C=vUervice salaries.
This move comes in spite of the fact that the Socialist Party
decided at its recent National Congress to continue its policy
of not participating in the T idaul t Government,, but of support-
ing it in the National Assembly.
It has seemed recently that the Socialists were dis-
inclined to upset the Bidault Government because they felt that
they could more effectively appeal to workers by remaining
outside the Government a Their present efforts in the National
Assembly are, however, causing trouble for the Bidault regime
The Socialist-sponsored bill for the upward classification of
Civil Service salaries is firmly opposed by the Government,
especially in view of the present severe strain on the Treasury.
Premier Bidault has already been authorized by the Cabinet to
call for a vote of confidence in the Assembly on this issue.
The Socialists are especially desirous of securing
passage of the bill as they consider the civil servants to be
a vital element of their following. Nevertheless, although the
Socialists will not be easily mollified, they are likely to
compromise. In General, the Socialist move is an indication
both of revived dissension, among the political parties support-
ing the present coalition, after a relative political calm, and
of the unexpected difficulties with which Bidault can be fa,.;ed
in attempting to maintain his shaky minority Government in power.
BELGItT
A The one-party Social Christian (Catholic) Government
of Premier uv euearo ab y w1 receive par amentary
approval by a small majority when the new Belgian Parliament
fi~igg~/- 5 w
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convenes on 20 Tune and is likely to obtain the repeal of the
law of 1945, which makes King Leopold ineligible to reign.
With a small Catholic Party majority In each house of Parliament,
the new Government probably will be successful in returning King
Leopold to the Belgian throne, although there ism strong
possibility that a compromise agreement may be reached, with the
tacit approval of the Liberal and Socialist Parties, for Prince
Leopold's eventual abdication in favor of his eldest son,
Baudouin.
The present composition of the Belgian Cabinet repre-
sents somewhat of a balance between the Flemish and Walloon
areas, the ardent and lukewarm pro-Leopoldists, and the Catholic
Partyts conservative and liberal ideas on economic anrl social
policy" Both van Zeeland and Carton de Wiart are inc:.udod in
the Governments and, despite the fact that they are ardent
pro-Leopoldists, their past efforts to reach a compromise
agreement on Leopold's status indicate that before the King is
returned unconditionally, consideration will be given to the
danger of such a course to the national unity, the monarchical
institution itself, the Catholic Party's future political
position, and the probable economic instability occasioned by
widespread Socialist disorders and strikes. In the event that
economic and social issues are brought up in Parliament before
the 1945 law is considered, the Government may be able to meet
parliamentary opposition because the more liberal elements in
the Catholic Party hold important labor and economic posts.
B The results of the 4 June elections in Bolin indicate
that (1) there will be no easyso ut on ' o tie royal. question,
despite the parliamentary majority of the pro-Leopold Christian
Social (Catholic) Party; (2) the, emphasis given the Fleming-
Walloon division of Belgium will become more and more a political
issue; and (3) the Cormnunist Party is thoroughly discredited as a
representative Belgian political party.
The Catholic Party gained a majority of 2 In the 212-
seat Chamber of Deputies, and a majority of 2 among the 106
directly-elected Senators, a majority that probably will be
maintained when the 69 indirectly-elected members of the Senate
are chosen. The elections give the political parties the follow-
ing representation in the Chamber of Dep*:ties and in the Senate,
each party's loss or gain being indicated in parentheses:
Catholic Party--108 (up 3),, 54 (no change); Socialist Party--77
(up 11), 37 (up 4); Liberal Party--20 (down 9), 12 (down 2); and
Communist Party--7 (down 5), 3 (down 2)
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S E C R E T
The Catholic Party increased its popular vote
from 43.5% to 47.7%,, and the Socialist Party from 29.7%
to 34.5,".% The Liberal Party, however, lost 3.95 of the popular
vote to bring it down to 11.3;x, and the Communist Party lost
28%, reducing its popular vote to 4 a7;%.
The majority, slim as it is, of the Catholic Party
makes it possible for the Catholics to return Leopold to the
throne unconditionally, but the consequences in the way of
bitter national controversy and Socialist active and passive
resistance would, in the long run, prove extremely embarrassing
to the Catholic Party.
The two major parties have become more than ever
representatives of narrow regional interests, a factor which
will inject Fleming-Walloon differencr.-s into political disputes
between the Catholics and Socialists. Althout;h the Catholic
Party made substantial gains in the Flemish area, it lost 2
seats in the '7alloon area. The Socialists more than recouped
their 1949.election losses, becoming strongly entrenched In the
Walloon region. Except for the votes obtained at the expense
of the Communists, the gains of the Socialists, made possible
in part through the joint Socialist--Liberal lists, probably
represent a Walloon protest against threatened Flemish
domination of the country more than acceptance of Socialist
doctrine.
The Italian Communists are meetinzwitti seats success
in seeking to enlist the support of non--Communist groups and
individuals for their "peace" campaign. Their efforts may win
a receptive audience among moderate segments of the population
and become a threat to MDAP objectives in Italy.
The main emphasis of the Italian Communist Par ty e s
t;ehtral t;crmiittee at Its April meeting was on a positive appeal
to the widest possible sector of the population by means of the
peace campaign. To carry out this policy, the Party decided to
undertake an all-out drive to extend alliances with other mass
groups. The Party has organized several politico-cultural
conventions in honor of the resistance and of the persecuted
anti-Fascists; moreover, for these conventions it succeeded in
obtaining the blessing of President Einaudi and the names of
various distinguished individuals of unquestioned integrity as
sponsors. Representatives of the moderate leftist parties were
present at these conventions.
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A recent Communist-promoted rally of the Italian.
Partisans of Peaces at which ex-Premie' Orlando presided?
was attended by ox-Premier Nitti and numerous other non-
Corrnunist members of Parliament, ranging from moderate Left
to extreme Right. Particularly disturbing aspects of .this
meeting include: (1) the fact that many of those present,
including Orlando and Nitti. are proponents of Italian
neutrality in an East-West contest! (21 the passage of a
motion similar to that of the Coimiuni.st--sponsored Stockholm
convention in favor of outlaw ng the atomic bomb; and (5) the
almost total absence of protest in the non-Communist press
over the presence of prominent Italian statesmen at a meeting
whose purpose was subordinated to Communist objectives.
If the Italian Conwiunists a.t e able to portray their
peace campaign in such a way as to beguile Italy's "elder
statesmen" and members of Parliament and to appeal to neu-
trality interests, they may have even greater success In
attracting the support of a large part of the population,,
many of whom would be swayed by the opinions of the elder
statesmen. Such widespread adherence to neutrality and a pro-
nounced deter4.oration of the Italian "will to resist" could. In
time seriously weaken effective participation by Italy in the
MMDA?.
a excc~~egticn decree b its firer
lie La _k,
"
anniversax!y seemeve conncesoRoman
CC ca who are Cod !sis at the r poITt es are .A lu
The decree has not
coz~patze rel,ious beliefs
apparently reduced the ranks of Communism, nor has It caused
extreme leftists to leave the Church,. It may have strengthened
the Church's following among the middle classes- (already
largely anti-Communist) a Many workers, however,, continue to
find no conflict between Roman Catholicism and the economic
promises of Communism--beyond which they do not explore 1 In
Eastern and Western Europe, the areas where both. CoxuBnim
and Catholicism are most extensive, the decree has served
mainly to provide an official record of the Vatican position.
In Eastern .Europe, where Jesuit elements in the
Vatican hoped that resistance would. be stiffened., the local
hierarchies have shown themselves ready to yield to intensified
pressure from the Communist govorr entsJ, thus increasingly
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isolating themselves from the Vatican. Furthermore, the
potentiality of "Catholic" Communist groups as a Soviet weapon
is a subject of increasing concern to the Vatican. Communist
exploitation of national issues gives the Catholic-Communist
movement popular appeal.
Vatican leaders, according to reports, are disappointed
with the results of the decree in France and Italy, where there
are no indications that it has been effective. Me reduction in
the past year in the number of Communists in,Francs is believed
to be directly a result of the growing unpopularity of Soviet
Communism, the beneficial effects of ECA, and the purge of un-
reliable elements by the Communists themselves, rather than of
the Papal decree a In Italy,, the fact that the Vatican-sponsored
Christian Democrats are postponing the local elections originally
scheduled for this year suggests that they fear an increase of
Communist strength One Italian priest has explained his re-
luctance to apply the excommunication decree with the observations
that if he did, "no one would be baptized, married, or buried
anymore a" The difficulty of excommunicating Catholic Communists
in Italy is illustrated by the presentation of the Passion Play
at Easter in a Communist town, with Communist participation. The
incident is another example of the inability of many Italians to
recognize any antagonism between their religious belief's and
political doctrines which are an expression of their economic
aspirations.
Last weekts S an3 sh Cabinet crisis which nearly led
to the remove o Seances a e? ' : n s ter o ~ n u #rr axe?". ommorce?
c n e n policy impendnc;, On E e
a s passe over eavin no
contrary, in an important speech Franco has committed himself
to the program for industrialization under Government controls
directed by Suances. In spite of stormy opposition to Suances
by other ministers at a previous Cabinet session, Franco's
speech was followed by a Cabinet decision to proceed with plans
for a 6O0,OOO--ton steel mill to be built in Asturias by the state
industrial investment corporation, the Institute of National
Industry (INI). This project has been strongly opposed by the
large private Spanish steel interests which argued that it was
an uneconomic plan and that they were competent, given adequate
foreign exchange, to expand Spanish steel production. These
assertions appear to be woll-founded and are the more impressive
because of the priority need for agricultural rather than
industrial expansion.
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S E C R E T
The new project is doubtless designed partly to
further the private ambitions of individuals connected with
TNT, It also has, however, the purpose of breaking the
monopoly of a few wealthy families over Spanish heavy
industry. This accords with the basic objects of the
"National-Syndicalist revolution" as conceived by the Falange
ideologists. Having previously lost and renounced the support
of Monarchist collaborationist elements, it seems that France
is now refusing to appease the financial and 'business oligarchy.
He thus further narrows his base of support to the bureaucracy
and the Army, both of which have profited financially through
the regime's economic policies, and to those Falangists who
favor a genuine political and economic revolution of fascist
character for Spain. Out of fear of greater loss, however,
in case of a change of regime, the oligarchy Is unlikely to
muster any strong initiative against him. In addition to these
domestic conditions, France's resistance to a policy change
is influenced by his extreme resentment of foreign criticism,
particularly from the US and the UK.
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SPECIAL ARTICLE
NEW ECONOMIC PROBLEMS IN FRANCE AND THEIR EFI'ECT ON SOME ECA
POLICIES
New economic problems have developed in France during
the past year which tend to make more difficult the Goverment a s
cooperation with some specific ECA policies e A loss of wo 'kthg
harmony between RCA and the French Government could be expected
to impede progress toward general US aims In western Europe
The new problems are found in the replacement of the
postwar shortage of goods by a surplus of many cosodities, in
the consequent halt in the expansion of production,, and in the
development of a mild deflation replacing the former persistent
inflation. The industrial production index, which by May 1949
had reached a postwar peak of 131 (1938 equals 1.00), can be
expected for the current fiscal year to attain an average of
only about 120. This will mean that only half as much progress
as expected by the French will have been made In fiscal 1950.
Meanwhile,, profit margins have been squeezed., and bank-r-upteles
have been occuring at a rate about 8O higher than in 1948,
The considerably altered economic situation has had
its effect on the main elements of the population, causing them
to pursue objectives that clash with some ECA policies o Labor
Is now fearful of unemployment, and is therefore suspicious of
projects for more efficient production. Tabor's quairis also
encourage management to refuse substantial wage boosts, which
would alleviate the serious social tensions.
Agricultural producers are hesitant to expand their
crops, as desired by ECA, until stable foreign markets or
adequate subsidies are assured.
It is in the case of the industrial producers that the
Government has had to .bake most of its concessions in conflict
with ECA policies. These producers, who have become afraid of
their position, are eager to protect present markets and develop
new ones, and have pressed the Government for measures in line
with these goals. The Government has responded with some
tolerance of carteli_zation, and with an acceleration of its
program for restoring prewar tariffs. It has agreed to a
limited relaxation of credit controls, in the face of demands
for liberalization? ECA policy is against a broad expansion of
credit which might release latent inflationary pressures. The
industrialists have been demanding substantial. tax reductions,
which 'ECA feels would jeopardize the Governr.entas budgetary
position. A out in revenues would probably cause the Government
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to raise prices on the products of the deficit-ridden
nationalized Industries, and would possibly induce the
Government to finance public works through loans rather than
current revenues. It could also move the Government to cur-
tail military expenditures. So far, the Government has
yielded only to the extent of abandoning some of its projected
tax raises.
Despite these concessions to domestic pressure groups,
the French Government appears to be in svmvat y with the. broad
US objectives, which it has been steadily promoting. Though
winking at cartels, it has been quietly preparing the country
for its first anti-trust legislation. While temporarily
sacrificin adequate tax revenues, it has pushed ahead with a
comprehensive tax reform. And, although the Government has
restored some tariffs, it has been removing quota restrictions
on trade, and has been working toward a resumption of multi-
lateral payments. Finally, it has produced the Schuman plan,
with which it hopes to overcome the self-interest of pressure
groups by tempting them with a vision of peace, by appealing to
their pride in French continental leadership, or by presenting
them with an International fait a.ccom 1,.. French economic
policies a pear to be sincere ' in s c to harmonize with
long-term US aims; they may well fortify the economic base of
the French state and build French-German friendship
:1.2
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