THE CURRENT SITUATION IN ITALY

Created: 7/26/1963

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SPECIAL REPORT

THE CURRENT SITUATION IN ITALY

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CENTRAL INTELLIGENCE AGENCY

DIRECTORATE OF INTELLIGENCE

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THE current SITUATION IN ITALY

Summary

The deadlock In Italian politics, resulting from the disappearance of the center-loft FUnfaniafter the April elections, has been eased but by no means resolved by the confirmation of Premier Leone's caretaker government. Italy's long-run stability still depends on revival ofnthe Christian Democrats and thetorogram of modern social andlegislation and to isolate the Communist Party politically. In tbe present parliament no other kind of government seems possiblearetaker cabinetoalition of center elements too diverse to allow it to pursue any positiveor to hold prospects of long tenure.

Majority elements in the two main partiesapparentlyev at temp:enter-left government after the October national congress of the Socialist Party, but there are seriousin the way. Right-wing Christian Democrats and left-wing Socialists oppose the effort and have used the April electoral gains of the conservative Liberal party and the Communists to spread suspicion of the center-left formula within their respective parties. Such suspicions caused the Socialist Party in mid-June to repudiate the tentativewhich Nenni had already reached on its behalf with the Christian Democrats; further efforts were then suspended until after the Socialist partyin late October hadhance to clarify the party's position. Since strong personalare also Involved within both the Socialist and the Christian Democratic parties, it is likely that negotiationsenter-left coalition will take considerably longer than anticipated; the Leone government may therefore be prolonged from week to week. Meanwhile, the Communist Party is making special efforts to increase friction between the Socialists and the Christian Democrats, and isparticularly to exploit Italy's growingfor political purposes.

Annex; The State of the Italian Economy

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background

Italy's current political paralysis springs frompersistent since thethe factorommunist party which has stoadlly drawn the "protest" vote ofoercent of the electorate. Italy's rapid industrial Modernization has outstripped comparableof Its social structure and governmental apparatus. Landholdlng, education, administration, and the excessive share of taxation borne by lower Income groups all needby West European standards. The crux of the dilemma Is that elements in several center parties long seeking such reforms have been inhibitedhowdown withelements by the delicacy of parliamentary arithmetic: where extremist partiesuarter or more of theovernmental majority requiros near unanimity of the center.

The Christian Democratic Party has dominated allsince the war, but3 has been forced to find alliesarliamentary majority. Byoalition with the Republicans, Social Democrats and the consorvativ* Liberal Party had proven too disparate for stability. xperiment in minority CD rule with neo-fascist parliamentary support caused widespread rioting. Under increasing presnure to distribute Italy's newmore widely and more equitably, the CD leadership began cautious steps toward the remaining alternative, tbe "opening to thecoalition with Social Democrats and Republicans, relyingocialist commitment ofabstention on key parliamentary votes. This not only afforded tbe necessary reform-minded parliamentary backing, but spurred the PSI's disengagement from the Communists.

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The center-left "experiment" began withoalition, formedD national congress had endorsed the concept. The results were not spectacular, but the Fanfanl government introduced the style and tono of amovement, and promised moro concrete steps as thebecame establlahed. The PA1 meanwhile continued its divergence from the old ties with communism, particularly on foreign policy. Traditionally opposed to military credits, the PSI even abstained on an increase in the defense budget, and argued in debate that the increase was necessary tothe baltnce between East and West. Nennl, who has often argued that Italy must remain in NATO, publicly criticized Togllatti for failure to understand that tbe KLF wouldafeguard against nuclear proliferation.

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confirmation of Premier Leone and his all -Christian Democratic (CD)has momentarily eased the deadlock in Italian politics. Italy againationalbut one limited strictly to the conduct of essential parliamentary and executive affairs. This will remain the case at least until the Socialist Party (PSI) has decided at its nationalin October whether to resume negotiations with the Christian Democrats in thetoew and durable center-left government. Leone's confirmation onuly was possible only because theSocial Democrats, and Republicans abstained in order to buy time for such an effort.

Tho noxt few nonths willeriod of confusion and uncertainty as the political community seeks to repair the injuries done and the damages suffered during the recentcrisis. Both theDemocratic and the Socialist parties will be involved in much soul-searching and reassessment as each gropes toward athat will find support among the greatest number of its members. Intrapartymay well be as intense as the maneuvering betweenand the positions of some party leaders may bedamaged. The lesserwill not be untouched by this turmoil, and tho Communist Partyeartened by the disarray of the CD and PSI, is poised to exploit not only the

delicate political situation, but also the country's somewhat brittle economic position. (See Annexiscussion of the present economic situation.)

onsiderable degree, Italy's long-run stability lies in the balance.D-PSIbecause Socialist leader Hennl is unable to whip enough elements of his party into line, or because of CDreorientation of Italian politics toward modern and progressive goals would be dramatically slowed or halted, and the best chance for the establishment of political stability and the isolation of the Communists forfeit.

The Post-Electoral Situation

pril national elections, in which the

ITALIAN CHAMBER OF DEPUTIES

JULY

AL

Communists, Liberals, and-democrats gained at tho expense of tbe PSI and the CD deadlocked Italian politics, not because the returnsany important shift in the balance of power, but for essentially psychological Most of tho voters bad probably not yet felt the pact of the year-old experiment under Premier Fanfani and. in fact, parliamentary arithmetic remained basically unchanged. However, powerful opponents of the center-left in both the CD and PSI interpreted theirlossesepudiation of thes the center-left coalition was called, and they used the results tolimate of distrust and suspicion between the two parties, In this atmosphere the effort to putoalitioncame to grief.

Immediately after the elections. Italian political circles generally assumed that the experiment in center-left government would continue, if only because no durableseemed feasible. enter-right coalition, for example, could notajority without Including the votes of the neo-Fascists, and such support would be deeply repugnant to Important elements in tho Christian Democratic Party. The old quadripartite formulaoalition among the CD, the conservativeParty, Social Democrats, and the small Republican Party woulc) arouse somewhat fewer antagonisms, but most deputies

AMINTORE FANFANI Former Premier

recognized thathich was abandonedould itself betopgap measure.

Plrst Fanfani tried to perpetuate his government. Then CD secretary Moro tried toew center-left government and got as farentative agreement with Nennl. Onune, however, the PSI central committee suddenly repudiated

point. We can-exactly what variousumber of responsible for the be identified with

this agreement, and the crisis reached its Ion

not reconstruct

happened in the

sions Involved,

the factors

outcome can

some confidence.

Personal factors certainly played an Important role. opular figure within his own ChristianParty because of his authoritarian approach and his

RESULTS OF ITALIAN PARLIAMENTARY ELECTIONS

OF DEPUTIES

Democrats

Doots

it i

Tlroleoni (SVP)

Democrats

liti

Democrats

Tirol eons

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SEGRET

for sharp practice in tho political arena, la particularly disliked by tho CD right wing for his overly aggressive sponsorship or the center-left experiment. Others, elsewhere in the party, have been ambitious to succeed him as preiriorew center-left government. The Socialists, OD tho other hand, tended to see Fnnfnnl's leadership of the coalition as theiratering dawn of Its program, and they regarded with deep suspicion President Segnl's acceptance of Panfani's pro forma resignation and Koro's subsequent designation toabinet.

Personal arbitlon stay also haveart in theParty's decision to break off negotiations with theDemocrats. Nenni'swas challenged by Riccardo

Lombard 1, the party's next most important figure, who hasof an Independent of his own within thewing. Withyear-old chief in failing health and spirits and his own succession prospects threatened by Nenni's endorsement of Francesco Do Nartino as deputy chief, Loat-bnrdi took advantage of party impatience with the protracted negotiations to line up the votos necessary to repudiate the Nenni-lloro agreement.

Another factor is the known opposition to the center-left experiment of Presidentonservative Christian Although Segnl's formal powers are limited, his for influencing tho cabinet-making process areand his authority to call new electionsotent weapon.

The Communists' electoral gains last April convinced Lom-bardl that the Socialists had lost working-class votes bytoo far to the right, "too far and toond hevlowed the legislative program Nennl worked out with Moro In this perspective. The legislative program itsolf, how-evor, was probablyajor factor In the break-off ofwith the CD. Many Socialists already harbored the belief that tbe CD bad shown bad faith in failing to its earlier promises to sot up regional administrations throughout Italy.

NENNI Socialist Party Secretory General

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Leono Government

After Moro's effort toovernment aborted, all parties concludedool-ing-off period was necessary. It was in this context that Leone's minority government was established. Leone,ild man, had longkillful president of Italy's lower house, where he managed to keep on friendly terms with leaders of all parties. Thistendency shows some signs of affecting his discharge of the very different duties of the premiership.

Although Leone's announced intention is to carry on only until after tho PSI national congress in late October, the life of his caretakermay in fact beprolonged by the magnitude of the problems which must be ironed out between the CD and PSIenter-leftcould be confirmed.

There are also reports that Segni may try to promote the idea of turning the Leone governmententristof Christian Democrats, Liberals, Republicans andDemocrats. This wouldin particular tbe support of Social Democratic leader Saragat, who bos sharply opposed "quadripartism" and longthe center-left formula. However, he has implied that he mightquadripartiteif all chances ofenter-left government have been exhausted.

There is also theof new elections--aa expedient which all the parties, with the possible exception of the Communists, currentlywith varying degrees of distaste. On this matter, as on other important aspects of the situation, the attitude of the three big parties (tbe Christian Democrats, theand the Communists) merits specxaminet ion,

The Christian Democratic Party

GIOVANNI LEONE Prime Minister

No clear picture has yet emerged of the currentof the CD toward possible new relationships with the Socialists or with the right. In making even tentativeon this subject it is well to remember that the CD is In fact not one party, but several. At various tiraos in

GIUSEPPE SARAGAT

Leader of Social Democratic Party

the party's life differenthave seemed to play the preponderant role in setting basic policy. Theemerged in an aggressive mood from the national elections and found encouragement in the June elections for the Sicilian Parliament. These showed anin CD strengthampaign in which the "center-left experiment" wasand the voters were told they had to choose betweenand Christian Democracytheme long favored by the party's right wing. This group would anticipate CD gains in new national elections in the near future (arguingtrong anti-Communist campaign would win back the voters lost to the Liberals in the April election) but its membersrecognize that thewould also gain votes.

ALDO MORO Christian Democratic Party Secretary

and reportedly they are not pressing for elections.

Although the party'sheld theadvantage immediatelythe elections, theof Panfanl haveounterattack. The main body of the party probablyconvinced that aprogram is necessary for the party and that the center-left formula is desirable. CD leaders, including Moro, are deeply and publicly committed to this course. It is worth remembering that in mid-June Uoro putenter-left program which he evidently considered acceptable to his own party as well as the PSI. Moreover, the momentary political eclipse of the

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Panfanl may havewhat for some partyIs tho most objectionable aspect of "tbet tho same time, Moro's failure in the June negotiations has weakened his position in the party and left him moreto the maneuvers ofrivals for his party job. Furthermore, if the PSI congress wore to fix unexpectedly stiff terms for support, or demand immediate participationoalition cabinet, or Ifwithin the party embittered, most CD leaders would probably feel compelled toDcongress, not oxpected until next March.

For important elements of the party, much will depend on the attitude toward Italian political affairs adopted by tho new Popo, who had not yet been selected when the PSI broke off negotiations in Bid-June. As Cardinal Montini, Paul VI had the reputationiberal, but ho has not yet indicated whether as Pope bo intends to continue John XXIII's policy of noninvolvo-mont in Italian politics or revert to Pius XII's policy of direct intervention. The latter frequently and openly involved the church inaction against the "opening to the loft" and tho Communists.

The Socialist Party

The Socialists are divided aBong the autonomist followers of Nenni, including the

RICCARDO LOMBARD! Socialist Leader

bardl group, and theho receive support and guidanco from the PCI. Nenni's long effort toajorlty of the party away from close politicalwith the PCI andosition in support of too center-left formula has involved major modification of the Socialists' traditional neutralist foreign policy theses. (Some of the foreign policy issues involved arc noted in tho background summary facing This change in the basic orientation of the party has not been accomplisheddissension and sone Koroover, It isto tell whether or notParty members are deeply persuaded by Xenni's foreign policy positions, or whether they simply go along out of personal loyalty to Nenni, or

indeed are Indifferent to foreign policy matters. At best, it can be saidcarrlstiparty has probably moved far enougb away from the Communists to make returning to the old positions awkward if not painful.

Although there now la much pulling and hauling within the partyesult of the recent negotiations with the CD, there still acorns to be majority for the autonomists and the basic policy of the canter-left experiment. However, sharp differences arise on timing and terms. Lombardl, in engineering the repudiation of Kennl's mid-June agreement with the Christian Democrats,was fearful that tho CD could not deliver on its promises and that in these circumstances the riek of damaging his party by too close an association with thothe stigma ofthat had become attached to it during its long years ofnot worth it. He3 observer privately thatad lost votes to the Communists inune election in Sicily because of its ties with the Christian Democrats.

Tho dissension in the party has abated sooewbat sincei'sune attack on Nenni's leadership. The central committee rejected Nenni's resignation as party secretary, and the party maintained discipline, abstaining in the vote of confidence for the Leone government. Lombardl re-portadly does not want to take the responsibility for caualng a

split in the autonomous wing of the party. Nenni still seems resolved to reach agreement with the Christian Democrats andto rally as much support within his party to this end as possible. In the present state of his health, however, there is some question that he can muster the personal resources necessary to go through with his plans.

The decision regarding the party's policy on negotiations with the CD will be made at its national congress scheduled for late October. Each of thefactions can be expected to make strenuous efforts tothe selection ofby local party units. The congress will also elect central committeemen and other party officers for the next two-year period, and many of the delegates will in fact be more concerned with auch immediate and "practical" matters than with long-rango questions of national policy. Moreover, all concerned will be well aware that there is probably no tolerable alternative toof the center-left experiment, and that the party is in no condition to undergo the test of another national election in the near future.

Although the course of the PSI congress cannot be predicted in any detail at this point, it is not hard to envisage some developments which, while still endorsing the policy of the center-left experiment, would make it considerably more

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to put into effect. Nenni's negotiations with tho CD would be much more difficult, for example, if the congress were to set unexpectedly stiff terms for the government's legislative program, or called for immediate PSI participation in tho cabinet, or if the vote by whichesolution carried revealed the autonomist majority to bethin. itter floor fight mighteriously large number of left-wing defections, and might well leave Kenoi too exhausted totabilizing influence within the new.

The Cofiaunlsts

The Communists, who are acutely awaro that the center-left experiment is aimed at undercutting their position, are still riding the wave ofgenerated by their April electoral gains and appear ready toew challenge at the polls. They probably know that the Socialists are in poor 3hapo to fight another election Their principal objective, of course. Is to prevent tbe October PSI congress from arrivinglear mandate to go forwardenter-left coalition. Communists can be expectod to try to exploit any strains inhristian Democratic relations at the national level and the local level. Socialists at present collaborate with the Christian Democrats in governing most of Italy's major cities.

The April electionthe Communists' ability to survive boom conditions and oven turn these to their ownby stressing the inequities in the distribution of the new prosperity. Subsequenthave given them furthor opportunities, since thepace has continued to quicken and the growing shortage of skilled labor has set the stage for now wage demands. The party is already organising widespread rallies to protest the rising cost of living; and through its control of the largest laborItalian General Confederation of Labor (COIL) to which tbe Socialists alsois in anposition to press Socialist workers to Join the Communists in such agitation.

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PCI, like sotie other Western European Communist parties,ocal "pro-Chinese" faction. The rebel faction has attracted some support among Communist youth and is rumored planning toongress this autumn. Party secretary Tog-lluttl and his deputy are,expected to takemeasures against this faction and are probablyosition to do so effectively, in view of the steady electoral gains made by the partyesult of hewing to Togliattl'a modernt' line.

Outlook

The stalemate in Italian politics could have consequences going beyond the presentand throatoning stability over the long run. In certain circumstances the differences between the CD and the Socialists could harden to the point where aa majority of both parties probably desiresimpossible. If ovor the next few months the Communists should succeed in enticing the

Socialists to collaborate in demonstrations and strikes, the

role of the pro-Communistin the PSI sight beand the suspicions in the CD Party toward the Socialists increased. Communist interest in 3uch demonstrations would increase if the CommunistsD-PSI rapprochement likely. In these circumstances Nenni'sto guide tho Socialistin October back into collaboration with the CDs would bo Imperiled. By the same tokon, if the CDs should move toward

thobyoalition which Included the Liberals, the neo-Fascists, orwould be put under strong pressure to return to opposition.

We doubt that the PSI could stand in opposition very long without losing much of itsto the Communists. eavy drain on PSI support began, not only would the attempt to Join the two strongest forces In Italian politicalCatholic andeform movomont be undermined, but the long effort to Isolate and reduce the strength of the Communists would fail. The polarization of Italian political forces would then accelerate dangerously.

We believe, however, that despite mutualajority of the presentin both the CD and PSI isaware of these dangers. Moreover, many leaders in both nartre deeply committed to the center-left concept; for certain of thorn it would be political suicide to repudiate the "experiment." At the same time, the risks of collaboration are understood by both parties. The Socialists face an Inevitable watering down of what is left of their traditional Marxist policies and rhetoric. For lta part, the CD will have to soften resistance within the party to changes in the economic statue quo, as well as on such questions as education and the proposed regional administrations. Those are dolicate considerations for all those involved, and will

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a considerable spirit of give and take.

Evenenter-leftis eventually established, serious problems will remain. Any such government would necessarily opcrato in aatmosphere and probably under very short rein. Hostile critics In both the major parties would be quick to charge failure and to urge their chiefs tothe "experiment" once and for all. In these circumstances the government would find it difficult to Implement the social and structural reforms the center-left was devised to undertake. Furthermore, even the mostof governments could noteform program whose results .would be felt by the average Italian in short order.

In certain circumstances difficulties for US interests in Italy could ariseenter-left government in office. Nenni's ability to survive the grueling tasks he has laid out for himself In tho months ahead is an Important consideration. If he were to leave the scene in the neara few weeksenter-lefthadair chance that autonomist strength within the PSI would erode, since his following lm significantly based on personal loyalty. In any event, aand perhaps disruptive contest for leadership of the

PSI would probably ensue. In such circumstances the depth of the party's dedication to Western foreign policymight be putarsh test.

easonably coherent coalitionealthyew center-left govern-ment Is not likely to differ significantly in foreignand In foreign economic policy from the recent Fanfanl government. Like all recent Italian governments, it will reflect the Italian public's growing desire to see Romeore important place on the international scene. It would probablyomewhat more independent stance than past governments on Bast-West relations and might be lessto go along with suchas increases in defense budgets. tablebase, however, and with elections behind it, it is likely to display somewhat lessthan the Fanfanl government did on certain Immediate matters such as the removal of the Jupiter missiles. enter-leftin the presont parliament would be eithereaknature such as the Leone government, or of anature such as the newcoalition. Such governments might be more vocal in their profession ofsentiment, but less stable and hence likely to be less of turning promise into effective performance. NO FOREIGN DISSEM)

January's cost-of-living indexercent above that ofegistering the highest price increase in Italy in any postwar year. The February figure, whichercent above January,uickening inflationary pace, reflecting the pressures of full employment (in skilled and semiskilledtrong consumer demand,ag of new industrial capacity behind demand. Rising mdney Incomes continue to keep consumerthe economy's bellwether, at boom level, and further inflationary pressures are exertedudget deficit ofercent ofising money supplyp and stringency in the labor market (skilled and semiskilled).

This developing shortage of skilled laborwith the cost-of-living increases give labor much fuel for Its higher wage demands. ecent labor contract in the metals and machinery industries, which increased labor costs an estimatedoercent, will probably serveattern for future labor-management wage settlements. So far, the government's anti-inflationary measures have centered around increasing imports, particularly of consumer goods important to the cost of living, to take the pressure off domestic supplies* These measures, bow-ever, coupled with the normal Import demand createdooming economy, haveeterioration In Italy's balance of payments. This year's first-quarter deficit is expected to be more than double the normal first-quarter deficit.

Present indications are that, at leastnext several months, Italy will continue toa rapid pace of economic activity based onpersonal Income which encourages consumersubstantial investmentontinued high level ofexpenditures for public works and Uncertainties about the futurewhat the government will do to relievepressures, and the effects suchhave on Investment decisions and on thein various sectors of the economy. IfIs made to relieve pressures onby dampening domestic demand rather Increasing Imports, pressure will be takenbalance of payments. However, this coulda stronger government stand against wagethan would be politically expedient forgovernment, especially a HWW

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