COPY NO.
Foil nruco-.tos
POLITICAL AND ECONOMIC CHANGES IN WESTERN EUROPE SINCE THE LAST CONFERENCE OF FOREIGN MINISTERS
CIA HISTORICAL REVIEW PROGRAM RELEASE IN FULL
9
CEN.TRAL INTELLIGENCE AGENi
SRCrrET^
Diasi'IMINATION NOTICE
copy of this publics lion is for the lnforrnation and use of theon thc front cover and of individuals under thc Jurisdiction of thcwho require the information for the pertorrnance of their official duties.elsewhere in the department to other offices which require thefor the performance of official duties may be authorized by the following:
Assistant to thc Secretary of State for Research and Intelligence,Department of State
of Intelligence, OS, USA, for the Department of the Army
Naval Intelligence, for the Department of the Navy
of Intelligence, USAF, for the Department of the Air Force
of Security and Intelligence, ARC, for the Atomic Energy
eputy Director for Intelligence, Joint Staff, for the Joint Staff
g. Assistant Director for Collection and Dissemination, CIA, for any other Department or Agency
copy may be either retained or destroyed by burning ln accordancesecurity regulations, or returned to thc Central Intelligence Agencywith the Office of Collection and Dissemination, CIA.
DISTHmUTION: Office olresident National Security Council National Security Resource* Board Department or State Office ol Secretary of Defense Department ot the Army Department of the Nary Department of the Air Force
Force Coordinating Committee Joint Chlefi of Staff Atomic Energy Commtuton Research and Development Hoard
tTlflfiinirT
4 9
POLITICAL AND ECONOMIC CHANGES IN WESTERN EUROPE SINCE THE LAST CONFERENCE OF FOREIGN MINISTERS
SUMMARY
At the breakdown of the last Conference of Foreign Ministers (CFM) In London Inhe general situation among the continental nations of Western Europe, except for Uie Scandinavian bloc, was favorable for Communist exploitaUon. Although there was little danger from Communism In the UK, the country had just passed through the worst of its postwar economic crisis, and economically the future was extremely uncertain. France and Italy were politically and economicallyand Italy's allegiance in the cold war was doubtful. The over-all situation In Germany was extremely graveesult of industrial stagnation and near starvation.
In thc sixteen months which have elapsed since Uie conclusion of Uie last CFM, the strategic position In Europe of the Western Powers has materially improved. France, Italy, Norway, and Denmark are now firmly in the western camp. France and Italy possess moderate and relatively stable governments; both nations arc making rapid strides toward economic rehabilitation. The UK, Benelux, and the Scandinavian states, through their own economic improvement and cooperative efforts, are contributing to the economic recovery of the entire region. Although in Western Germany Uie political and economic situations have shown marked improvement, thc area remains of immediate concern to US security. In Austria, the Western Powers have more than held their own in thc East-West struggle. In general all the slates of Western Europe have come, sinceo view the problems in Germany in much the same light as they are viewed by the US and the UK. In general, too, the governments and peoples of Western Europe have comeuch clearer realization of thc menace to themselves of international Communism and haveardier detennination to combat it. and to combat the activities of national Communist Parties as well.
Only in thc Iberian Peninsula has the situation deteriorated. Deterioration in that area, while posing long-range problems, some of which the US may be called upon to solve, is not of serious immediate importance In the present phase of the East-West conflict.
Note: The Intelligence organizations of thc Departments of State, Army, Navy, and the Air Force have concurred In this report. The information contained herein is as of IB May mo.
SECTcET*
POUTICAL AND ECONOMIC CHANGES IN WESTERN EUROPE SINCE THE LAST CONFERENCE OF FOREIGN MINISTERS
THE GENERAL SITUATION IN7
At tin- breakdown ol thc last Conference ol Foreign Ministers (CFM) In London inhe general situation among the continental nations ot Western Europe, except for the Scandinavian bloc, was favorableommunist advance. Theof the UK was stable; the population In general was definitely pro-Western, and there was little likelihood of Communist gains through political or any other type of activity. The country had Just passed through the worst of its postwar economic crisis, but the future was extremely uncertain, with lack of dollars causing grave France and Italy, the two major sovereign continental states, were stillfrom the political and economic instability resulting from Worldnd still appeared in danger from strong Communist minorities, although in France, Communistinfluence had begun to decline. Many of tho smaller powers such as Switzerland, the Benelux countries, and Scandinavia, were politically and economically stable or were showing signs of becoming so. Communist poliUcal domination of thc UKirtual Impossibility. In Germany, the internal political sltuaUon was dominated by apathy and inertia; economically, condiUons were extremely grave with industrial stagnaUon and near starvation. The four occupying powers were deadlocked in the Allied Control Council. By default,evolutionary situation waswhich, if unchecked, could have presented the numerically weak Communistsield for exploitation. In Austria the antl-Communist government, although stable, was subject to the severe pressures of four-power occupation and economic hardship.
Thc Third Force coalition which governed France gave UtUe assurance of stability; it was threatened on Uie one handowerful Communist Party which controlled the principal labor union, and on the other by thc political party led by the aspiring Charles de Gaulle. Tho economy of the country, gravely damaged by the war and thc German occupation and suffering from iriflation. had Just been severely shakenation-wide series of Communist-led strikes accompanied by sabotage Although Premier Se human's firm handling of the stiikes had raised the prestige of histhc specter of civil war between Communists and Gaullists remained In the
Italy, whose economy was in many respects in worse condition than that of France, was ruledrovisional governmentlim parliamentary majority composed of Christian Democrats and several moderate parties. Its stability depended mainly on continuation of US aid. The Italian Communist Party which was threatening thewith an intensified campaign of strikes and violence, and possibly with revolu-Uon, was the largest and best organized in Europe outside thc USSR. To combat these physical threats, which would have ruined the country economically. If carried out
successfully, the provisional governmentolice force and an army, both suffering from poor leadership, few arms, and little mobility. In addition, Italy had no dollar credits for thc purchase of essential food and raw materials.
Thc governments of France and Italy were both moderate and were, along with tho majority of the people, desirous of remaining in the Western bloc. In view of their many problems, their paucity of resources, and thc strength and militancy of their Communist minorities, they appeared to have little more than an even chance of remaining in power. Had they fallen, France would probably have been ruledightist government under De Gaulle, and Italy by the Communists. In either case, civil war might well have followed to the probable advantage of the USSR.
With the near approach of another CFM, it is pertinent to review the changes affecting US security which have occurred In Western Europe during the sixteen months that have elapsed since the last meeting in London.
TUB UNITED KINGDOM
The UK's chief weakness in7 was its economic situation, which had but Just begun to turn upwards from its postwar depths. Today, the whole fiscal and financial outlook Is greatly improved. Inflation has been checked. Rationing and other restrictions have been eased. The economy is, however, and must for some* time be, strictly controlled. Britain's external payments on current account arc in over-all balance,arge deficit ta dollars (now met by ECAemains the greatest problem. The pound Is gaining strength and is even becoming scarce. The general economic and financial prestige of the UK has greatly increased since the end
While there has been no question of morale In the British armed services ln thc event of war, and although their organization has improved over the past sixteen months, thc UK's over-all military capabilities are low ln relation to extensive defense commitments. Scientific research and staff work in the higher levels were and arc excellent, and thc reserve position of tlic services, with several million combat veterans, is good. Despite the relative weakness of the military potential, capabilities for the' defense of thc UK have improved since
While thc UK has differed occasionally with the US in the emphases on andto the German problem, the UK Government was and is in fundamentalwith that of the US. The population Is kindly disposed toward German recovery provided security safeguards are enforced and reasonable French fears are placated. The UK Government in general favors the German Socialist Party and socialization, both on principle andeterrent toommunistightist dictatorship, it is less sanguine than thc US on the chances ofenuine democratic spirit among the Germans. Concern is beginning to be felt over rising German industrial competition.
While there has never been any doubt about British disposition to resist Communist expansion, Britain's capabilities to this end have been Increasedesult of progress toward economic recovery which has: enhanced tlic UK's prestige and influence in
international relations; strengthened its willingness to maintain, and even to expand overseas undertakings related to strategic objectives; and confirmed its readiness to support its present military budget
FRANCE
^ France has made marked progress toward political and economic stability sincendustrial production isevelercent above prewar; foreign trade is improving and greater confidence in the franc is manifest. Thc Communists have lost support throughout the country, and no longer pose an immediate serious threat to the government. Although the Gaullist movement remains an important political factor, the likelihood of De Gaulle's coming to power is greatly diminished, while the specter of civil war has been exorcised. French military capabilities in terms of trained manpower and available equipment are generally the same as theyearalf ago, but reliance on collective security pacts and the hope for US military aid promise improvement in French military capabilities. The French armed forces are capable of suppressing any uprising or threat to security arisingthe country.
In7 French policy was not far removed from De Gaulle's original concepteak Germany, which involved separation of the Rhineland,of the Ruhr, and economic union of the Saar with France. Since that date, France has made concessions regarding trizonal fusion, thc occupation statute,and thc establishmentest German state. At the CFM, the French will probably continue their present close cooperation with the US-UK position on Germany and will probably oppose any USSR effort toentralized Germany.
In French North and West Africa, however, the situation has deteriorated slightly sinceeduction of French armed forces in the area, necessitated by military operations In Indochina, has increased thc possibility of difficulty Indisorders among the natives. Moreover, the discouragement of nationalist leaders, caused by French policy and by their failure to achieve moral support from thc US or material assistance from the Arab League for their aspirations, enhances the possibility that they may comeorking arrangement with the Communist Party.
ITALY
Italy, which in7 was in serious danger ofommunist state, is now possessedtable moderate government,apidly improving economy. By signing the Atlantic Pact, Italy has aligned itself with the West.its armed forces arc incapable of preventing an invasion, they are strong enough to suppress any revolutionary uprising. The economic rehabilitation of the country under ERP has successfully passed the opening phases, and the government is finally taking steps toand reform program. While Communist Party membership and Influence over labor havearge Communist opposition still remains ready lo exploit any failure of the government lo effect adequate reforms. Such a
Iailurc couldecisive sector ol the electorate over to the Communists in the national elections
In7 the Italians were bitter against Hitler and the Nazi leaders who hud led Italyisastrous military venture, buthole thoy held no violent animosity toward the German people. At present, many members of thc Italian Government, aware of Germany's former importance to Italian markets, desire the inclusion of Germany in any Western European economic union and believe that the reconstruction of Germany is essential to European recovery. Some conservative Italian elements would welcome thc military revival of Germanyowerful bar to further Soviet aggression.
SCANDINAVIA
Thc situation with respect to Sweden Is little changed from what ft washe government, although It has lost Ils absolute majority in the lower house, remains stable. Any conceivable change would not preclude the continuancetable democratic regime. The economic position was good and is slightlywith respect to Lhe contribution Sweden can make to general European recovery. The government and the people were and are basically friendly to the US and fear Soviet expansion. In the past sixteen months there has been an Increase In the government's willingness to support thc US position In the East-West struggle and to accept the US as the leader ba opposing aggressive Soviet moves; however. Sweden prefers to continue her traditional neutrality rather than participate in the North Atlantic Pact. During the same period, the population has comereaterthat Swedish Communists arc agents of the USSR and has more actively resisted Communist Infiltration.
While opposedevival of German national Ism and militarism, the Swedes wish lo see Germany economically restored so that the profitable prewar trade may be
resumed.
The Swedish armed forces arc relatively strongmall power and would resist aggression with great determination. Without foreign assistance, however, they could not hold off Soviet attack for moreew weeks.
The government of Norway was and is stable. Tbe country's economy is steadily Improving. Inhe nation was reluctant to commit itself definitely to the West lest it oflcnd thc USSR, but It has now Joined the Atlantic Pact. Norway opposes the re-esUblishment of German military power, but. like most other European nations, desires the revival of German economy in the Interest of trade. Norway was and is chiefly important to thc US in that it mightase of operations ln an East-West war, and by reason of Its possession of thc world's third largest merchant fleet.
Following the lead of Norway, Denmark has overcome its disinclination toigorous foreign policy and Its desire to remain aloof from the East-West struggle and has Joined the Atlantic Pact as Its best chance for future security. Since the last CFM the Danish Government has been strengthened, and Communist Influence, never great, has declined, particularly in the labor movement.
6
BENELUX
The Nclherlands, inas reluctant to enter any binding military or political agreements with other Western nations and was striving toa neutral position in tbe East-West struggle. Tbe economic situation, while improving over the Immediate postwar period, required trade with other stales without which lt could havehreat to Western European economic recovery and stability. At present, Dutch-US relations ore closer thannd the positive value of the Netherlands to US security has Increased considerably. Internal economic recovery, progress toward the Benelux Economic Union, and expanded trade with all of Westerngreatly assisted bystrengthened the Dutch economic position. Dutch willingness to participate in Western Union and Uie Atlantic Pact and toore active role in Western European affairsetermination to remain closely allied with Uie West. Dutch military strength in Europe will remainuntil Uie Indonesian conflict is resolved. Dutch-US friction over Indonesia has increased but has not seriously hampered cooperatiou on other problems.
At thc time of the last CFM, Uie Dutch were more fearful of the revivalowerful Germany than were Uie occupying powers but wanted enough German economic recovery to stimulate Dutch-German trade. Dutch participation inon the Ruhr, following the failure of the Iondon CFM, brought Dutch views on Germany more In line with those of the Western occupying powers. Thc Dutch are now less concerned with reparations and desire sufficient German recovery to permit active German participation In Western European trade.
LitUe change has occurred in Belgium's attitude toward thc East-West struggle in the past sixteen months. Changes in Uie political and economic positions in Belgium have been changes In degree rather than In kind-upporter of thc US-UK, Belgium's active participation In Uie Western European Union and Uie Atlantic Pact, and Its greater integration with Western Europe through participation in ERP have enhanced the value of Belgium as an ally of thc US. Conversely, closer Belgian association with the West during the past sixteen months, accompanied by decuhlng Communist influencerowing will to resist SovictLzatlon, haveBelgium's value to the USSR bothotential sphere of Influence andoviet-occupied area in the event of war. Belgium's strong economic position has contributed to recovery in Western Europe, and. although its military capabilities have not increased, the nation has thc potential for expanding and improving its armed forces.
As In Uie case of the Netherlands, Belgium in7 fearedowerful Germany butevival of Belgian-German trade. The inclusion of Belgium in the Western Powers' discussion on Germany following Uie breakdown of Uie CFM at London has brought Belgian views closely In line with those of the Western occupation powers. Belgium nowolitically federated but economically united Germany with sufficient economic recovery to permit greater German contributions to thc Western European economy.
7
In the past sixteen months. Luxemburg's value to US security has been enhanced Insofar as that little state has become more closely associated with other Western European countries In ERP. Western Union, and the Atlantic Pact. With continuing political stability and economic prosperity, Iaixembourg. in Its own small way,tabilizing factor In Western Europe. With the abandonment of its traditionalLuxembourg has advanced far In its attitude toward international and regional cooperation. Generally, Luxembourg follows the Belgian lead ln foreign affairs but is more acutely awareossible threatevitalized and aggressive Germany.
GERMANY
In Western Germany the economic and political situations in7 were little removed from thc chaos resulting from total military defeat and subsequent Allied policies of dismantling, decartelization, and denazification. Both the Bizonal Council and the Tacndcr governments were required to follow Allied directives In these matters and at Uic same time legislate for the German people inay as to bring into eflect the democratic objectives upon which Allied occupation was founded.political experience, strong leaders, or popular support, the German governmental agencies established by the occupying powers were compelled to struggle against the apathy and inertia Induced by the ruin of the country and thc almost hopeless task of reconstruction and rehabilitation. The problem of the people was one of mere survival amid the wreckage of their former existence and the conflicting policies and systems imposed by their conquerors.
At the end7 Western Germany faced economic disaster. Industryery low level; thc currency was worthless except for the purchase of limited food supplies which were in such short supply that many sections of thewere threatened with starvation. There was little incentive either to work or to save. Heavy imports of food from tho US kept the population alive, but ia view of the financial situation the Germans could do little to revive and lo rehabilitate Industry. Agriculture was depressed; cropsercent or normal, and Western Germany was cut off by Soviet action from its usual source of food from Eastern Germany.
The importance of Western Germany to US security has been considerablysincehc three western zones,aluablearea available to the West and denied to the USSR, have shown signs of great economic recovery In the past twelve months. The people, who always detestedbut preferred that of the Western Powers to that of the Soviet Union, have come even more to detest the USSResult of the Berlin blockade, and have givengreater support to thc West because of the success of the air lift. Thc unsatisfied demand for consumer goods in short supply, coupled with thepostwar Increase ia currency In circulation, raised prices more rapidly than wages, and has brought about labor unrest. Industrial production, however, hasdoubled, since currency reform Innd badness has been greatly stimulated. ECA has assured Industry of an adequate supply of raw materials, but war damage, dismantling, and obsolete equipment have tended to limit capacity in
3
thc absence of capital for replacement and reconstruction. Heavy food imports are still required to maintainaloric ration, but8 crop yield was aboutercent of prewar andonsiderable improvementhe proposed new German Government is still an unknown and untested entity with many points of disagreement, real and potential, between German leaders and the occupation authorities.he Germans have become increasingly aware of their renewed importanceactor in the European balance of power.
The situation in the eastern zone of Germany has changed little during tho period under discussion. Economically, the tone has deteriorated somewhat, largely because of Soviet occupation policies induding that of ruthlessly bleeding the country for the benefit of the USSR. The deterioration has not. however, readied an alarming state in terms of Soviet security. The stability of the Communist-controlled governmental agencies In the Zone was and still is guaranteed by the presence of the Red Army.
AUSTRIA
Comparison of conditions In Austria at the end of the last CFM with those existing today shows that essentially Austria's Importance to US security, and conditions within the country which constitute fundamental problems, have not altered. Efforts by thc US. the UK. and France to treat tbe Austrian problem separately from that of Germany and the East-West conflict have not so far been successful inreaty and ending the occupation of this liberated country. Despite very considerable economic Improvement and continued strong political stability, the uncertainties of Austria's future loom as large now as they did Inoviet capabilities in Eastern Austria, based on military occupation, have in no way diminished. In one respect conditions In Austria and Austria's position in Western Europe haveew importance. Austria hasro-Western and democratic nation whose cooperation with the US. although partly motivated by economic necessity, has been maintained in the face of Soviet occupation and pressure and despite encirclement on three sides by Sovlet-controUed areas. The fate of Austria and US policies in regard to it mayar-reuching effect in continuing the consolidation of Western Europe, both politically and economically, and in strengthening the morale of the Western European people and their determination to resist Soviet aggression. Tills effect may be greater than thc position, size, and potentialities of the country on thc East-West struggle would seem to warrant
IBERIA
On the Iberian Peninsula, the changes which have occurred since the London CFM have resultedeteriorating economic situation. In Spain, inhe general economic situation was better than at present, but the general standard of living was extremely low. Spain's economy continues to deteriorate. This could lead to government breakdown and disorder. Should such conditions arise, the Communistbutetermined effort to exploit them. It would not. however, be able lo take control of the country.
* Thc morale of the armed forces has declined, but Franco retains their loyalty. So long as this is the case, he will remain in power.
The attitude of thc people and of the government toward Germany remainsRadical supporters of the Franco regime are sympathetic towardthe majority of the people are indifferent. During the war the commonpro-Ally. - -
Inlthough mdicatious had appeared that such war-Induced prosperity was terminating, Portugal was still enjoying the prosperity brought to it by the war. Today the economic situation is rapidly deteriorating. Portugal has encountered great difficulty in marketing its exports, but at the same time must keep its importsigh level. Portuguese foreign exchange is nearly exhausted; yet wheat, petroleum, and other essentials must be bought abroad. Little danger existed in7 from tbe Portuguese Communist Party, and little danger exists today.
The Portuguese attitude toward Germany has undergone almost no change. The government and the upper classes were and are favorably disposedettlement which would permit Germany to function againation. The people have little interest in the problem.
SWITZERLAND
There have been few fundamental changes ln Switzerland sincen the Bast-West struggle Switzerland has reaffirmed Its neutrality, but there is some indication that it is collaborating economically more with the West than with the East. The Swiss are generally less suspicious of US motives in Europe than they were sixteen months ago. Switzerland continues to enjoy great prosperity.
GENERAL CONCLUSIONS
It would appear that during the period between tbe last CFM and the present, the strategic position in Europe of the Western Powers has materially improved. France, Italy, Norway, and Denmark are now firmly in the Western camp. France and Italy now possess moderate and relatively stable governments; both nations are making rapid strides toward economic rehabilitation, and both haveaterial Improvement in the organization and training of their military establishments, even if the improvement in material has not been great. The UK, Benelux, and the Scandinavian states, through their own economic improvement and cooperative efforts, are contributing to the economic recovery of thc entire region. Although in Western Germany the political and economic situations have shown marked improvement, the area remains of Immediate concern to US security. In Austria, the Western Powers have more than held their own in the East-West struggle. In general, all the states of Western Europe have come, during the past sixteen months, to view the problems in Germany in much the same light as they arc viewed by thc US and the UK. While France still greatlyesurgence of German military might, the French have accepted the broad principles of the tripartite plan for revival of the German economy and the establishmentolitical system for Western Germany. In general, loo, the governments and peoples
of Western Europe liavc comeuch greater realization of the menace to themselves of international Communism and haveardier determination to combat it. They, too, have come to recognize thc fact that national Communist Parties owe allegiance to Moscow alone and that the USSR is, therefore, the real and only danger to their security.
Only in tbc Iberian Peninsula has the situation deteriorated. Deterioration in that area, while posing long-range problems, some of which the US may be called upon to solve, Is not of serious Immediate importance In thc present phase of the East-West conflict.
11
Original document.
Comment about this article, ask questions, or add new information about this topic: