CRITICAL SITUATIONS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP78-01617A005900010003-0
• Release Decision: RIPPUB
• Original Classification: T
• Document Page Count: 69
• Document Creation Date: December 12, 2016
• Document Release Date: April 18, 2002
• Sequence Number: 3
• Publication Date: July 1, 1947
• Content Type: SUMMARY

uluillistrituts 8 1? JUL 194,
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CIUTICAL SITUATIONS
EUROPEAN RECOVERY
Monnet and Clayton agree that no final settlement of the German
problem can be made until after the November meeting of the
Council of Foreign Ministers (see item 1).
GREECE
The announced withdrawal of the remaining British troops will
probably have a slightly adverse effect on Greek morale and a
correspondingly positive effect on guerrilla morale. Although the
British troops have not participated in the fighting, their presence
has been reassuring to the Greek Army and Government.
INDONESIA
The Dutch consider Australia's referral of the Indonesian situation
to the Security Council as "an unfriendly act" (see item 2). The
Netherlands Government had previously indicated that upon conclu-
sion of its police measures, it intended to accept mediation by the
US if it is offered.
KOREA
The Soviet (illefiration continues to block Joint Commission efforts
to estallish a Korean Government.The-US proposal that the. USSR
consult with organizations in North Korea while US members con-
sult with those in South Korea was rejected by Soviet representa-
tives as "not worthy of consideration."'
CHINA
In its continued efforts to enlist. Chinese popular support and influ-
ence US opinion, the Chinese National Government and Kuomintang
officials are currently charging that, during the recent war,
Chinese Communists were secretly collaborating with the Japanese
and did not fight the Japanese after 1937. The first charge has
thus far been unsupported; the second is known to be false.
DIA AND DOS review(s)
completed.
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GENERAL
1. Monnet's views on French economic recovery --Under Secretary
Clayton has been told by jean Monnet(head of French economic
planning) that,in order to bring about a satisfactory understanding
between France and the US, the German problem must be settled
and France must put its financial and monetary house in order.
Monnet declared that, while he agreed with Clayton that no final
settlement of the German problem can be made until after the Coun-
cil of Foreign Ministers meets in November, he was positive that
the French Zone in Germany would be merged with the US and UK
Zones. Monnet added that it was important that a part of the aid to
be given to France under the Marshall proposals should consist of
gold to be used as a stabilization fund. Clayton replied that such a
step, while extremely difficult, would not be impossible if the French
can devise a workable plan for giving order to their financial affairs.
2. Dutch reaction to Australiai2Bmsl on Indonesia--US Embassy The
Hague has been informed by a hightcliViOriffl that the Netherlands
Foreign Office regards Australia's reference of the Indonesian situ-
ation to the Security Council as "an unfriendly act." Because the
Australian statement indicates that action was taken after "closest
consultation" with the British Government, the Dutch feel that the
attitude of the UK is no longer neutral. The Dutch spokesman be-
lieves, however, that the case should be considered by the Security
Council on the basis of the more moderate Chapter VI of the UN
Charter as invoked by India, rather than under Chapter VII as in-
voked by the Australians. (The latter chapter applies to threats to
peace, breaches of peace, and acts of aggression.)
EUROPE
3. BULGARIA: S ?culation on DiMitrov-Tito meetin --US Military
Representative Yatse tch in S ia be eves , e purposes of
Dimitrov's visit to Tito are: (a) coordination of Yugoslav-Bulgarian
action toward Greece; (b) final negotiation and signature of a mutual
assistance treaty; (c) coordination of economic collaboration,possibly
Including a special customs agreement and relaxation and reorganization
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of frontier controls; (d) coordination of internal security activities;
and possibly (e) final agreements regarding incorporation of Pirin
(Bulgarian) Macedonia into a Yugoslav Macedonian Republic. Yatse-
vitch believes the visit is another step in the formation of a system
of political, economic, and military agreements that would bind to-
gether the Satellites, but he considers that an announcement of the
formation of a formal Balkan or Danubian Federation is unlikely at
this time.
4. POLAND: Hope expressed for continued US trade relations?Polish
Industry and Trade Minister Minc has expressed to Under Secretary
Clayton the hope that US-Polish trade relations will not be harmed
by Poland's abstention from the Paris conference. Mine declared
that he knows no reason why Poland's present western economic
orientation cannot be continued and extended. Regarding Polish coal
production, Mine stated that the Poles are unable to go further unaided
and that the desired International Bank credit would make possible the
expansion of production by 10 million tons in 1946 and an additional
10 million tons in 1949.
Clayton recommends, in view of the urgency of the European
coal problem, that no objections be raised by the State Department
to the extension of credit by the International Bank for use in augment-
ing Polish coal production, on the understanding that "no increase in
the export of coal to the USSR would take place.
(CIG Comment: Minc is believed, along with several other
leading Polish Communists, to have earnestly desired Pplish _partici-
pation in the Paris conference. Minc, whojs Poland's economic dicta-
tor, will undoubtedly make a sincere effort to expand Polish trade with
the West unless the Kremlin orders otherwise.)
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NEAR EAST-AFRICA
6. PALESTINE: UNSCOP re rted.r_lju_smim !eased by Zionist claims--
US Embassy London reports the opinion of the UK Foreign Oce that
the UN Special Committee on Palestine (UNSCOP) has not been im-
pressed by "extravagant Jewish claims and oratory." The Foreign ,
Office believes that UNSCOP is now fully aware of the Arab view that:
(a) Palestine Arabs are entitled to self-determination; and (b) Arab
states would regard a Jewish state in Palestine as a threat to peace in
the Middle East.
FAR EAST
7. AUSTRALIA: Re rted Soviet submarine activi -According to US
Naval Attache e e.
the USSR is obtaining submarine operat-
ing data in tropical waters and is requesting Australia to designate
ports in Australia that may be visited by Soviet submarines.
(CIG Comment: This tends to support previous scattered
but unconfirmed reports of Soviet submarine activity in southwest
Pacific waters.)
THE AMERICAS
8. ARGENTINA: Fore Minister's comments on Rio Conference--US
Embassy Buenos fres s n in ormed oreign 9n ster Brag-
mulia that Argentina: (a) understands the purpose of the Rio Confer-
ence to be political rather than military; (b) will send to Rio a delega-
tion of political and economic experts "with only minor military repre-
sentation ; and (c) is "determined" that the conference shall be a success.
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ClaITICA 8 If. `: ? 11 A T IONS
EURO:MAN RECOVERY
Prance will cm8ider raising German steel production if Ruhr coal
and steel are internationalized, US -,:.tvresentatives report that
self-aid in the recovery program is not receiving enough emphasis
in the schedules now being &sawn up at the Paris conference. The
UK has indicated that it may- soon have to institute drastic cor-
rective measures in order to cope wkli its grave financial situation
(see item 4).
GREECE
The Soviet veto of the US reon'imendation for a permanent border
cominnsion will have no inn-At3diate effect on the Greek situation.
indicates, howevor, that thc USSR is determined not to abandon
its ob,ieetivesth Gree:.:e, ane that stronger guerrilla attacks may
be expected in the near atture,
`INDONE8IA
Dutch authorities in Batavia estimate that their military objectives
will be achieved within a few days, The Indonesians are elglected to
exert economic pressure on the Dutch through SOBSI, a large union .
of Indonesian workers which is belieNed responsible for the
scorched-earth policy in West Yawl_
_KOREA
As the stalemate in the Joint Commissian. continues, the Soviet radio
station at Pyong-s,ang arad themembers of the Soviet delegation
:in Seoul are taking lull advantage of. the situation to breed unrest_
Genera41 Hodge indicates need fox. immediate US action (see it 6).
C TINA
The Chinese press reflects disappointment that, concurrently with
the dispatch of the Wedemeyer Mission, the US has not altered its
pd.icy toward China to incitgie imm.3diate military and economic
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EUROPE
1. ITALY: No basis found for Sforza's view on Soviet ratification--US
Ambassador Dunn receiverna completely evasive reply" from For-
eign Minister Sforza when he sought the basIs for Sforza's recent
statement in the Assembly that the USSR desired to ratify the Peace
Treaty. Furthermore, the Foreign Office has confidentially informed
the Embassy that no communication has been received from Moscow
which could give a foundation for Sforza's highly-publicized statement.
2. USSR: US Embass ur es return of US exit visa re irements--US
Embassy roscow recommen a e re-esta s men o ? exi visa
requirements as a means of reciprocating Soviet detention of bona
fide US citizens and of strengthening national security through in-
creased control over Soviet nationals in the US. Under present con-
ditions, the Embassy is unable to exert any real pressure on the USSR
for the issuance of exit visas to properly documented US citizens (see
Daily Summary of 28 July, item 7).
3. HUNGARY: Anti-Communists remmt US Lunds--US Minister Chapin ?
in Budapest has again been approached by "bona fide" representatives
of anti-Communist groups requesting American funds for use in the
coming electoral campaign. Although Chapin feels that US funds could,
not now substantially affect the outcome of the 31 August elections,
he suggests that the US should seriously consider using such unortho-
dox methods of aiding Hungarian anti-Communist forces in the future.
4. Inc: Aide-memoire states need for immediate assistance--The UK
has inf-Fin5epariment of State in an aide-memoire of its doubts
that assistance to Europe through the Marshall proposals will "come
early enough or be large enough to meet the special difficulties" of
the UK. The UK states that its critical financial situation will require
far-reaching corrective measures early this autumn.
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NEAR EAST -AFRICA
5. GREECE: US considering advisability of increasing Greek Army--
The State Department has asked the American Mission for Aid to
Greece (AMAG) whether the size of the Greek forces is adequate to
put down increasingly grave guerrilla threats, such as the recent
attacks in the Yannina-Konitsa area. The Department states that
it cannot "at this moment" offer Greece any assurance that the UN
or the US can provide protection against such attacks and therefore
does not wish to be in the position of hampering the Greeks' efforts
to defend themselves. (AMAG had previously refused to support
any increase In the permanent size of the Greek Army; see Daily
Summary of 24 July, item 5. More recently, however, the US Military
Attache Athens has estimated that increases should be permitted, to
enable the Army to contain the Communist forces.)
FAR EAST
6. KOREA: H. -Ms immediate action by US--General Hodge
reports tha ,eIR,s e a e of the trustee-
ship clause in the Moscow Decision, now has control of the most
powerful single political group in Korea. In view of the increasing
tension, General Hodge states he is "rapidly coming to the conclusion"
that: (a) the US must cease negotiations in terms of the Moscow Deci-
sion at the earliest opportune moment and should review the entire
Korean problem either at a high level with the USSR or in the UN
Assembly; (b) the US must go ahead with the establishment of an
elected interim government for South Korea immediately; and (c)
"the US must stamp out the Comintern Communists even at the cost
of bloodshed."
THE AMERICAS
7. PARAGUAY: g_o_versimetart mediation?The Brazilian
Ambassador in Asuncion has informed US Charge Trueblood that the
Paraguay= Government has agreed to the establishment of a mediation
board by Argentina and Brazil, with the provision that the board deter-
mine the time for hostilities to end.
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CRITICAL SITUATIONS
EUROPEAN RECOVERY: "rhe urgent need of Interim economic aid
to the UK, France, and Italy has begun to overshadow the Paris eco-
nomic conferente in the minds of European leaders.
GREECE: With the nation engaged in civil war, political leaders in
Athens (convinced that Greece will be saved by US aid or not at all)
continue to place self-interest above national unity by Jockeying for
personal power.
NEI: The decision of the Indian Government to refer the conflict in
Indonesia to the Security Council is an eVident success for Indonesian
efforts to get the Republic's case before the United Nations (see Daily
Summary of 22 July, item 5). Inasmuch as it had been supposed that
this action would most likely be taken by a Middle Eastern Moslem
ste, the assumption of leadership by the Government of India is a
significant initiative.
KOREA: The Soviet delegation to the Joint Commission is attempting
to goad Korean Rightists into overt acts which would eliminate them
from consultation according to terms agreed upon by the US and the
USSR.
CHINA: Nationalist forces in Manchuria appear to need troop re-
inforcements as well as materiel before they will be capable of
launching a counter-offensive.
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OPOPINIMAIRWin
GENERAL
1. Eeatt's ideason a ELp.mi_s_e_P_Aa_sti_Usrea --Australian Minister for
External Affairs Evatt, in separate conversations with General Mac-
Arthur and US Political Adviser Atcheson, has suggested that an
eleven-power settlement on Japan be reached as soon as possible.
Evatt believes that the USSR would ultimately join such an arrange-
ment in order to avoid being without a voice during the interim con-
trol period. As to a voting procedure, Evatt appeared to favor the
rule of unanimity over the two-thirds majority suggested by the US.
Evatt also declared that the US should be the sole trustee of the
Ryukyus (Okinawa).
2. UK "advises" Abdullal_tAnst Greater S la--US Legation Damascus
reports that the Ult-has -"acIViseriting Abdullak of Transjordan to
cease agitating for a Greater Syria.
(CIG Comment: This action should block for the time being
the scheme to federate the northern Arab states under Abdullah; see
Weekly Summary of 14 February, page 7.)
EUROPE
3. HUNGARY: Concern over SovietilLm in Ihinm--US Minister
Chapin in Bucharest expresses deep concern over recent marked
Soviet advances toward the isolation of Hungary from the west. Chapin
states that the next ninety days, particularly the period before the
31 August elections, will be of decisive importance for US prestige in
Hungary as well as for our whole position in Central Europe.
4. RUMANIA: Soviet control of the Danube--US Representative Melbourne
Bucharest reports that the 16 July Rumanian-Bulgarian protocol (the
text of which has just been received) provides that both signatories,
"In conference with other Danubian countries and in agreement with
USSR,will no longer admit any interference of non-riparian countries
In establishment and administration of Danubian Regime."
(CIG Comment: This provision emphasizes Soviet determina-
tion to control all shipping on the Danube through Soviet-Danubian
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Shipping Co. Previous Soviet promises to allow participation by
Western powers probably will be not fulfilled.)
NEAR EAST-AFRICA
5. INDIA: Viceroiligkig_inined for States to oh_j_iltildustan or Pakistan--
The Viceroy s Aide has informed US Embassy Nev75?elhf-971-rtha a
the Viceroy is determined to have all the Princely States join Hindu-
stan or Pakistan before 15 August and has threatened sanctions (such
as withholding arms, ammunition, and other supplies) against Slates
not agreeing to aerede; (b) all the States, with the possible exception
of Travancore and Hyderabad, are expected to sign instruments of
accession before 15 August; and (c) Travancore will probably follow
suit although Hyderabad may hold out.
THE AMERICAS
0. CUBA: Dominican revolutionaries--US Ambassador Norweb, trans-
mitting new developments regarding Dominican revolutionary activities
in Cuba (see Daily Summary of 28 July, item 10)srates as highly accu-
rate reports that (a) an advance guard of fifty Dominican exiles is
already enroute to the Dominican Republic; (b) thirty American-manned
planes will participate in the projected air operations, which call for
attacking Ciudad Trujillo with incendiary and demolition bombs; (c)
five air transports from Venezuela have been procured for use by the
revolutionaries; and (d) approximately 5,000 well-equipped troops
now being assembled in eastern Cuba will participate in land operations.
Norweb also reports tlack of funds may delay the expedition's de-
parture from Cuba--that Cuba's Chief of Staff, now "Incensed" that
Cuban officials are involved in the plot, has alerted elements of 11
Cuban Army--and that President Grau has stated that the revolution-
aries must leave CuTa"by 30 July. Norweb has been informed by
President Grau the_ jfenergetic measures" have already been taken
against the expedition.
(CM Comment: C1G estimates that it is improbable that: (a)
as many as 5,000 persons are involved in any expedition now mobilizing
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In Cuba; (b) a force of such size could be transshipped to the Dominican
Republic; and (c) even if shipping could be provided, the expedition
could land on the Dominican Republic's closely-guarded shores. If,
however, the expedition were to coincide with either a substantial revo-
lutionary movement inside the Dominican Republic or the assassination
of President Trujillo, its chances of success would be greatly enhanced.)
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CRITICAL SITUATIONS
"
EUROPEAN RECOVERY: The US considers that the European
reconstruction program should be directed primarily toward short-
term recovery (see item 2).
GREECE: 'Public rt et against the indiscriminate political
arrests recent/y carried out by the Greek Government appears to
? be increasing. Meanwhile, as guerrilla activity continues unabated,
Greeks in the north appear 111C1feazingly to assume that US aid will
improve the military and economic situation without help from them.
NEL The US is not prepared to join with the 101c in offering to arbi-
trate the Indonesian dispute at this time (see item 3). Following the
capture of ports in West and at 'lavas, the Netherlands wavy has
lliaed Dutch trade contrORs whiCh bz.ve been la effect since jaYnary.
The Republican forces have been gerced to the tip of western Java
where they threaten to destroy valuablirz plantations. ?
r;OREA: The Dopartmont o :.'tate Ins informed the US delegatio
to the joint Commitsk:',Acal that uz:,;jezat study is being given to US course
of :action in the event ofa broakdown or indefinite prolongation f
the present stalemate h th jQ--At Commission. The Department
diwects the deiegation to use all appropriate measures to insure
cfmttnuanco of negotiations for the :tvezant.
CIRMA: A reliable repart that ?-?;;Mang Nai-she'k is 1:Rrsona11y direct-
in.; military activity it r2.:3,EATAablti!ig 7."?I'OvIl..nce: ;provides further evidence
of the continued stiflinv, of kwg-4,P, coma nfi initiative?a major source
of vrealmess ha the Na'nonallt-3t otz-inture (cee item 9).
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GENERAL
I. US views on development of European remea--The Department of
State has informed Under Secretary Clayton in Geneva that US aid
In European reconstruction would be directed toward: (a) increasing
production in bottleneck areas; and (b) maintaining minimum essen-
tial consumption. The Department adds that while it desires to see
longer -term reconstruction, such measures should be developed
through the International Bank rather than through direct US aid.
2. 3.1,.?. tights in the Azores--US Ambassador Wiley in Lisbon
has been Informed that the Portuguese Government is prepared to
grant rights of transit to US Air Transport Command aircraft in
the Azores after expiration of the present agreement. These rights
would permit operations for servicing US occupation forces in Ger-
many and Japan. The Portuguese, however, have proposed that all
facilities in the Azores shall be completely Portuguese -operated
and controlled, with no US military personnel present. Wiley has
replied that, in his opinion, this proposal would be "utterly unaccept-
able" to the US.
3. US Position on Indonesian dispute--The State Department has in-
formed UK Embassy Washington, in response to the UK request
for collaboration in a plan to arbitrate the Indonesian dispute, that
the US considers that the Dutch would not accept arbitration at
this time.
EUROPE
4. UK: 113s.thLg....._iment on critical UK financial situation-Bevin has
told US Ambassador Douglas that the UK needs some temporary re-
lief In order to continue to play its present international role, and
has informally suggested the possibility of an International Bank loan
of one billion dollars as sufficient to carry the UK over the hump.
Douglas agrees that the UK situation is critical. However, he
suggests that relief, if feasible, should not be such as to make it
possible for the UK to avoid "grappling in earnest" with its problems.
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5. ITALY: De Ga ri ma k onfidence on ratification issu --
US Ambassador Dunn has been told by Premier De Gasperi that he
Is determined to take immediate action on his formula for ratifica-
tion of the Treaty. De Gasper' states that,while he hopes that a vote
of confidence over the issue may not be necessary, he feels so strong-
ly on the issue that if it becomes necessary he is prepared to put it
to such a test (see Daily Summary of 24 July, item 4).
6. SPAIN: ?ranco's views on his own position--During an informal in-
terview with US Charge Madrid, General Franco made it clear that
he will not lightly relinquish his position to anyone, unless he is con-
vinced that whoever takes over will maintain stability and order and
will continue what he considers to be the present progressive evolu-
tion and education of the Spanish people.
7. USSR: N test on cl_gxEg_RrekiLman s to US citizenship--US Ambas-
sador Smith plans to present a new protest to the Soviet Government
regarding detention of claimants to US citizenship. Smith will main-
tain that only the US can decide who is or is not an American citizen,
and that the mere assertion by the Soviet Government that a person
Is a Soviet citizen cannot deprive the individual of US citizenship.
Smith will further insist that, contrary to Vishinsld's allegations,
the claimants to US citizenship are guaranteed the right of access
to a US consular officer by the US-Soviet agreement of 16 Novem-
ber 1933.
Smith also plans to protest the USSR's refusal to issue exit
visas to four US citizens whose claims to citizenship are recognized
by both the US and Soviet Governments.
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FAR EAST
9. CHINA: Ge 1_11?k_no_dimW?..?...kan o rations--A high-
ranking Nationalist officer close to Chiang Iai-shek has told US
Embassy Nanking that the Generalissimo is personally supervising
Nationalist operations in Shantung Province and that the Nationalist
position there is "hopeless.' US Ambassador Stuart has no infor-
mation justifying extreme pessimism about Shantung. Stuart com-
ments that the officer's remarks are indicative of the continued
stifling of the initiative of Nationalist field commanders and of
growing defeatism among Nationalist leaders.
THE AMERICAS
10. CUBA: Dominican revolutionaries
several nunareci armed vominican revolution-
aries are preparing to sail from ports in eastern Cuba to partici-
pate in a combined land, sea, and air attack looking to the overthrow
of the Trujillo Government.
US Military Attache Caracas transmits a report of undeter-
mined reliability that: (a) the instigators of the nascent revolt are
Communists; and (b) the Venezuelan Government has given it
financial support. US Ambassador Norweb reports from Havana
that a Cuban Government official is assisting the revolutionaries
and that President Grau is "well informed of what is going on."
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(CIG Comment: While reports of an imminent revolutionary
move against Trujillo have become too numerous and widespread
In recent days to be ignored, CIG estimates that the obstacles to
such an air, land, and sea attack from bases in nominally friendly
neighboring countries are insurmountable. This is the more certain
because the Dominican Government is undoubtedly aware of the
preparations and may be encouraging the rumors to distract atten-
tion from its own involvement in current plotting against the Vene-
zuelan Government. CIG further estimates that the above report
from Venezuela exaggerates the degree of Communist responsibili-
ty for the current plot, because: (a) the Venezuelan Government
would not be likely to finance a Communist-instigated revolt even
against Trujillo; and (b) Trujillo's regular practice is to use such
plots as evidence of his role as an anti-Communist champion.)
11. PARAGUAY: Government objects to Brazil's mediation formula--
US Ambassador Pawley in Rio has been informed by the Brazilian
Foreign Office that the Paraguayan rebels have accepted Brazil's
mediation formula (see Daily Summary of 26 July, item 6), but
that the Paraguayan Government: (a) objects to the formula's im-
plicit recognition that the rebels are "belligerents"; (b) insists
that mediation should precede the interruption of hostilities; and
(c) stresses the necessity of a complete military victory over the
rebels.
12. BRAZIL: Soviet arms-smuggling story discounted--US Naval At -
tache Rio reports that Brazilian aerial reconnaissance flights have
produced no evidence of the smuggling of Soviet arms along the
Brazilian coast. US Embassy Rio also discounts the arms-landing
story.
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d JUL 1344
catrracA.L srrUATIONS
EUROPEAN RECOVERY: The UI-Soviet trade talks have broken
down because the USSR continues to insist upon elimination of the
requirement in the 1941 agreement that 40% of the Soviet obliga-
tions be paid in gold or dollar exchange (see item 1).
GREECE: Foreign Minister rr saidaris has indicated his belief
that any full parliamentary coalition would fail with the result
either that new elections would place many Communists in Parlia-
ment, or that power would return to the Populists (rightist) with
? himself as Prime Minister.
?
NEI: Dutch officials in Batavia hope to speed formation of a new
Government as military operations on Java near completion.
Dutch armored columns have .Teportedly pushed eastward along
the north coast of Java. In northern Sumatra, Dutch forces appear
to be meeting some opposition around Medan.
KOREA: US delegates to the joint Commission are convinced that
new lines of action must be adopted to overcome the present dead-
lock and Soviet delaying tactics (see item 3).
CHINA: Current statements by liberal Chinese Government of-
ficials to the effect that the Generalissimo has little freedom of
political maneuver and that US pressure for governmental reform
Is therefore unrealistic are indicative of Chinese intentions to
emphasize to General Wederneyer the Soviet threat to China and
the resulting need for US aid on political grounds.
bocument No. 02 a
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GENERAL
1.K-n_agyitt _tzade talks break down--UK Embassy Moscow has in-
formed the US Embassy Moscow that agreement on all controversial
points in the UK-Soviet trade negotiations actually had been reached
when the USSR reopened its demand for revision of the 1941 UK-
Soviet financial agreement and sought extension of the period for
payment of its obligations and elimination of the requirement that
40% be paid in gold or dollar exchange. The USSR in turn offered to
make available to the UK even more than the one million tons of
grain sought by the UK. The US Embassy adds: "The result was the
absurd picture of the Soviet Union with its under-nourished population
offering ever greater quantities of foodstuffs and at the same time
demanding that a Britain strapped for dollar exchange should relin-
(wish its legal claim to considerable quantities of that alarmingly short
commodity." The UK Embassy still believes that the door is open
to resumption of negotiations. The US Embassy, however, considers
that Soviet intentions will become more apparent on 1 August when
the next foreign exchange payment is due under the 1941 agreement.
NEAR EAST-AFRICA
2. IRAN: Shah's view on Soviet oil concession--The Shah has told US
Ambassador Allen that Prime Minister Qavam believes the Iranian
Government should prepare counter-proposals in connection with the
Soviet oil agreement. The Shah fears that the USSR might accept any
terms no matter how favorable to Iran in order to get a foothold or
to preclude development of Iran's northern oil resources by anyone
else. The Shah wants to refuse existing Soviet proposals and leave
the initiative to the USSR. He believes that Qavam favors giving the
USSR some kind of oil concession. (Qavam had previously stated
that he did not intend to present the Soviet agreement to Parliament,
which has just convened, because Parliament would probably reject
it; see Weekly Summary of 11 July, page 6.)
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FAR EAST
3. KOREA: Suggested action r zmucl_ft_deadlock?In view of the cur-
rent joint Commission deadlock and delaying tactics employed by
the Soviet delegation, US delegates are convinced that new lines of
argument must be advanced for settlement of the question of Korean
party consultation. If these new arguments fail, and if the USSR
subsequently refuses to pass over the consultation issue temporarily
In order that the Commission may consider other aspects of the
Korean Provisional Government question, the US Delegation feels
that the only remaining course of action will be for Secretary Mar-
shall to propose to the USSR a review of joint Commission progress
on the Foreign Minister level.
4. CHINA: ihreat of rebellion in Sinkiamf-According to the US Con-
sul Tihwa, Central Government military commanders in Sinkiang
Province are disturbed over the threat of another open rebellion by
the Ili group that dominates northwestern Sinkiang. (The nis led
the "Tiling rebellion" in 1944, and were promised virtual autonomy
after an uprising in 1945-46; Ili leaders now claim that native groups
are being "oppressed beyond endurance" by the Chinese provincial
regime.) One Government commander, who believes that the Ills
could muster more than 60,000 troops, has received reports that
these troops are now being mobilized.
5. BURMA: U Saw termed guilty of assassinations--A high Burmese
official has informed the US Consul General Rangoon that U Saw is
undoubtedly guilty of the murder of U Aung San and other prominent
members of the Anti-Fascist League. This official believes that
U Saw expected, following a short period of chaos and a few months
of military government control, to present himself as "the only
logical candidate for Premier.' U Saw's error, the official believes,
was to underestimate the strength behind Aung San and the Anti-
Fascist League.
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THE AMERICAS
6. PARAGUAY: Brazil's mediation formula--US Ambassador Fawley
reports that the Brazilian formula for mediation in Paraguay's civil
war includes maintenance of the military status quo while negotia-
tions proceed, amnesty for the rebels, and "respect" for Morinigo's
position. Fawley has been told by the chief of the Brazilian Foreign
Office's political division that: (a) it is up to the Paraguayan Govern-
ment to take the initiative as regards including the US among the
mediators; and (b) Brazil will abandon mediation attempts if its
formula is rejected.
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CRITICAL SITUATIONS
EUROPT ;AN P. EC 07ER.Y: Bevba's delay in agreeing to send a dele-
gal:don to discuss :Ruhr coal production in Washington appears due
to opposition from some UK Cabinet members who suspect US motives
ID calling the confereace (see item I).
GREECE: The reported dismissal of two general officers from the
Greek Army at3 indicative of the political and personal differences
in the High Command which are hampering operations against the
guerrillas. Jealousy bebween the Army and the gendarmerie already
has hampered the anti-guerrilla campaign.
Unchecked TYlitch advances ;Vive severed the Indonesian Republic
'Cron) nearly all ol. n.':ast and West Java and most of the north coast of
CeNtral Java. rru.V.h authorities believe operations will soon be com-
pteted. The 1A,ite.,1 1),:llollo any British move to mediate or offer good
The StrotAieat. 1.0 pvessing aggressively for consider -
ailora by the TOircf", Commissilm of a list which excludes 24 rightist parties
a total ell.thaed membership 0.:Z over 15,000,060 from consultation
-in the formation oi th Koren Goverm:nent,
Document No- oat
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GENERAL
1. UK CabintU.pmrs divided on Ruhr coal talks --Sevin has told US
Ambassador Douglas that some members ofUK Government
suspect the US of intending to use the proposed Washington coal talks
to obtain a UK commitment in regard to postponing nationalization
of the Ruhr mines. However, Douglas assured Bevin that the US wished
to discuss whether uncertainty as to the final status of the mines is
affecting their output, and Bevin indicated that he would send a delega-
tion to Washington. Ambassador Douglas suspects that on this matter,
as on others, there may be "a real schism within the Cabinet."
2. US ? ? sition re d Poland--The State Department has instructed
US Anabassa or r I s . -cause the Paris Conference was the
result of European initiative, it is not appropriate for the US Govern-
ment to intervene or urge Polish participation. The Department
further states that the US hopes a recovery plan will be evolved eventu-
ally in which all European nations can join to their mutual advantage.
3. Soviet radio facilities in Iran--US Ambassador Allen reports from
Tehran that although Sov--ceriir operations in northern Iran have now
ceased (see Daily Summary of 24 July, item 1), Iran is not pressing
the USSR to close down the Soviet radio facilities at Tehran, Tabriz,
Meshed, and Pahlavi.
(CIG Comment Although the USSR claims that the stations
are needed to furnish weather information, they undoubtedly can be
useful to the USSR as radio fixes in Caucasian and Trans-Caspian
navigation and will facilitate covert intelligence activity.)
EUROPE
4. CZECHOSLOVAKIA: Recommended 'US polici--US Ambassador Stein-
hardt believes that the USSR will seek to strengthen Communist con-
trol over Czechoslovakia's internal affairs but at the same time will
permit continued Czechoslovak trade with the West. The USSR would
permit such trade as insurance against a noticeable deterioration in
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the Czechoslovak economy that might otherwise result from the
USSR's failure to meet its commitments under the recently expanded
trade agreement. Steinhardt recommends that the US: (a) should
avoid any contribution to the Czechoslovak economy as long as Czecho-
slovakia stakes its economy on Soviet promises to deliver the neces-
sary, raw materials; and (b) should provide the maximum encouragement
to the moderates in Czechoslovakia to resist further Communist domi-
nation. Steinhardt believes that such a policy will fix blame on the
USSR for any disintegration of the Czechoslovak economy (which Stein-
hardt expects within one year) and will demonstrate to Czechoslovakia
the danger of economic dependence upon the USSR. As positive steps
to encourage Czechoslovak moderates, Steinhardt proposes that the
US conclude a cultural convention with Czechoslovakia and bring the
Hungarian coup before the UN.
5. BULGARIA: 2pJsitiony go underground-The Acting US Political
Representative reports that the position Agrarian Party will proba-
bly go underground in order to avoid anticipated Communist reprisal
against the Party's recent resolution condemning the present regime.
(The Communists had hoped by terrorist means, such as the arrest of
Petkov, to force the Agrarians to participate in a bogus "loyal"
Opposition.)
6. FRANCE: Im lications of foreign affairs debate--US Ambassador
Caffery warns that Bidault ?flamadier may 6 forced "to go con-
siderably further than they would like to" in the 25 July Assembly
debate on French foreign policy. Caffery fears that such statements
may render difficult further negotiations with the US and UK on the
subject of Germany in relation to the European recovery plan.
? Possible crisis over colonial electoral rocedure--Embassy
Paris reports that a demand for a vote of confidence in tile Raznadier
Government may arise from the fight between the Left and the Right
over the question of electoral procedure for overseas territories.
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CRITICAL SITUATIONS
EUROPEAN RECOVERY: Despite Soviet opposition to the US relief
program in Austria, the ity3 will make every attempt to obtain Soviet
agreement to the entry of US relief supplies into the Soviet Zone; if
the USSR fails to agree, the US will operate its relief program in the
three Western Zones (see item 3).
GREECE: In Athens, center and liberal elements continue to explore
the possibility of replacing or liberalizing the Government; in the
north, the Army is alerted for further attacks from guerrilla units
reportedly massed in the border areas of Yugoslavia and Bulgaria.
AMAG will not permit an increase in the Army (see item 5).
NEI: Dutch forces continue to advance and occupy major towns; they
reportedly have entered the largest Republican seaport, Cheribon.
Dutch officials estimate that limited "police" operations will be com-
pleted within 14 days in certain areas. The Dutch, however, may be
unable to maintain their rapidly extended communications in the face
of Republican guerrilla tactics
KOREA: The deadlock., in the US-USSR joint Commission continues
because of Soviet refusal to permit consultation with parties and
organizations affiliated with the Rhee-dominated Anti-trusteeship
Committee.
CHINA: Distribution of UNRRA supplies to Chinese Communist areas
has been blocked by an official Central Government decision that the
lower Yellow River and Shantung areas are "no longer safe" for
UNRRA -CNRRA personnel.
Document No. 020
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GENERAL
I. Soviet airline suspendso ratiorts in Iran--According to US Mili-
tary Attache Tehran, the Soviet commercial airline has terminated
operations in northern Iran following formal representations by the
Iranian Government. The Iranian note demanded this suspension
until the USSR had granted reciprocal privileges to Iran. Iranian
officials are surprised at the "humble Soviet attitude, as evidenced
by the Soviet request for permission for one final flight to Meshed to
evacuate Soviet personnel.
(CIG Comment: This prompt and unexpected reaction to
Iran's recent threat to impound Soviet aircraft operating illegally in
northern Iran apparently reflects: (a) Soviet unwillingness to satisfy
Iran's demand for reciprocal air rights; and (b) a Soviet desire to
avoid further irritation of Iran pending the Iranian Parliament's
action on the proposed oil treaty with the USSR.)
2. 13.EgLsAzsp_E_Ettms_'es ublic for breakdown in Soviet trade talks--
Ambassador Douglas reports that Government-inspired artieles in ?
the British press are preparing the public for a possible breakdown
In Anglo-Soviet trade negotiations. The official attitude is that, while
the USSR undoubtedly has cereals available for export, the distribu-
tion will be guided by political expediency and preference will go to
the Satellites. The UK Foreign Office feels that the trade talks can
be suspended without endangering Bevin's popularity or support.
EUROPE
3. AUSTRIA: US to press for relief in Soviet Zone--The Department of
State has instructed US representatives in Austria to exhaust all possi-
ble means to reach with the USSR an agreement to permit relief supplies
to enter the Soviet Zone Austria. The Department considers it most
Important that relief supplies continue to enter eastern Austria. in
order to strengthen the Austrian Government, to avoid having the USSR
withhold supplies from their Zone to the Western Zones, and to fore-
stall a division of the country. The US is prepared, however, to operate
the relief program in the three Western Zones in Austria if the Soviet
Zone is excluded.
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4. ITALY: De Ga Ito ress his ratification formula--US Ambassador
Dunn has ?n orme y rem er asper he intends to
present to the Assembly the Government's new formula for ratification
of the Peace Treaty. De Gasper' states that he will present the formula
In such a way that its rejection would not require the resignation of his
Government.
6. GREECE: AMAG refuses Army increase--Dwight Griswold, chief of
the American Mission for Aid-to direece (AMAG), reports that AMAG
will permit no further increase in the size of the Greek Army and
gendarmerie. (The Greek General Staff had hoped to raise the per-
manent strength of the Army from 120,000 to approximately 180,000.)
FAR EAST
6. BURMA: UK eement with Burmese mission--US Embassy London
has been informe that theKwill ?17 announce an agreement with
the Burmese Goodwill Mission to London by which the UK Government
is pledged: (a) to the earliest possible transfer of powers to the Bur-
mese Government; and (b) to introduce legislation for Burmese inde-
pendence at the beginning of the next UK Parliament session. Accord-
ing to the agreement, the present interim government in Burma will
be known as the Provisional Government and the Executive Council
Will become Cabinet (see Daily Summary of 22 July, item 6).
25X6
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GENERAL
1. Bevin to recomtnend_UN r_e_pres.piqatio.n at coal corkference?Ambasse.-
dor Douglas reports thalBevin has agreed to recommend to the Cabinet
on 23 july that the British send representatives to Washington to discuss
means of increasing the Ruhr coal production. Bevin asks, however,
that the -agenda of the conference be withheld from the press and that
the meeting be publicly defined as dealing only with technical methods
for the increase of Ruhr coal production. (The Department of State has
agreed to Bevin's -request)
EuROpE
2. GREECE:_Blegariar, ?tsl_g9cssytitlaure_ipartediyAcreased- -US Mili-
tary Representative ACC Bulgaria considers that Bulgarian aid to the
Greek guerrillas in both western Thrace and Aegean Macedonia is
"at an a'a time high." He adds that there is a possibility of a Bulgar-
supported drive to detach western Thrace from Greece, if Greek Gov-
ernment. forces appear too weak to conduct simultaneous operations
against the guerrillas in WE:Stern and eastern Greece.
Greek Nay_y.' ntizerriit uorations discounted.- -With
reference to a report receised by the My, Department (on the partici-
pation of the Greek NaTy in operations against the guerrillas; see Daily
Summary of 22 July, item 3), US Naval Attache Athens reports that?
although the Greek Navy plans ewtensive evaratAons against the guerril-
las, its means are inadequate, its efforts are probably ineffectve, and
its claims of results are not dependable? ALUSNA adds, however, that
the Greek Navy is transporting several thousand alleged Communist
sympathizers (recently arrested by Zervas) to certain Aegean lislands
and maintaining patrols to present their escape..
FAR EAST
3 BURMA: BrUi0 reltspe evacuatton plan--US Consul Genera/ Packer
In Rangoon reports that UK authorities are reissuing emergency evacu-
ation plans as originally established during the gaverament crisis of
January 1947. Packer is coorcliftating plans for. the protection of US
nationals. Document No. 0/9
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4. NET: Dutch re rt native welcome--US Consul General Foote has
been informed by neral poor, the Commander in Chief of the
Netherlands Indies Army, that Dutch forces have occupied many
areas without resistance and have been "welcomed by masses of
people and most intellectuals." General Spoor claims that a gener-
al air of relief can be noted among natives who are continuing to
work in a normal fashion.
(CIG Comment: Indonesian resistance will be based on guer-
rilla tactics rather than on frontal opposition to superior Dutch
armor.)
5. SIAM: US views on AIK..pressure--The Department of State has in-
structed US Embassy Bangkok to inform the Siamese Foreign Office
that the US: (a) considers as unwarranted UK pressure for the ap-
pointment of a UK comptroller for the Bank of Siam as a condition
to sterling convertibility (see Weekly Summary of 18 July, page Hi);
and (b) will expect all sterling accruing after 15 July to be freely
transferable on or before 15 September, regardless of supervisory
mechanism adopted or the nationality of the supervisory personnel.
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GENERAL
1. Rumanian-Bulgarian secret military alliance reported--US Delegate
ACC Bucharest has bee-iirj6Fmed by a most reliable source that the
recent Bulgarian-Rumanian conference in Sofia was primarily con-
cerned with arranging the detailed implementation of a secret military
alliance. Source reports that the Spanish Civil War Veterans' organi-
zation in Rumania is to be used as a cover for Rumanians taking part
in operations avainst Greece, and that personnel would be recruited
from Ur Army s two Communist-trained Volunteer Divisions, the
secret po:ace, and other unspecified sources. The US delegate evalu-
ates the report as probably true.
EUROPE
2. AUSTRIA: Legation fears partition of Austria--US Legation Vienna
believes that the Soviet protest against the US-Austrian relief agree-
ment may be a move .to lustify the eventual exclusion of the Soviet
Zone Austria from the US relief program. The Legation fears that
the USSR thus might effectively partition the country.
(CIG Comment: It is unlikely that a "partition" of Austria
will cause, in the immediate future, a breakdown of either the Austrian
Government or the quadripartite comtnission for Austria as presently
constituted; see Weekly Summary of 18 July, page 1.)
Keyes' views ort_pos ible Soviet moves--General Keyes, Com-
mander US Forces Austria, reports that tension between the USSR
and the Austrian Government has been heightened by the Soviet pro-
test over the US-Austrian relief agreement and Chancellor Figi's
forthright reply. Keyes recommends 1a firm line be taken to indicate
US intention of going through with the plan for relief and rehabilitation
of Austria.
3. GREECE: Liberal Pa_thr may decide to co2perate with Government--
US Ambassador MacVeagh reports that there is a possibility that
Sophoulis will sanction "some sort.of integration of his party in the
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national effort." (Sophoulis is leader of the Liberal Party, the only
non-Communist group represented in Parliament which has refused
to participate in the present Government.) MacVeagh states that al-
though Sophoulls holds the Government largely responsible for the
situation in Greece, he has conceded that it is now necessary to co-
operate with the Government "to some extent" for the national salva-
tion.
MacVeagh expresses his hope that Secretary Marshall will
make a strong statement on US hopes for Greek unity. He believes
that such a statement, which would reach the Greek electorate over
the heads of the politicians, would be effective in convincing the poli-
ticians of the necessity for common action.
lc V
Premier will not outlaw Communist Pa at ? resent--Prime
Minister Maximos s orme m ssa or c eag t he will
not outlaw the Greek Communist Party "at present" because: (a) exist-
ing laws are sufficient to cover the situation; and (b) he wishes to prose-
cute for illegal acts only, not on grounds of "ideology."
Greek Navy operations--The Navy Department has been in-
formed by the British Admiralty Delegation in Washington that the
Greek Navy has been taking part in operations against the guerrillas.
Guerrilla positions along the east coast are being shelled by destroyers
and submarines; the Gulf of Corinth and the west coast are also being
patrolled to prevent guerrilla movements to and from the Peloponnese
and escape of the guerrillas by sea. Three LST's are moving men and
supplies to Macedonia and Thrace.
x
4. ITALY: Dunes views on Italo-Yu oslav boundary--US Ambassador
Dunn recommends that the US not urge Italy to accept the provisional
Italo-Yugoslav boundary set by the Four Power Commission. Dunn
considers that it would be unwise for the US to be associated with any
move to impose on Italy a provisional boundary more unfavorable than
the line specified in the Treaty.
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FAR EAST
5. NEI: Probable UN consideration of Indonesian situation--US Ambassa-
dor Baruch reports that he has warned e}th?ands Foreign Minis-
ter of the probability that the Indonesian situation would be brought be-
fore the UN, thus permitting Soviet entry into the discussions. The
Netherlands Foreign Minister replied that this possibility had been
weighed but that his Government was fully determined on the present
course of action.
(CIG Comment: The Foreign Minister of the Indonesian Re-
public recently visited several Moslem countries in the Middle East
with the probable aim of arranging for the presentation of the Republic's
ease to the UN in the event of war with the Dutch.)
6. BURMA: New form olipvernment for Burma--US Consul General
Packer in Rangoon reportsi tanewiormo government for Burma
is shortly to be announced with Thaldn Nu holding the post of Prime
Minister. Packer adds that the Burma Office expects Burma to with-
draw from the UK Commonwealth because Burma refuses to acknowl-
edge allegiance to the King.
(CIG Comment: The new government may be a plenipotentiary
cabinet which would replace the present Governor's Executive Council
and, in preparation for independence early in 1948, assume more of the
powers now exercised by the UK Governor.)
7. KOREA: Announcement of Wedeme er mission utilized Rhee--Gen-
eral Hodge reports that the rightist lea er, yngman ee, has convinced
many Koreans that General Wedemeyer's visit indicates a change in US
Korean policy which will favor Rhee s plans for establishing a govern-
ment without Soviet agreement. Rhee also predicts the removal of Gen-
eral Hodge for having betrayed democratic ideals in reconvening the
Joint Commission.
(CIG Comment: If the present deadlock in the Joint Commission
persists and the US establishes a separate government for South Korea,
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Dr. Rheevs prestige may increase to such a degree that it would be
difficult to gain popular support for a government without bowing to
RheePs desire to be president.)
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GENERAL
1. USSR proposes terms on cereals to UK--The UK Foreign Office has
informed US Ambassador Douglas that at the UK-Soviet trade talks in
Moscow the USSR has offered the UK greatly increased quantfties of
cereals: possibly one million tons for 1947 with options on a further
one million tons each in 1948 and 1949. The USSR is asking payment
at the rate of $3.00 a bushel for the 1947 deliveries with no fixed price
for the 1948 deliveries. The British, according to the Foreign Office,
consider the price too high and are not hopeful that a satisfactory agree-
ment can be concluded. The UK has asked for US views on the Soviet
terms.
2. US and UK inu_susoencl Ruhr announcement--In view of the alarm ex-
pressed by the French Government, Secretary Marshall has proposed
to UK Foreign Minister Bevin that the US and UK separately inform
Bidault that the US and UK will suspend further announcement on the
plan for a new bi-zonal level of industry in Germany until France has
a reasonable opportunity to present its views.
In the meantiave, Caffery has learned that Bevin has instructed
General Robertson (Military Governor UK Zone Germany) to make no
further announcement on the level of industry agreement.
EUROPE
3. FRANCE: Bidaules reaction to new Ruhr mL_-ftnent--US Ambassador
Caffery feels he has dispelled any misunderstanding on the part of
Bidault and other members of the French Cabinet concerning US objec-
tives in Germany. Caffery believes that while Bidault is panicky about
his personal political position, there is no doubt about his genuine con-
cern over the possible effect of the US-UK level of industry agreement
upon the stability of the present Government. Bidault states that France
roust eventually go along with the US policy for Germany, but he empha-
sizes the impossibility of the average Frenchman doing so at this time.
Document No. 0/ 7
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Caffery has been told by Maurice Schumann and several other
prominent and decidedly friendly Cabinet Ministers that "if the im-
pression prevailing here about US intentions in Germany is not corrected,
the Communists will walk away with the October municipal elections."
leak fears difficulties from French ja_Les10.17 talks?Premier
Spaak of Belgium has tolcTITS?Amb?iiiiador Kirk that while the prelimi-
nary meetings of the Paris conference were very successful, he believes
that the French view of the whole recovery problem is too narrow. He
fears that the French committee members may feel satisfied with a
simple listing of needs and assets without taking the essential forward
step of planned economic integration between nations.
FAR EAST
4. NEI: Dutch decision is "full mtlitar action"--The Dutch Foreign
MinistezaThs tol ?rBaruch1iiTt the Netherlands announce-
ment of its decision to take "police measures of a strictly limited
character" in certain Republican areas of the NEI means, for this pur-
pose, "full military action."
Baruch was also informed that, following the restoration of
Dutch authority in Java and Sumatra the principles of the Linggadjati
Agreement will be put into force. Sumatra,
delay on this matter, accord-
ing to the Foreign Minister, would jeopardize preparations for the 1949
sugar crop.
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GENERAL
1. Soviet-Albanian talks in Moscow--US Embassy Moscow believes that the
.41???Mf???????112
real purpose of Albanian 'Premier Hoxha's presence in Moscow may be
to discuss with Kremlin officials Albania's role in Soviet operations in
Greece and Macedonia.
(CIG Comment: CIG concurs in this view. As Albania's limited
foreign trade is now handled almost exclusively by Yugoslavia, it is un-
likely that Hoxha's presence in Moscow would be necessary to discuss
Albania's participation in Soviet-Satellite trade arrangements. Moreover,
no evidence exists of internal difficulties requiring Kremlin review or
assistance.)
EUROPE
2. ITALY: US statement on Trieste suggested--US Embassy Rome believes
that the USSR may attempt to bolster the Italian Communist Party by
offering to return Trieste to Italy. The Embassy suggests that the Depart-
ment of State may wish to forestall the effects of such an offer by restating
the US view that Trieste is clearly Italian.
3. GREECE: 1Viain errilla effort may be in Macedonia--The US representa-
tive on the temporary UN tiier commiss on ii?ri-M?eice reports indication:
that the guerrilla attacks supported from Albania may be diversionary, wi
the object of drawing Greek Army forces out of the Pindus Mountains. He
points to the present movement of the main body of guerrillas toward the
northeast without giving battle as a possible indication that the main guer-
rilla effort will be made in Macedonia.
FAR EAST
4. CHINA: Stuart interview with Chiang--US Ambassador Stuart, pursuant
to a State Department suggestion, recently informed Chiang Kai-shek of
independent Chinese and US reports from Manchuria indicating the serious-
ness of the situation and Nationalist misrule in that area. Stuart remarked
that discontent was rapidly spreading throughout China; the Generalissimo
attributed this condition to economic conditions. Stuart replied that fiscal
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and economic deterioration was merely a symptom of the "general feeling
of hopelessness and impending disaster." Stuart also pointed out that the
Generalissimo in his recent mobilization speech had used Stuart's own
language about a "new revolution" but without Stuart's emphasis on re-
form and constitutional liberties.
Chiang agreed "somewhat more heartily than usual" with Stuart's
statements and admitted others could see developments more clearly
than he.
5. KOREA: Re rted gr. I am for Communist domination of Korea--G-2
CINCFE transmi a report e ua e as pro. ?y e - a a meeting
on 15 March 1947 between Soviet advisers and representatives of the North
Korean Government and the Peoples Army the following predictions were
made: (a) the US-USSR Joint Commission for Korea would reconvene in
May but would probably be unsuccessful and would adjourn in August; (b)
if the Joint Commission failed to reach agreement, North Koreans would
cooperate with Chinese Communists in building up the Peoples Army in
anticipation of the withdrawal of US troops; (c) if, however, the Joint Com-
mission succeeded in establishing a united government in Korea, the
Peoples Army would retire to Manchuria with the expectation of invading
South Korea following the withdrawal of US and Soviet forces from Korea.
((MG Comment: Although the details of this report are as yet un-
confirmed, it concurs generally with numerous other reports and analyses
indicating that (a) the USSR is aiming toward the development of Korea and
Manchuria as a Soviet satellite area, and (b) there has been close coordina-
tion of effort between North Korean and Chinese Communist forces.)
6. NEI: Dutch insist on "good faith" step by Republic--The State Depart-
ment iitiEstructe etiiiitCfiir?in MU?via to indicate to
Lieutenant Governor General Van Mook its concern over the unilateral
nature of Dutch demands upon the Indonesians. According to US Embassy
The Hague, the Dutch Foreign Office feels that it cannot recede from its
present position until the Republic gives some evidence of good faith such
as removing the food blockade of Dutch-held areas and halting Republican
attacks along the perimeter. The Embassy has been reliably informed
that Catholic Party members in the Dutch Government are urging military
action, if reports of a breakdown in negotiations are confirmed.
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1. Possible Satellite air e nsion throu Poland--The US Air Attaches
in London an arts cone u e . a He suspension of UK-Yugoslav
air negotiations will effectively block Yugoslav commercial air outlets
to the west; and (b) the Satellite efforts for air expansion now will probab-
ly be shifted to Poland. In view of the danger of an immediate resumption
of UK-Polish air negotiations, the Attaches recommend that the US urge
the British to agree for tactical reasons that the US and UK await Polish
initiative rather than take further steps for a Polish air agreement. They
feel that the existing Satellite air connections with western lines at Prague
and Berlin lessen the likelihood that reciprocal air agreements with the
Satellites can be obtained.
(CIG Comment: There is no convincing indication that the USSR
has abandoned its policy of excluding UK-US air lines from the Satel-
lites. Until this Soviet policy is reversed, western efforts to obtain
reciprocal air agreements with the Satellites will fail, no matter how
auspiciously such negotiations may commence.)
2. UK rtici ation in Wash on coal talks ma be cancelled--Bevin has
declared in an ai e-memo re to e e ija en , in view of the
disinclination by the US to agree to any widening of the scope of the pro-
posed discussions in Washington, he does not feel justified in sending a
delegation merely to discuss European coal production. FlevIn also ex-
pressed disappointment that the UK would not have an opportunity to ex-
plain its inability to continue "the dollar drain" required to finance
German imports. The State Department, in reply, has reiterated the
urgency of the Ruhr coal question and has stressed the unfortunate im-
plication of possible US-UN disagreement through the sudden cancellation
of a conference which has already been publicly announced.
EUROPE
3. USSR: Soviet reaction to Marshall ro esals--US Ambassador Steinhardt
in Prague has been informed by a re ab e source that the Czechoslovak
delegation to Moscow was severely reprimanded by Stalin personally.
Communist Prime Minister Gottwald reported that he had never seen the
Soviet leader so angry. Stalin categorically told the delegation that Czecho-
slovakia must withdraw "immediately" from the Paris conference and that
failure to do so would constitute a "hostile act" toward the USSR and a
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violation of the Czechoslovak-Soviet alliance of 1943. Stalin seemed
unconcerned over the adverse effect of such a withdrawal on western
opinion and rulnimized the importance of Czechoslovak trade with the
west. Stalin seemed especially angered by the fact that prompt Czecho-
elovak acceptance of the invitation to attend the Paris conference may
have contributed to persuading wavering Swiss and Scandinavians to
partic3pate. Source believes that the USSR will tighten its control over
Czechoslovakia and that Gottwald, in an attempt to recover his prestige
with the Kremlin, will willingly cooperate in such an undertaking.
(CIG Comment: This report is accepted as a more accurate account
of the meeting than that in Daily Summary of 16 July, item 3, in which
Stalin is represented as speaking with restrained reasonableness. Stalin's
anger was probably genuine and a reflection of exasperation and discomfi-
ture in the Kremlin. It is to be expected that the USSR will act to prevent
any similar show of independence by any Satellite, Czechoslovakia especial-
ly, and that Gottwald will outdo himself in order to redeem his blunder.)
CagskasspoLLStaltn_ip,m_cellent health --Source also told Ambas-
sador Steinhardt that the Czechoslovak delegation reported Stalin in ex-
cellent health and apparently more vigorous and self-confident than in 1945.
%ale 4. GERMANY: French mart on Von Paulus--US Consul Mann reports
from Stuttgart that according to the French Security Control it has been
reliably reported that General Von Paulus (German commander who
surrendered at Stalingrad) heads a new army of 700,000 former Wehr-
ma.cht members and is stationed in the USSR with the aim of founding a
new free Germany.
(CIG Comment: The existence of such a Free German military
force under Soviet Command has not yet been established, though it is
the subject of recurring rumors)
Views on reported division between SMA and Moscow--US Political
Adviser Murphy has been told by the German Director of Industry for the
Soviet Zone that there is dissatisfaction and alarm in some quarters of
the Soviet Military Administration (SMA) over "the present Molotov line
of opposition to cooperation with the western powers." The Director of
Industry added that this was trne especially of the Soviet Commander,
Marshal Sokolovsky, and General Georgieff.
(CIG Comment: SMA officials have often found it difficult to
reconcile Kremlin policy with the practical aspects of their administra-
tion in Germany. The present reported dissatisfaction is not considered
of serious consequence.)
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5. FRANCE: Bidault rotests reement on German roduction?US Ambassa-
dor Caffery repo - .ult s sa ong y proteste the US-UK agree-
ment on the revision of the level of industry plan in the US-UK Zones
Germany. Bidault accused the US and UK of making the revision behind
his back and stated that he would leave the French Government at an early
date if the US and UK remain adamant. He believes that the new agreement
on the level of industry will play into the bands of the Communists who
claim that the US motive is to build up Germany at the expense of France.
Bidault declared in a written statement to the UK and the US Am-
bassadors that "in the event that the UX and US Governments confirm the
plans that they have formed on these points, the French Government would
feel obliged to protest solemnly and publicly and to make all reservations
on the various consequences which would not fail to ensue."
(CIG Comment: Public announcement of the US-UK plan for an
increase in the German level of industry is certain to benefit the French
Communist party, and the subsequent reaction could compel the withdrawal
of the French Government from participation in the Marshall plan.)
THE AMERICAS
6. PARAGUAY: US may be invited to partictpate in mediation?According
to US Charge Trueblood, the Brazilian Ambassador has been informed
by the Paraguayan Foreign Minister that Paraguay will probably invite
the US to participate in the mediation of Paraguay's civil war. Trueblood
recommends that the US accept the invitation if the US plans to continue
Its policy of active cooperation in Paraguay's development.
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GENERAL
1. Normitlairiews oti theyaris Conferepee?US Embassy Oslo has been in-
formed by Foreign Minister Lange of Norway's desire that any new eco-
nomic plans formulated at the Paris Conference should not Interfere with
existing trade agreements, particularly the agreements between the Scandi-
navian countries and the USSR? Poland, and Czechoslovakia. Lange also-
expressed Norway's desire to preserve its relations with theUSSR and not
cut itself off from the East until absolutely. necessary. He added that "these
last few months have made it look as ff cooperation was becoming more and
more' difficult."
EUROPE
2. BULGARIA: Trade .,agreement with USSR termed "oneyous" --A high
official in the Bulgarian Supreme Economic Council-has told the Acting
US Political Representative in Sofia that the terms of the recent Soviet-
Bulgarian trade agreement are ?`extremely microns,"ald that Bulgaria
must export urgently needed manufactured goods to the USSR.
(CM Comment: It is believed that any other trade agreements
between the USSR and its Satellites will be equally burdeitsom.e to the
latter, but nonetheless will be advertised a.s proof that Eastern Europe
cau do without western aid,)
. ITALY: US ratification views received with "relief"--US Ambassador
Damn has informed the Foretgii A/artistry of. the US attitude in regard to
delay on ratificattoa of the Treaty (see Daily Summary of 16 July, item 4).
and Under Stcretary :Brusasca was '`very relieved" to learn that the US
does not w5sYt, to urge tromediate ratification.
Beyb. cnncurs wtth US Ambassador Douglas reports that
Bevin der to the US vtaaw that De Gasperi shonld not now be urged to
ph for rat/flea/on (see Daily Summary of 14 July, item 5), and AVIS in-
stlaucted the British ilmhassadot' in Rome according?ly,
4. FRANCE: V_.;ewst2nStrgatened cIvil 4eraita strffte?LS Embassy Paris
belleves that the thread strikc by the civil service`pas been temporarily
attancloned because of: (a) the lukewarm attitude a government workers
appopsomoismi
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throughout the country; and (b) Communist fear that the strike might not
be successful. The Embassy adds that it had become clear to the majority
of the nation that the Communists were promoting the strike for political
purposes.
5. GERMANY: Food shortage in Soviet Zone causinun-Headquarters
European Command Frankfurt reports that illegal border crossings from
the Soviet Zone to the west continue at previous high rate. There is, how-
ever, an apparent change in motive. The accent is now on a search for
food rather than the avoidance of military and labor registration (see Daily
Summary of 23 June, item 7).
(CM Comment: The serious food situation in the Soviet Zone has 25X6
been verified by other sources.)
THE AMERICAS
7. PARAGUAY: Government launches new offensive--US Charge Asuncion
reports that on 15 July Paraguayan Government forces launched a new
drive against Concepcion, the rebel stronghold, in an apparent attempt to
demonstrate their military superiority before mediation proceedings begin
(see Daily Summary of 14 July, item 8).
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ClEtfittRAL,
1. Possible Soviet stockt intet%esAtin, irtpair --Ambassador Allen reports
from Tehran that Afshar,-Pmsideut of Trap.ilian Airways, has questioned
an Iraniaka qubject named Issaei concern:trig the latter's reported a.cqui-
sition of Iranian Airways stocks Yssaef, who is said to be acting for the
USSR, admitted having purchased 400..500 shares but claimed they were
his,private investment. Allen adds that, at Afshar's insistence, Issaef
has given Afshar power of attorney to vote for him
(CIG Comment: The acquisition by a Soviet agent of one-fifth
of the 2,500 shares of Iramir stock would represent a step toward the
Soviet oWective for ultimate domination of the airline. The power of
attorney, presumably not irrevocable, would not stand in the way of
later Soviet action through the Issael zoluorItty interest.)
EUROPE
2. FRANCE: May ask Sheelp era soloniaLproblems --US Ambassador
Caffery has learned from a very high Foreign Office source that "a
recommendation may shortly be made to Foreign Minister Bidault that
the French" ask the US for its views and its help in solving French prob-
lems in North Africa and Indochina.
Bsvira willinst to defer nationalization in Ruhr--Bevin has told
Caffery that he is willing to "put In cold storage nationalization of the
Ruhr coal mines, in order to increase coal production and to strengthen
Bidault's; position in France,
3. USSR: Soviet view on Marshall proftram--US Embassy Moscow has been
reliably informed that Stalin told the Czech delegation Which recently
visited Moscow (see Daily &MIMI'S', of 7 July, item 5) that Czechoslovakia
might participate in the Paris Conference If it wished, but to do so would
be a grave rntstake because: (a) US resources were inadequate to make
the Marshall Plan a success; (b) Congress would not authorize the neces-
sary credits; (c) even if the Plan ohould gain congressional support, it
would be rendered ineffective by an ixnminent US economic crisis; and
(d) increased Soviet production Insures that Czech economic needs can be
met by the USSR. The Embassy's source? a high-ranking member of the
Czech Embassy, has strong pro-Western sympathies and deplores his
Government's action; he believes, the Krenflin is convinced that such
armaments are valid.
Document No. OLT
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4. ITALY: US does not wish to ur e immediate ratification?The Department
of State concurs in US Ambassador Dunn's opinion that the De Gasperi Gov-
ernment should not attempt to push Italian ratification of the Peace Treaty
at this time (see Daily Summary of 14 July, item 5). The Department hopes
that when the Constituent Assembly reconvenes on 20 August the USSR will
have ratified.
Harriman's talk with the Pop2.--US Embassy Rome reports that
the Pope remarked to Secretary of Commerce Harriman that the Commu-
nist menace is "much more insidious than the Nazi menace because of
Soviet shrewd and tricky tactics and penetration elsewhere." Harriman
noted that the Pope seemed especially preoccupied by the Yugoslav situ-
ation and feared that the Yugoslays might break off diplomatic relations
with the Vatican (see Daily Summary of 3 July, item 1).
FAR EAST
5. SIAM: Possible coup b unior Arm officers--US Military Attache Bang-
kok repo e omman.er e of e Siamese Army, General
Adul, recently warned Prime Minister Dhamrong and other high govern-
ment officials of the possibility of a revolt by Junior Army officers unless
governmental inefficiency were corrected. The MA believes that the Junior
officers may plan to install General Adul as head of the government, and
that the latter made this warning in an effort to bring about an improve-
ment which would forestall the contemplated coup.
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EUROPE
No.
1. PORTUGAL: Salazar antici tes War this zar--Ambassador Wiley
reports that Premier SalaabeIieves Th-e US and USSR will engage
in open warfare before the end of the year, Salazar reportedly is
prepared to have Portugal enter the war as an independent ally of
the West and has made plans to move the capital to Luanda in
Angola, if necessary.
FAR EAST
2. KOREA: gAtitmay_minglithee Syngpan?GO.neral Hodge reports
that it may become necessary to arrest :or, Rhee Syngman, Kim Kco,
and other rightist leaders because of the violence of thetr anti-
American activities. Hodqe declares th1 because Rhee "apparently
wants to become a martyr and might become a "storm center" in
jail, he will await some overt action before making such an arrest.
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GENERAL
,1. Bevires su ? rt of Ital in Paris talks--In response to urgent US recom-
xnendations that Italy be given 11 status in the Paris talks on the European
recovery program (see Daily Summary of 30 June, item 3), Bevin has in-
formed US Ambassadors Douglas and Caffery that he will use his "utmost
endeavors to insure that Italy will be one of the three or four powers to
compose the Executive Committee charged with the main direction of affairs.
Bevin said, furthermore, that as soon as Italy ratifies the Peace Treaty he
hopes to declare in the House of Commons that the state of war with Italy
is ended. Bevin added that he had been attempting to find some method by
which the Italian Ambassador Designate in London could be officially recog
nixed prior to such ratification.
fl
2. UK susmLis2.1.rle otiations with Yugoslavia--US Embassy Belgrade re-
ports that the BritishWissiaEided UK-Yugoslav civil'air
negotiations upon learning from the UK Foreign Office of the US diplomatic
representations. (The Department of State on 9 July instructed US Embassy
London to express to the UK Government its grave misgivings concerning
the UK-Yugoslav air negotiations and to urge the UK not to facilitate Yugo-
slav air expansion into the Near East unless the Satellites are prepared
to grant air rights to both the UK and US.)
(CIG Comment: It appears unlikely that the USSR would permit
implementation of a UK-Yugoslav air agreement. This view is supported
by the Yugoslav insistence on an escape clause to the effect that the UK
should not actually begin flights into Yugoslavia until reciprocal Yugoslav
operations to London could be instituted.)
3. Postpo ement of Soviet withdrawals from Bu ria--General Robertson,
rig Military Represeiiiiiit7FACC iiganIa, believes that the withdrawal of
Soviet troops from Bulgaria -- begun in mid-May -- was suspended in mid-
June. Robertson attributes the suspension to a presumable change in Soviet
policy in response to a change in the international political situation.
EUROPE
4. USSR: Embassyriews on Soviet reaction to Paris Conference--US
Embassy Moscow believes that the Soviet-dictated withdrawal of Czecho-
slovakia from the Paris Conferehee constitutes "nothing less than a
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declaration of war by the USSR on the immediate issue of the control of
Europe." The Kremlin, according to the Embassy, appears convinced
of its ability to defeat the purposes of the US proposals, either as a result
of Western withdrawal in the face of Soviet opposition, or through "an
open struggle if necessary." The Embassy attributes this conviction to
a Soviet assumption that Bevin or Bidault will not gain sufficient financial
support from the US Congress or that the US will eventually be forced to
withdraw, because of an "inevitable" economic depression.
5. ITALY: Dunn advis_e_g_atek_ist ratification now--US Ambassador Dunn be-
lieves that, in view of the great risk liaTErdasperi's Government might
be overthrown by an adverse vote on the Italian Treaty, it would be advisable
for the US not to press for ratification at this time.
Current Communist tactics--Dunn reports that the increased political
disturbances and violence in Italy have been directed mainly against the Chris-
tian Democrats and extreme rightist parties. Dunn adds that the Communists
are trying to conciliate the right-wing Socialists and make a common front
of all the leftist forces in a drive against the De Gasper' Government. This
situation, Dunn observes, may change at any time, especially if the right-
wing Saragat Socialists should enter the Government or refuse to cooperate
with the Communists. Dunn nevertheless believes that the Italian Commu-
nists will intensify their attacks on the Government by all possible means
In order to force it out.
6. FRANCE: Threatened strike.. n_Lsym. bring crisis--US Embassy Paris reports
that Premier Ramadier has reacted vigorouily to the threat of a strike by
the Government workers and has placed the case before the nation in a
radio appeal. The Communist-led General Confederation of Labor (CGT)
has broken off negotiations, and the Embassy believes that, if the Govern-
ment capitulates to CGT demands, several Cabinet Ministers would resign
and thus bring on an extremely difficult crisis. The Embassy cites the
opinion of an "able" political observer who regards the threatened strike
as a Communist attempt to torpedo the Paris Conference.
FAR EAST
7. CHINA: Nationalist commander foresees cr1ticg2a19d in Manchuria:-
General Sun Li-jen (deputy Nationalist commander in Manchuria, regarded
by US observers as one of China's most capable tactical leaders) has told
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US Embassy Nanking that Chinese Communist strength in Manchuria has
not been materially reduced, and that the next three or four months will
be a "critical period."
Sun implied that he does not believe Central Government charges
of large-scale Soviet military assistance to the Communists in Manchuria.
(The editor-in-chief of TA KUNG PAO, one of the two prominent independ-
ent newspapers left in China, also told an Embassy official that its careful,
on-the spot investigation in Manchuria had failed to reveal any evidence
of Soviet technical participation or active assistance, or any grounds for
concluding that captured Koreans and Japanese had been trained or equipped
by the Soviets.)
Chou's resence in Moscow not confirmed--US Embassy Moscow
reports that the Chinese Ath sia"61,--Fciiiiiii1the previous report that
Communist leader Chou En-lai was in Moscow (see Daily Summary of
10 July, item 4), now declares that the report is not confirmed; the Chinese
Ambassador believes that effective liaison between the Kremlin and the
Chinese Communists is not maintained inside Moscow.
THE AMERICAS
8. PARAGUAY: Government w1llin to accept mediationplan--The Brazilian
Charge in Asuncion has informed US Charge Trueblood thit President
Morinigo and the Foreign Minister, on behalf of the Paraguayan Govern-
ment, have agreed to a plan for an immediate armistice in Paraguay's
civil war to be followed by mediation of the issues.
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GENERAL
1. U elms UK alolort of Italy?The Department of State has instructed
Ambassador Douglas to present the following views concerning Italy
to Foreign Minister Bevil': (a) .recognition should be given to extent of
Italian support of the. European recovery plan; (b) the need for some
fqnmediate aid may be as great for Italy as ?Bevin feels it is for France;
(c) the Italian political situation, "roughly analogous to that in France,"
intensifies the need for interim assistance; and (d) both economic and
moral support from all Western powers are necessary to prevent a
Communist "rise to power in the spring elections." The Department
therefore emphasizes that support of the Western Powers must be
made clear to the' Italian people, "if-any democratic Italian government
11,3 to have a reasonable pportunity to prove itself."
Preliminary UK and French jlerson Italian colonies--The director for
Africa and the Near East in the French Foreign Office has told US Embassy
London that France's chief interest in the 7tal1an colonies question is to
EliiSilre "the restoration of Ite,ly to its rightful position in world affairs."
The Embassy interprets this to mean that France still advocates the
flaeimg of former Italian coloniev under Italian trusteeship. The UK
Foreign Office, however, Sfcers that if a decision were reached to return
th colonices to Italy there re.10t be bloodshed, especially in Libya. The
nkiaesy believes that the ntalo:.. preoccupation of the French is fear of
Lonalist propaganda and dls wrbances in Libya which might spread to
r,)11,eh North Africa.
? :EUROPE
3. AUSclIZIA: Kues. ex.pestsseeitleal situationlaikaust--The Commanding
Gal US Forces Austria, Gazieral Keyes, expects that "a most critical
pfelitical situation" will develop In Austria this August when the USSR will
,ve the chalemanship of the Allied Commission. Keyes reports that
see the last potato crop was e:ithausted he has been maintaintng the
mtionIn Wet out of his smell reld diminishing reserve, and he declares
that it ki mandatory that two flour shipments now in Europa or European
vraters be diverted to meet the Roux shortage. Keyes points out that any
refluction la the Vienna feed ration will cause new demonstrations to
',y,,7orthrovw the government
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Keyes warns that, in view of Austria's agreement to participate
in the Paris economic reconstruction conference and the recent Soviet
attack in the AC on US relief measures in Austria, failure of the US
to meet its food commitments in the country will adversely affect US
policy in Europe and Austria in particular.
4. GREECE: Separate Communist government reported likely?US Embassy
Athens reports that, a.-eing to the-best recent information, a serious
intensification of the internationally supported bandit movement, aided
by Communist agents and cells throughout Greece, has been planned and
may still he expected as a counter to the US aid program.
The Embassy has been reliably informed that a separate Com-
munist government is likely to be established within the next few days.
The Embassy's Informant adds that such a move, and the use by the Com-
munists of an international brigade, would result in greatly increased
arrests by the present Greek Government.
5. USSR: Soviet views on a anese and Satellite Treaties-- US Ambassador
Smith repor $ t when he presented to Molotov the US views regarding
an early conference among members of the Far Eastern Commission on
a Japanese Peace Treaty (see Daily Summary of 8 July, item 5), Molotov
Inquired whether it was not the US view that the Japanese Treaty should
be prepared by the CFM rather than by the eleven powers in the FEC.
Molotov also declared that the USSR favors simultaneous ratification of
the European Satellite Treaties by the four powers concerned.
Smith therefore concludes that the Soviet Government will advocate
preparation of the Japanese Treaty by the CFM, and will seek to delay
ratification of the Satellite Treaties,
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EUROPE
I. RUMANIA: Soviet-ins ired rehabill at on pin?Acting US Political
Representative Melbourn has been Informed by a reliable source"
that the Cabinet is considering a comprehensive Soviet proposal for eco-
nomic rehabilitation of Rumania. The framework of the plan includes: (a)
a four-year economic project based on Soviet "assistance"; (b) nationaliza
tion of the petroleum industry, credit institutions, and navigation facilities.
(c) the acquisition by the USSR of majority interests in all joint Soviet-
Rumanian companies; (d) a billion-ruble loan by the USSR for state rail-
ways, which will be mortgaged to the USSR along with other nationalized
Industries; and (e) the cancellation of further reparation payments. Mel-
bourne believes that such a plan is the logical outcome of the economic
developments of the past year.
(CM- Comment: The nature of such a plan suggests that the Soviet
method of counteracting the effect of the Marshall proposals on Eastern
Europe will be to Increase economic assistance to the Satellites, but only
In return for complete control of the major aspects of Satellite economies.)
2. CZECHOSLOVAKIA: Benes' tactics r_elardin Paris Invitat1on-According
to US Ambassador Steinhardt, President Benes was primarily responsible
for the initial Czechoslovak acceptance of the invitation to the Paris con-
ference. Steinhardt believes that Benes has thus outmaneuvered the USSR
and the Czechoslovak Communists and is now able to prove to the Czecho-
slovak public that the Government's foreign policy is dictated from Moscow.
FAR EAST
3. KOREA: Anti-trusteeshi feelin rowin, in South Korea?General Hodge
reports that political unrest in Korea is becoming more violent as the
meeting of the Joint Commission goes on." The anti-trusteeship group
of the Right has now rallied its forces behind Syngman Rhee and may
attempt once more to set up an "unrecognized government" in the US
Zone. Hodge adds that "political terrorism and intensified hatred" are
even affecting Koreans in Military Government and the police. Hodge con-
cludes that there is slight prospect of getting any Koreans "except Com-
munists and their followers" to cooperate with the Joint Commission
"so long as 'trusteeship' is in the picture."
Ertiovilffigootwiti
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THE AMERICAS
4. PARAGUAY: US blamed for internal chaos--US Charge Trueblood believes
that anti-US sentiment is sharply increasing in Paraguay. He quotes the
Chilean Ambassador as saying that many Paraguayans feel that the US is
respoasible for Paraguay's present "chaotic' condition because it has
"allowed" the Chapultepec Declaration to "flouted" in the country,
prazil insists on neggpated_keace--The Brazilian Charge has
Informed Trueblood that unless the Morinigo Government agrees to accept
a negotiated peace the Brazilian Government will "wash its hands of the
situation," and that Brazil has asked the Argentine Government to adopt
a similar position.
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GENERAL
I. Dutch-Indonesian ra rochement e ected--US Embassy The Hague re-
ports that the Netherla.nds-Foreis ice believes: (a) that the margin
of disagreement between the Dutch and Indonesian positions has been
greatly reduced; and (b) that the Netherlands Government may now "close
the deal" without obtaining a joint gendarmerie, but also without accept-
ing Indonesian demands for independent foreign representation. Accord-
ing to US Consul General Batavia, Lieutenant Governor-General Van Mook
believes that the remaining points of disagreement can be settled by con-
ferences between Dutch and Indonesian representatives.
2. Dutch may coordinate air schedules with USSR--The Netherlands Foreign
ice ill lea edleilTrEiliVa?sTrireWue that the Netherlands Gov-
ernment may permit its airline (KLM) to negotiate for a coordinated-
scheduling arrangement for erlin with the Soviet airline (Aeroflot), but
has decided not to sign an air agreement with the USSR on the govern-
mental level (see Daily Summary of 28 June, item 1).
US Embassy London reports that the UK will protest any type of
air agreement with the USSR which provides for an exchange of air traffic
at Berlin.
EUROPE
3. FRANCE: Cot to urLe. Wallace to form third p--US Ambassador
Caffery reports thai, according to a trustwoFthy informant, the admitted
principal objective of pro-Soviet Deputy Pierre Coes "mission" to the
_US is to convince Henry Wallace of the "necessity of building a strong
third party,which would not only represent democratic forces in the US,
but also would be capable of understanding the new democratic forces in
Europe."
FAR EAST
4. CHINA: Chinese Communist leader reported in Moscow?US Embassy
Moscow has been reliably informed that Chou En-lai is now in Moscow.
The Embassy /lutes that Chon's visit coincides with the return to the USSR
of the Soviet Ambassador to Nanking.
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(CIG Comment: Chou En-lai, long recognized as one of the most
influential Chinese Communists and an extremely skillful negotiator, has
served effectively as the Communists' "foreign minister." He was last
reported by the Communist radio to be in northern China on 29 June.
Chou En-lai's reported visit to Moscow coincides with such developments
as: (a) an apparent growing friction in Soviet-Chinese relations; (b) the
announced US sale of ammunition to the Chinese Government; and (c) the
Chinese Government's mobilization plan, which in effect outlaws the
Chinese Communist Party. If he actually has gone to Moscow, Chou En-
lai can be expected to make a determined bid for direct and immediate
Soviet assistance to the Chinese Communists, at a time when the Soviet
Government may be seriously considering the opportunities of expanding
Its influence in Asia.)
Soviet shipping activiA.between Manchuria and Shantung--US Consul
General Dafren reports that, forum iTh?st time,reliable
information that a Soviet vessel has sailed from Dairen for Chefoo, Chinese
Communist-held port on the north side of Shantung Peninsula. The vessel
reportedly carried trucks, tires, and auto parts. (US Navy observers in
China have also received reports, which they consider "probably true,".
that a Soviet merchant ship was in Chefoo on 7 and 24 June. Chefoo dock
workers, moreover, have noted the presence in Chefoo of a Soviet-manned
vessel that allegedly brought munitions from North Korea.)
(CIG Comment: These reports lend weight to recurrent Chinese
Government claims that Soviet vessels have been facilitating the move-
ment of Chinese Communist troops and supplies between Manchuria and
Shanteng.)
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GENERAL
1. UK view on Soviet action at Paris?According to US Embassy London,
high Forei? Office officlai have speculated that the Soviet withdrawal
from the Paris Conference may have been motivated principally by pros-
pects for a good harvest in the USSR, a conviction that Western Europe
Is going bankrupt anyway, and a belief that the USSR would hasten the col-
lapse by refusing to participate in a European economic reconstruction
program.
2. UK may suggest US-UK border commission for Greece--US Embassy
London reports, as the offiThfl3rit1sh appraisal of the Greek situation,
that: (a) no progress has been made in suppressing the rebels in Greece;
(b) the resultant continued uncertainty has made the economic situation
even worse than it was last year; and (c) US aid will be ineffective unless
the rebels can be suppressed and the flow of arms and supplies from the
border countries can be stopped. The UK Foreign Office expects Soviet
obstruction in the UN to the establishment of a permanent border com-
mission; the UK accordingly is thinking of asking the US to join it in
bringing about a Soviet veto of this recommendation. "In the light of
such obvious Soviet refusal to permit the only action which would be calcu-
lated to remedy the situation," the Foreign Office believes that the US and
UK would be justified in setting up a border commission of their own in
disregard of the UN. (Groznyko has expressed his disapproval in the
Security Council of establishing a permanent border commission but has
not yet indicated whether he will veto the recommendation included in the
majority report of the Investigation Commission. The US has already ex-
pressed its determination not to compromise on this recommendation;
see Daily Summary of 27 June, item 1.)
3. Turks fear USSR will set up dissident Greek Government--The Turkish
Ambassador in Paris Numan Menemencioglu, astute wartime Foreign
Minister) has informed US Ambassador Caffery of his fear that the USSR
Is about to establish a "stooge" dissident Greek Gbvernment outside
Greece with the intention of setting up this government eventually in
Greek Macedonia.
1
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EUROPE
4. POLAND: R rted Polish rtici non in Paris ra ...On 7 June,
Poland'S Commun ore e ews 'S Ambassador
Griffis that, although a final decision had not been made, he was certain
the Polish Government would accept the UK-French invitation to the
Paris meeting.
5. CZECHOSLOVAKIA: Econo c difficulties antici ted-41S Ambassador
Steinhardt has been informed that iesldent Bones and Foreign Trade
Minister Ripka anticipate economic difficulties in Czechoslovakia later
In the year. Bones believes that maw high Comraunists in the Govern-
ment are living in a "fool's paradise" and fail to recognize the latent
weakness of the Czechoslovak economy, now that it is no lower bolstered
by "very large" UNRRA contributions. Riplat told Steinhardt that he
anticipated a substantial decline in Czechoslovak exports as a result at
the inferior quality of Czechoslovak goods, labor's low productivity, and
skilled-labor shortages.
THE AMERICAS
6. NICARAGUA: Rec, !_;,? tion of Somoza .u. ,t re ime--US Embassy Managua
reports that the rge e ge .e iver to . cie facto Nicaraguan
Government a note which Is being interpreted in Managua as implying recog-
nition.
(CIG Comment: Unless the Argentine Government promptly re-
pudiates any Nicaraguan contention that its note implies recognition, this
new turn of events will strengthen the hand of those who, wishing to keep
recognition problems off the Rio agenda, would like Nicaragua to be in.
vfted. Brazil is reportedly about to "consult" the American Republics
on whether to issue the invitation.)
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GENERAL
1. Ykees cf Polishdeleie to ECE oneconomic program for Europe?US
Ambassador Donglao
Chairman of the Economic CommieSiOn for Europe, has told a high UK
official that, if Poland and Czechoslovakia do not accept the UK-French
invitation to the 12 July conferende on the economic rehabilitation of
Europe, "the Council of Foreign Ministers in November might as well
not m.eet, Europe would be divided, and collaboration inside UN organi-
zations would become an unreality."
EUROPE
2. USSR: Earlyiii.7itilicatio (el' peace treaties ine robable?US Embassy
Moscow reporto that the Soviet Foreign Off ce registered obvious dis-
pieasure recently WhOil queried by the R martian Ambassador in Moscow
coucerning Soviet ratification of the Rumanian Peace Treaty. Embassy
Moscow interpeets the incident as an indication of Soviet inclination to
avoid early ratiSicalen of the Italian and Satellite treaties. (US Embassy
Rome reports that Foreign Minister Sforza's advisers fear that the USSR
may indefinitely delay ratification of the Italian Treaty. Sforza's advisers
believe that the USS:l is no longer interested in solving European problems
according to laot year's folinnala.)
3. RUMANIA: Terms of pavo:ent for grain from USSR?US Political Repre-
sentative Meriiiine has been rallablillEFEWITiii the Rumanian Govern-
ment is paying for Soviet grain by transferring Rumanian gold in Switzer-
land to the credit of the US3R. According to source, two tons of gold are
already in the process of being transferred; a total of slightly more than
six tons will be Involved in the transaction.
(CIG Comment: The USSRewhich has agreed to supply Rumania
with U0,000 tons of grainfttline appears to be charging a price approximately
equal to that which Fiurnania is paying for US grain. The announcement of
the grain transaction by the Rumanian Government stressed that the USSR
was supplying ne grain to Rumania on far more advantageous terms than
those demandezi by the US; see Weekly Summary of 3 July, page 3.)
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FAR EAST
4. KOREA: Condi_tient_ilTI Korea and Balkans ce_._.s.mj_twi--Following a four-
day visft to North Korea, US Political Adviser Jacobs reports that the
Soviets have established north of the 38th parallel a Communist state
comparable to, though not yet so well-organized as,the Balkan satellites.
Jacobs foresees an inevitable clash between Right and Left, if the US and
Soviet Zones are merged. In this conflict, h adds, the organized Com-
munists in the North will be Joined with fellow travelers in the South and
will have the baking of the Soviet-trained North Korean army and security
police, while the rightist opposition will be divided and relatively unarmed.
5. JAPAN: US ur eS conference on Trent?The State Department has in-
structed U Amesa or Ici?etirti?i in Moscow to convey to Molotov the US
desire that a conference be held as soon as possible on a Japanese Peace
Treaty. The US wishes that all eleven members of the Far Eastern
Commission be represented and that an initial conference be convened
as soon as possible. It suggests that a conference of deputies and experts
be opened in Washington or San Francisco on 19 August.
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GENERAL
1. agyja_w_so to oal cor.s___ifsi__"ence in US--Bevin has informed US Embassy
London that he accepts the'US invitation to send top-level UK representa-
tives to Washington to confer on the European coal problem with particular
reference to Ruhr production (see Daily Summary of 30 rune, item 1).
Bevin indicated that because of the "extreme importance" of German pro-
duction, he may attend personally.
2.En_lawiti_sovViosmmentsonSpviet rawal from Paris conference--
US Embassy Moscow believes that the USSR s Paris
Conference is the result of the Kremlin's confident assumption that the US
will, within the next year, be overtaken by a severe economic crisis. Such
a crisis, according to Soviet calculations, would force the US to withdraw
from participation in European affairs thereby causing an economic collapse
in Europe which could. readily be exploited by the USSR. The Embassy be
that, while the USSR may permit Czechoslovakia, Poland, and even
Rumania to participate in a European economic program, such a develop-
ment "would have its own dangers" for the program. The Embassy points
out that the withdrawal of Polish coal could be used to jeopardize the success
of the program, and that European recovery plans will probably be sabotaged
by Comintern-inspired strikes. (Top French Foreign Office officials have
given a similar analysis to US Embassy Paris.)
Embassy Moscow urges a vigorous US program to counteract the
mincess oi Soviet propaganda concerning a US depression and the unhappy
consequences to Europe of reliance on US aid. The Embassy suggests that
such a program should emphasize US economic achievements and the falla-
cies of past Soviet predictions concerning the collapse of capitalism.
3. TilLatitude jnyarAMILLT.poxted hare!. /..,_situg.7.-US Embassy London considers
that the UK attitude toward the USSR and Communism "is beginning to take
on the character of the British attitude toward Hitler and Nazism after
Munich." The Embassy believes that Molotov's "threat" has served to
stiffen rather than frighten the British. The Embassy adds that the UK
would support any action to combat the sabotage of European reconstruction
by the Communist Parties in France, Italy, Greece, or in the Ruhr.
4. atdrzult_toeckutiffigatks with Jartsimitm&--Foreign Minister Bidault
has told US Ambassador Caffery of his fears that France will encounter
difficulties in reaching agreementtwith the UK on Germany, as the French
Interests which own certain Ruhr mines will oppose the UK desire to
socialize" the mines.paawel;Lt 09.
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5 Czech officials to discuss Marshall ro to:, s in Moscow?US Ambassador
Stein .:;rdt in Prague reports Prime Minister Gottwald, Foreign Minis-
ter Masaryk, and Foreign Trade Minister Ripka are leaving for Moscow
on 8 July 'to clear with the USSR" Czechoslovak participation in the
Marshall plan and to discuss the Franco-Czechoslovak treaty of alliance
(see Daily Summary of 5 July, item 3). The Czechs will argue that without
economic assistance from the West it will be impossible for them to carry
out the Two Year Plan and to fulfill their economic obligations to other
Eastern European countries. Steinhardt adds that the Czechoslovak Govern-
ment -- including most Communist members ? is keenly disappointed by
the failure of the USSR to participate in the Marshall proposals.
%No 6. Secreta. Marshall re lies to Generalissimo?Secretary Marshall has
requeste sy a . ?? morm Kai-shek orally, an
answer to Chiang's request for advice, see Daily Summary of 20 Ain?,
Item 2) that "in the final analysis the fundamental and lasting solution of
China's problems must come from the Chinese themselves" and that the
US "can only assist as conditions develop which give some assurance that
the assistance will have practical beneficial results."
EUROPE
7. RUMANIA: Economic negotiations with US reported s etal mated?Rumanian
Foreign Minister Tatarescu has indicated to Acting US Representative Mel-
bourne that the USSR is permitting no action by Rumania on such matters
of US concern as the proposed civil aviation agreement and the settlement
of the petroleum and the looted gold questions. Melbourne believes other
US-Rumanian negotiations are likewise being blocked.
8. PORTUGAL: Talks on Azores resumed?US Ambassador Wiley reports
that his conversations with the Portuguese Foreign Minister on the Azores
apparently have begun favorably. The Foreign Minister has said that the
US would obtain what it "needs," but he warned that there must be no
infringement of Portuguese sovereignty. However, Wiley believes he may
still "encounter serious difficulties'' in reaching a formula.
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GENERAL
1. Bevin's views on the European economic program--According to US
Ambassador Douglas, Bevih considers that: (a) Bidault has acted with
great courage in the face of all possible Communist pressure on him
and Ramadier; (b) France will support the program firmly in the imme-
diate future, and some US assistance in advance of Congressional action
would assure continued firmness; (c) Molotov's "warning" means that
the Soviets will use every device to prevent other European nations
from joining in the program; and (d) if no US action is taken on the
European aid program until late fall or winter France and most of
Europe will be "lost."
2.. French Communist reaction to Bidault's stand--Ambassador Caffery
reports that the French Communist reaction to Bidault's unexpectedly
courageous stand has been bitter. Bidault intends to go ahead as rapid-
ly as possible, but he anticipates that the Communists will do their
utmost to frustrate French efforts to work out a realistic plan and that
they may cause very serious internal difficulties In France.
EUROPE
3. CZECHOSLOVAKIA: Moderates essimistic after Paris Conference--
Ambassador Steinhardt reports that influential Czech moderates are
discouraged by the failure of the Paris Conference and by the apparent
stalemate in the negotiation of a Franco-Czech treaty of alliance.
They believe that: (a) the Soviet Union will veto participation of any
Satellites in the Marshall proposals; (b) the Communists are in such
control of Czech foreign policy as to prevent Czechoslovak participa-
tion in any event; and (c) the probable failure of the moderates to nego-
tiate a Franco-Czech alliance will be interpreted at home and abroad
as decisive evidence of Soviet control of Czechoslovak foreign policy
and thus aid in further strengthening of that control.
Ambassador Steinhardt comments that this pessimism, the im-
mediate reaction to the failure of the Paris Conference, may be some-
what relieved in the future' particularly if the moderates manage to
negotiate the French treats''. If this feeling persists, however, Ambassa-
dor Steinhardt doubts the ability and courage of the moderates to oppose
the Communists effectively on these two issues.
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4. GREECE: Increased me strikes threatened?US Ambassador MacVeagh
reports that the Communists are actively agitating for wage increases
and that the continued discrepancy between wages and the high cost of
living may cause wage strikes of indefinite duration, thus seriously re-
tarding the recovery program.
NEAR EAST-AFRICA
5. CYRENAICA: British consider bases in Cyrenaica essential?According
to US representatives conferring in London on the disposition of Italian
colonies, the UK General Staff is insisting that bases in Cyrenalca are
absolutely essential to their strategy in the Eastern Mediterranean,
since British troops will have to be withdrawn from Egypt and very
possibly from Palestine. The UK, therefore, may still seek trusteeship
over Cyrenaica.
6. IRAN: Rah likely to Ewa Prime Minister govam's removal?US Ambas-
sador Allen reports that the Shah continuesto maintain his animosity
toward Prime Minister Qavam, partly because of Qavam's attempts to
gain political support among the armed tribes. Allen believes that the
Shah will endeavor to dismiss the Prime Minister as soon as possible
after the Majlis meets and the Soviet oil question is disposed of one way
or another (see Weekly Summary of 3 July, page 11).
FAR EAST
7. NEI: Dutch military action likely in Java or Sumatra?US Consul General
Batavia expresses the opinion that some military action may occur in
Java or Sumatra, either as a Dutch operation against the Republic in
the event of an unsatisfactory Indonesian reply to the Dutch note of
29 June, or as police action, in the event of Dutch-Republican agreement,
to curb irresponsible elements and protect lives and property. Consul
General Foote warns that even police action may be exaggerated by
press correspondents on the scene into a "full-blown war."
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1. assible break fti tag9s/arA&2-Vatii2o.r,i --Yugoslav Vice Foreign
1.41,aister El-01;LT has AufortleTifk 'elf:lag6-'1',;...fgrade that the Yugoslav
Government Tras requested he Vati,nn to repudiate an article in the
Vatican lowt4paper which charged t4fr-.3. Yugeffiax Government with the
massacxe of 4001,000 CathoAcs. Bobler stated that "otherwise the Yugo-
slav Goverunvnt will take further mere, not excluding a break in
relatton;',."
Cmqment, Yugoslavia is the only Soviet satellite which still
mai tairF relr, Von-. with tho Vat:can. In view of the Yugoslav Govern-
ment's f Inure elire,Inate Catinlic .10luence by intimidation, it may
now om1de an-aihmPat of this oa impossible without a I.7rreak in re-
lations? Morecrier. tw Vatican t ot expected to moderate its attitude
so Jong as the Tito rim e contime, its terrorist campaign against Yugo-
slav CatIollcs.)
2. .A.L hro.iatel..in?.Wilorith West. Frontier ?US, Embassy London reports a
recentIin bY'A.:40.f..314tan in the area between the Durand
Line (along part of the indtt-Afelm border) and the Indus River which
may constitu.tc.? a serious threat tha peace of the border. The Indian
GoYernme-nt 110.3 EiUggZSted to the UK Government that the US be hwited
as a friendly third narty to warn tr..p. Afghan Government against adoption
ot a "policy o advenkre" whick,in the present state of, international
tensioni-Leay have repercussions:..'rc.rrtely harmful to Afghanistan as well
a.s to others. The correspondeme adds that, inasmuch as the US is con-
cerned with A:40tan se,inurtiy AS-a-71,.5 the USSItt the US may feel that if:
has a direct irterezt in the matte:r.
EUEOPE
3. GREECE: C917,177.1/3111St..arrerits, ,fithens likelx?Prime Minister Maxims
has tnfornxeir"(M'r.nTbT,Sgiiii-O:;T1'.'ZqNQTOTTarif rfl Ocambly tie necessary
to arrest prominent Communist :.ea.Ce:y..7s and organizers in Athens in order
to prevell some from "ieavtkig U-1.:7: Country to Join Zachariades (ex-leader
of the Gsvek counnulast Party nt.?:v iTt France) in promotiag a separate
Greek guveraraelt and otherzi.:; fif.c.arn kaunchhIg a series of crippling strikes
in OTSOCe. WY:FMCS added that not wish to place the matter solely
.,.
, Document No. 0 03
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,, 1Date:1 0 APR 1976 By: I
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In the hands of Minister of Public Order Zervas and would probably
appoint a small unofficial committee to handle the problem. MacVeagh
suggested that, in order to insure wide support for Maidmos' policy, the
committee be made as "broad" as possible.
4. FRANCE: UK views on Commtuatplans--According to the US Embassy
London, the k Foreign Office believes that the French Communists will
attempt to enter the Government now and, failing that, will attempt to
oust it. The Foreign Office, however, doubts that the Communists will
cause general strikes in the immediate future, as such action would be
"too transparent" and would cause popular resentment.
25X6
FAR EAST
5. KOREA: Este ioras situation E .recarious--General Hodge reports
that the Koreazi-gbiltrorei is more pie?cailirus today than at any time
since the occupation began" and "becomes more explosive daily." Hodge
states that the USSR has succeeded in developing a strong Communist
fifth column in South Korea and has tightened its control in the North.
Moreover' many Liberals in South Korea have been driven into Commu-
nist-controlled groups by the. abortive efforts of the extreme Right to
seize power and by the latter's agitation against trusteeship.
li the Joint C0113311iSS1011 fails, General Hodge expects an immedi-
ate outbreak of terrorism approaching "an oriental style civil war" be-
tween the Right and the Left and an early attempt by the Communists to
Instigate "spontaneous" mass uprisings. He adds that, as tension mounts,
the extreme Right is apparently trying to provoke widespread disturbances
In order to break up the joint Commission and provoke Hodge's recall
from Korea. The Communists welcome this activity in the hope that the
135 will become disgusted and withdraw all troops from Korea. In the
meantime, the USSR continues to pursue its goal of making Korea a loyal
Communist satellite, thus Insuring Soviet control of the warm water ports
of Wonsan and Chhmampo.
"
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6. CHINA: Soviet r2etriationslans--The US Naval Attache Nanking reports
that Soviet authorities in China probably were compelled to announce their
plans to repatriate Soviet citizens from China prematurely because Chinese
police in Shanghai refused to recognize the assumption of Soviet citizenship
by many Russian political refugees. The Attache believes that the Soviet
move, while adopted partly to save face, may be the first of several actions
in line with a "new tough Soviet policy towards China." He adds that there
Is no immediate likelihood of a violent rupture in Sino-Soviet relations;
although some observers stpect that a complete breakdown will eventually
take place. Current repatriation plans apply to about 60% of all Soviet
families in major Chinese cities, but will not include many older Soviet
citizens such as those engaged in Soviet intelligence activities.
hinese reactien to Soviet sepg...t -The Naval Attache also
reports that the Chinese describe the Russians who have assumed Soviet
citizenship as a "fifth column" and therefore favor their removal from
China. Morecver, the Chinese appear to be eager for a Sino-Soviet break-
down, possibly in the belief that a militant stand against the USSR would
encourage US support to China.
THE AMERICAS
7, ARGENTINA: Foreigamitcy on eve of Conference--US Embassy Lima
reports that, according to a reliable source close to President Peron of
Arge.ntina. Arteentine foreign policy on the eve of the Rio Conference is
based upon the following concepts that, during the inevitable future war
between the US and the USSR: (a) Argentina's role will be to defend South
America and "maintain it economically"; (b) the implied Argentine
hegemory in South America will be established with US "tacit consent"
and with US material end technical assistance; and (c) Argentina will main-
tain reiations with the USSR and its satellites as a bargaining point
pending 'negotiations with the US at Rio.
OIG Comment: This statement of Argentina's intentions is con-
firmed by CIG's analysis of the trend of Argentine policy since v-jr day,
and it helps explain Argentina's sudden change of heart with respect to
its Cha altepee commitments.)
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EUROPE
1. FRANCE: Molotov it...mtg? Wgteorn o it--
US Ambassador Caffery has been reliably informed by a high official in
the Ministry of Interior that Molotov has upbraided French Communist
leaders for their lack of skill in permitting themselves to be excluded
from the Government and has urged them to re-enter the Government
at all costs.
Ramadier success in citalsktytiteytid Ill_tgy--A high official close
to Ramadier has told Caffery that he is more optimistic concerning
Raniadier's ability to hold together the Government and obtain a vote of
confidence on 4 ruly.
Political st ificance of zigitt_i ,st pletals--Caffery has been
Informed by a high official of the Interior Ministry that
pie arrests made in connection with the "rightist plot" were based upon
evidence amassed during the past several months, and that the arrests
were made at this time in order that the pro-Government Socialists may
be able to declare that republican institations will be imperiled by a
clash between the cattreme Left and extreme Right, if the present Gov-
ernment is allowed to fall.
#1,
" te,
2. POLAND: PossibltRaLtisktation in Marsitt_t_k_sall imsls--Aceording to
US Ambassador Douglas, the Polish representative to the ECO believes
that Poland might cooperate, at least on a limited scale, with the Mar-
shall proposals for European economic reconstruction, regardless of
the Soviet position. The reoresentative added that: (a) Poland's need
for capital equipment and We tern markets makes economic Lsolation
from the West impossible; (b) Polish and Czechoslovak participation in
ECO demonstrated that these two countries might be able to engage in
limited cooperation with the West, even if the USSR remained aloof; and
(c) conversations are taking place in Prague concerning the possibility
of independent Polish-Czechoslovak participation in the plan.
(do Comment: If the USSR permits these countries to participate
In the plan, the local Communist Parties can be expected to use every
possible means to exploit Western aid for the benefit of the USSR.)
Eistiltielg.lettyveen Ukrainian ultdesgtautt_tteci arttlittinstit_t_p_i troo s--US
Military Attache Warsaw reports that, according to a fairly reliable
eyewitness, the Polish Government Is employing 3 divisions plus several
thousand security troops against the Ukrainian underground (UPA) in
Document No.
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southeast Poland. Source adds that the UPA is well-supplied with German
and new Soviet automatic weapons and that, although most of the fighting
Is between small units, engagements of battalion size have occurred.
The MA, who in general confirms these statements, believes that the Gov-
ernment forces will score considerable successes but will be unable to
eliminate the Ukrainian underground.
3. HUNGARY: Nagy's oonularity said stronger than ever?According to US
Charge Budapest, Communist attempts to discredit ex-Prime Minister
Ferenc Nagy in the eyes of the peasants have failed. The Charge is
assured on good authority that Nagy's standing with the bulk of the rural
population is better than ever, and that he is assuming the stature of a
national hero. (The UK Foreign Office had previously expressed the
belief that Nagy had lost his following in Hungary; see Daily Summary of
28 June, item 3.)
FAR EAST
4. NEI: Effect of US aide-memoire of 26 June?US Consul General Foote
reports that the US aide-me moire of 26 June prevented "unfortunate
Incidents" in the NEI during the past weekend. According to Foote,
President Soekarno is hoping to obtain control over extremist Repub-
lican leaders in order to be able to comply both with the Dutch note of
27 May and with the US aide-memoire. In addition, the left-wing groups,
which forced SJahrir's resignation by refusing to support his proposed
concessions to the Dutch, have withdrawn their formal opposition to
Sjahrir's policies. Foote believes that, if Soekarno gains control Of
the left-wing groups, agreement with the Dutch may be expected.
THE AMERICAS
5. ARGENTINA: Incitement of Panama against US?According to US Consul
General Troutman in Geneva, the Panamanian Charge in Bern quotes the
head of the Argentine delegation to the International Labor Office Con-
ference as saying that Argentina considers that US "imperialistic and
capitalistic activities" have placed Panama in an extremely difficult
position, and that Argentina, as the "big brother of all Latin American
countries," will give Panama full support. Troutman comments that the
Argentine delegation to the conference is engaged in an aggressive attempt
to drive a wedge between the and the Latin American countries.
2
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EUROPE
1. FRANCE: Ramadier faces critical period?US Ambassador Caffery
believes that the next ten days will be the most critical period yet faced
by the present Government, as Ramadier must: (a) find a compromise
economic policy on which the Parties in the Government can agree; (b)
obtain a vote of confidence on 4 July; (c) win the approval of the Socialist
National Council on 5 July. Caffery adds that the Socialist Labor Minister
Is said to be on the point of resigning because he cannot agree to the com-
promises of economic policy which Ramadier must make.
Sras also reports that
qualified observers note evidence in the declarations made at the Stras-
bourg Congress of the French Communist Party that Comintern operations
are being revived. He cites the speech of the President of the Control ?
Commission of the Greek Communist Party as tending to confirm French
reports that the international Communist movement has not only sent arms
to Greece but recruited men from the Netherlands, Belgium, Italy, and
Frappe for the International Brigade in Greece.
2. GERMANY: Reported Soviet plans for Central Government?
( rfliTro-viaMirtiir u ox.rith-14-1116Ta une discussed
.with the German officials who head the Central Administrations in the
Soviet Zone the formation of a unified government in that Zone. Ministers
25X1 Presidents the Soviet Zone attended a similar meeting on 27 June.
the Soviet Military Authority in the near future may announce
a plan or a central German government in its Zone.
NEAR EAST-AFRICA
3. TURKEY: EasliscommELurAtaamal to UN on minority uestion--
The State Department has informed US Ambassador Wilson that a'rurkIsh
- appeal to the United Nations at this time, concerning persecution by guer-
rillas of Turks living in Greek Thrace, would not serve any useful purpose
(see Daily Summary of 26 June, item 3). The Department believes that such
an appeal might complicate consideration of the Balkan Investigation Com-
mission's report and proposals by the Security Council, and also might
divert attention from the responsibility of Greece's three northern neigh-
bors for the unstable situation in Greece.
Document No. 00/
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FAR EAST
4. CHINA: Weakenig in North China?US Assistant
Naval Attache Peiping reports deterioration of the /7irChina situation
and increasing Communist interdiction of the lines of communication,
apparently because the Nationalists are unable to garrison all rail lines.
The US Assistant Military Attache Peiping suggests that popular disap-
proval of the present Nanking government may develop into a movement
to overthrow the Generalissimo, "if the Chinese Communists do not do
it first."
Tor oioiurr
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