REVIEW OF THE WORLD SITUATION AS IT RELATES TO THE SECURITY OF THE UNITED STATES

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP67-00059A000500070010-8
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 16
• Document Creation Date: November 11, 2016
• Document Release Date: August 20, 1999
• Sequence Number: 10
• Publication Date: April 8, 1948
• Content Type: REPORT

Approved For Release 1999/ IA-R P67-00059A000500070010-8
CENTRAL INTELLIGENCE AGENCY
Review of the World Situation
as it Relates to the Security
of the United States
CIA 4-48
Published on
8 April 1948
COPY NO.44
FOR THE . ASSISTANT. DIRECTOR
FOR REPORTS & ESTIMATES
Approved For Release 1999/09/16 : CIA-RDP67-00059AO00500070010-8
 Approved For Release 1999/09/16 : CIA-RDP67-00059AO00500070010-8
DISSEMINATION NOTICE
1. This copy of this publication is for the information and use of the recipient
designated on the front cover and of individuals under the jurisdiction of the recipient's
office who require the information for the performance of their official duties. Further
dissemination elsewhere in the department to other offices which require the informa-
tion for the performance of official duties may be authorized by the following:
a. Special Assistant to the Secretary of State for Research and Intelligence, for
the Department of State
b. Director of Intelligence, GS, USA, for the Department of the Army
c. Chief, Naval Intelligence, for the Department of the Navy
d. Director of Intelligence, USAF, for the Department of the Air Force
e. Director of Security and Intelligence, AEC, for the Atomic Energy Com-
mission
f. Deputy Director for Intelligence, Joint Staff, for the Joint Staff
g. Assistant Director for Collection and Dissemination, CIA, for any other
Department or Agency
2. This copy may be either retained or destroyed by burning in accordance with
applicable security regulations, or returned to the Central Intelligence Agency by
arrangement with the Office of Collection and Dissemination, CIA.
This document contains information affecting the national
defense of the United States within the meaning of the
Espionage Act, 50 U.S.C., 31 and 32, as amended. Its trans-
mission or the revelation of its contents in any manner to
an unauthorized person is prohibited by law.
Approved For Release 1999/09/16 : CIA-RDP67-00059AO00500070010-8
 Approved For Release 1999/09/16 : CIA-RDP67-00059A000500070010-8
REVIEW OF THE WORLD SITUATION AS IT RELATES TO THE SECURITY
OF THE UNITED STATES
1. The vigor of Western reaction to the developments reviewed in our last report
(CIA 3-48, 10 March) has probably surprised and possibly alarmed the Kremlin.
2. Recent threatening gestures on the part of the USSR are probably not a re-
sponse to this reaction, but rather implementation of plans previously adopted (infra,
p. 2).
3. It is still improbable that the USSR has any present intention of provoking war.
Its most provocative conduct, that in Germany, is actually evidence that war is not
intended (infra, p. 2).
4. If confronted with a certain prospect of Western European recovery and of US
rearmament on a formidable scale, the Kremlin would reconsider its policy, weighing
the alternative of a general peace settlement or a preventive war. Its present margin
of safety is such, however, that it would be under no compulsion to make so fateful a
choice during 1948 and would probably defer a decision pending further development
of the situation (infra, p. 2).
5. The current Soviet purpose in Germany is to demonstrate the superiority of
Soviet military power in Europe. A long term purpose is to compel the withdrawal of
the Western Powers from Berlin. Such a withdrawal would constitute for the Western
Powers a major political defeat with world-wide repercussions (infra, para. 7).
6. The political trend in Italy has been reversed by effective Western support of
the anti-Communist parties (infra, para. 9).
7. Full scale civil war in Palestine is apparently inevitable in the absence of
unequivocal UN action (infra, para. 11).
8. An intensification of Communist diversionary activity in the Far East is to be
anticipated (infra, para. 14).
Note: This estimate has not been coordinated with the intelligence organizations of the Depart-
ments of State, the Army, the Navy, and the Air Force, but information copies were dis-
tributed to them on 7 April. The information herein is as of 6 April.
Approved For Release 1999/09/16 : CIA-RDP67-00059A000500070010-8
 Approved For Release 1999/09/16 : CIA-RDP67-00059AO00500070010-8
REVIEW OF THE WORLD SITUATION AS IT RELATES TO THE SECURITY
OF THE UNITED STATES
GENERAL
1. POLITICAL.
At the time of our last report (CIA 3-48, 10 March) the trend in Europe and Asia
was universally unfavorable. Since then the vigor of Western reaction has probably
surprised and possibly alarmed the Kremlin. The rapid succession and cumulative
effect of such developments as the President's message to Congress, the Brussel's Pact,
Western agreement regarding Germany, effective support of anti-Communist elements
in the Italian electoral campaign, and emphatic Congressional action on foreign aid
betoken an aroused and determined spirit of resistance which the Kremlin may well
regard as dangerous not only to its immediate purposes but also to its ultimate security.
Subsequent and concurrent threatening gestures on the part of the USSR, while
apparently in response to the foregoing developments, are probably not so in fact, but
rather the implementation of plans previously adopted. For example, recent Soviet
conduct in Germany is fundamentally the consequence of decisions taken months ago,
although its timing is related to recent events. The general purpose of simultaneous
threats in Germany and toward Scandinavia, Greece, and Iran is evidently to develop
and exploit the panicky apprehension of further Soviet aggression referred to in CIA
3-48.
Effective resistance to direct Soviet political aggression inevitably involves risk
of a collision the accidental consequence of which might be war. It is still improbable,
however, that the USSR has any present intention of provoking war. Its most provo-
cative conduct, that in Germany, is actually evidence that war is not intended. If early
military aggression in Europe were planned, devious efforts to compel Western with-
drawal from Berlin would be pointless. Such efforts presuppose a quasi-permanent
partition of Germany at the existing western boundary of the Soviet Zone.
If, however, the Kremlin were to become convinced that there was definite prospect
of stabilization and recovery in Western Europe and of actual rearmament of the United
States on a formidable scale, it would have occasion to reconsider its current policy of
aggression by means short of general war. The basic choices before it in that case
would be: (a) to continue its existing policy and activities, which would prolong inter-
national tension in the face of diminishing returns and increasing risks; (b) to seek
a general peace settlement on terms that would guarantee its existing holdings; or, (c)
to resort to preventive war, taking advantage of its still preponderant military capa-
bilities and relying upon the strength of the defensive position it might establish to
guarantee its security against counterattack. The Kremlin would probably be predis-
posed to follow the first course until diminishing returns and increasing risks indicated
that the time had come to choose between the second and third. It would then prob-
ably prefer to seek a general settlement unless convinced that war on Western initiative
Approved For Release 1999/09/16 : CIA-RDP67-00059AO00500070010-8
 Approved For Release 1999/09/16 : CIA-RDP67-00059AO00500070010-8
was in prospect and inevitable as soon as the rearmament of the United States and of
Western Europe had been accomplished.
In any case, the existing Soviet margin of safety is so great that the Kremlin can
afford to wait upon actual developments (as distinguished from verbal expressions of
intention, however firm) before coming to a decision in so fateful a matter. A basic
policy choice as between general settlement or preventive war is therefore unlikely
during 1948. Preliminary consideration of those alternatives, however, is presumably
already in progress as a result of the developments of the past month.
2. ECONOMIC.
Economic conditions in most of the world showed moderate improvement during
the first quarter of 1948. Further gains are probable, but will come only slowly in
view of actual civil disorder in some areas and the prevailing apprehension of war in
others. In the aggregate, however, when viewed over a period of several months, im-
provement in the economic situation is clearly evident.
For further discussion of this development see the Appendix (page 10).
PARTICULAR SITUATIONS IN EUROPE
3. THE BRUSSELS PACT.
The speed with which the representatives of the United Kingdom, France, and
"Benelux" were able to agree upon a mutual defense pact was surprising even to them
and a measure of the sense of common danger pervading Western Europe. The Pact
is significant as the potential basis for a larger grouping which, with adequate US
support, could serve to stem the westward expansion of Communism. It can have little
psychological or material effect, however, except to the extent that it is supported by
convincing assurances of US military reinforcement on an effective scale.
4. THE UNITED KINGDOM.
Great Britain's gold and dollar position continues to deteriorate, but the Govern-
ment does not presently contemplate further measures of retrenchment such as would
impair the United Kingdom's industrial capabilities or its international political posi-
tion. The Government's domestic propaganda is increasingly frank in revealing that
Great Britain is dependent on US financial support and that the European Recovery
Program promises only economic survival, not an improvement in the standard of
living. It is significant that, despite the stringent economic situation, Parliamentary
criticism of the defense budget omitted appreciable reference to costs and was directed
primarily against the Government's failure to develop an over-all strategic plan.
5. FRANCE.
The adjournment of the National Assembly until 20 April has granted the Schu-
man Government a month's respite from parliamentary crises. Meanwhile the eco-
nomic situation has begun to show definite improvement, with consequent im-
provement in the Government's political prospects. A sign of the trend is a newly
apparent disposition on the part of certain Gaullists to seek a rapprochement with the
moderate parties. The position of the Government is apparently stronger than at any
time since its inception.
SECRET 3
Approved For Release 1999/09/16 : CIA-RDP67-00059AO00500070010-8
 Approved For Release 1999/09/16 : CIA-RDP67-00059AO00500070010-8
6. SCANDINAVIA.
The Scandinavian countries are united in their determination to reject any treaty
proposals such as those which the USSR is currently forcing upon Finland. The
Swedish Government clings to an attitude of neutrality which has served that country
well for 133 years, but Norway and now even Denmark tend cautiously toward a realign-
ment with the Atlantic community. A positive development of this tendency, how-
ever, is dependent on assurances of effective military support.
7. GERMANY.
Recent Soviet conduct in Germany results from Soviet realization, at least since
the London session of the CFM, that an extension of Soviet authority into Western
Germany could not be accomplished through the mechanism of quadripartite control.
Since then the USSR, while decrying the partition of Germany and maneuvering to put
the onus for that situation on the Western Powers, has concentrated on the develop-
ment of the Soviet Zone as a political entity for the time being and as a nucleus for the
eventual unification of Germany from the East. Further development along this line
would be facilitated by the expulsion of the Western Powers from Berlin. An obvious
prerequisite to that end would be to do away with the quadripartite agencies in Berlin,
on the ground that they had been rendered meaningless by the acts of the Western
Powers themselves in the Western Zones. The practical means of securing Western
withdrawal without resort to the direct use of force would as obviously be an intensifi-
cation of restrictions and deprivations such as would actually render it impracticable
for the Western Powers to maintain an isolated position in Berlin.
Recent Soviet actions directed toward disruption of the quadripartite agencies in
Berlin and toward isolation of the Western Sectors were presumably planned in advance
of those events of the past month which indicate a stiffening of Western resistance.
Their precise timing was apparently determined by the occasion afforded by the London
conversations on Germany and by the general need for a demonstration of Soviet power
to counteract the adverse trend of events. Not intending an actual resort to force, the
USSR, confronted by Western firmness in Berlin and further evidence of increasing
determination on the part of the Western Powers, may well give way tactically pending
a new estimate of the situation. Even without forcing the issue at Berlin, however, the
USSR has gained a major propaganda victory by (a) blanketing news of the passage of
the Foreign Aid Bill with a reminder of superior Soviet military capabilities in Europe,
and (b) precipitating a war scare that is a confession of Western weakness unnerving
to wavering elements in Europe, especially in Italy.
Even though the present tension may subside, the USSR will probably resume its
efforts to force a Western withdrawal from Berlin. While the maintenance of an iso-
lated position there would be manifestly difficult and even dangerous, a Western with-
drawal under Soviet compulsion would constitute a political defeat of the first mag-
nitude. Maintenance of the position is of value for the same reasons that cause the
USSR to seek to eliminate it : the psychological and practical effects of the presence of
an island of Western security in the heart of the Soviet Zone, the implicit assurance
of an eventual unification of Germany from the West. Its abandonment, constituting
Approved For Release 1999/09/16 : CIA-RDP67-00059AO00500070010-8
 Approved For Release 1999/09/16 : CIA-RDP67-00059A000500070010-8
the final concession of eastern Germany to Communism and implying that unification
could thereafter be accomplished only from the East, would have a profound effect
throughout Germany. The direct surrender of the three principal Western Powers to
Soviet coercion would have a profound effect throughout the world.
8. AUSTRIA.
On the eventual breakdown of the Austrian treaty negotiations, the USSR may act
to compel a Western withdrawal from Vienna as from Berlin, the event depending on
the degree of Soviet success with respect to Berlin. Concurrently the USSR would
attempt to force changes in the Austrian Government leading to its eventual subversion.
Under the pressure of events the principal Austrian parties (the People's Party
and the Socialists) have compromised their differences and reaffirmed their coalition.
They will offer a united opposition to Communism and the USSR. The Austrian Com-
munists, numerically insignificant, have however been effectively organizing armed
groups under Soviet direction. These Communist groups are possibly capable of seiz-
ing control in the Soviet Zone.
9. ITALY.
The political trend in Italy has been reversed by effective Western support of the
anti-Communist parties.
In the ten days remaining before the election the USSR could attempt to influence
the outcome by (a) concession of Trieste, on condition of a "democratic" victory;
(b) similarly conditional offers to reduce reparations and to return its share of the
Italian fleet; (c) revival of the colonial issue; or (d) a timely offer of wheat. The most
effective appeal remaining available to the Communists, however, is their representa-
tion that a vote for the Popular Democratic Front is a vote for peace. This line, played
straight and also as an implicit threat of Communist resort to violence in the event of
defeat, touches a very responsive chord in the universal apprehension lest Italy again
become a battleground. Every war scare propagated by the USSR, however remote
(e. g., Soviet propaganda against the Scandinavian countries), supports this theme.
A first class war scare regarding the situation at Berlin would be most effective.
On present showing, however, it is likely that the Communist-dominated Popular
Democratic Front and the Christian Democrats will run a dead heat with about 35
percent of the vote apiece. In this case, De Gasperi would be able to form a majority
coalition representing up to 65 percent of the electorate. All parties outside of the
Popular Democratic Front would support the Christian Democrats against Commu-
nism; the Communists could combine with none not already included in the Front. It
is even possible, though not probable, that the Nenni Socialists, once the returns were
in, could be induced to desert the Communists. Their loyalty, however, would be sus-
pect; they might prove to be an avenue of Communist infiltration.
The Communists, foreseeing defeat, may seek to invalidate the election by wide-
spread disorder on election day, or may even resort to armed insurrection. (They have
been predicting a neo-Fascist coup on that date, possibly as justification for Communist
"counteraction".) Already there is increasing violence in Italy, so far predominantly
anti-Communist in motivation, with a mounting threat of retaliatory Communist
Approved. For Release 1999/09/16 : CIA-RDP67-00059A000500070010-8
 Approved For Release 1999/09/16 : CIA-RDP67-00059A000500070010-8
strikes and violence. The Government, however, appears to be well prepared to cope
with an emergency.
THE NEAR AND MIDDLE EAST
10. GREECE.
The prospect in Greece is not encouraging, despite improvement in the political
situation in Athens and a creditable Greek Army victory over the guerrillas in the Pieria
area. Economic recovery is hindered by fear of a general war in which Greece would
be overrun by Soviet forces. Fear of ultimate Communist domination renders many
Greeks reluctant to commit themselves in the present struggle. Moreover, the in-
creased capabilities of the Greek Army will probably be offset by increased Satellite aid
to Markos, advanced preparations for which are apparent in southern Yugoslavia and
Albania. In the circumstances it is improbable that the Greek Army will be able to
win a decisive victory over the guerrillas this summer.
11. PALESTINE.
Large-scale civil war in Palestine is apparently inevitable in view of the unwilling-
ness of either Arabs or Jews to accept a truce without prejudice to the ultimate political
solution and of the improbability of effective action by the United Nations.
The initially favorable Arab reaction to the US proposal for trusteeship has given
way to suspicion that it is merely a device for the surreptitious imposition of partition.
The Zionists reject any plan which does not guarantee partition; they propose to estab-
lish a Jewish state on 16 May and to attempt to defend it, regardless of the circum-
stances and the consequences. Meanwhile members of the United Nations are increas-
ingly reluctant to adopt any plan which does not include a categoric US commitment
to assume major responsibility for its enforcement. There is an apparent possibility
that, in default of positive UN action, anarchy may ensue in Palestine after 15 May, with
dire consequences throughout the Near East.
The only formula which could possibly avoid the determined resistance of one or
both communities in Palestine would be an unequivocal revocation of the partition plan
and the concurrent establishment ' of a clearly disinterested trusteeship well able to
guarantee the security of both communities. The Arab majority in Palestine, and the
Arab world outside as well, would probably accept this as an interim measure. What-
ever may be said by Zionist spokesmen, it is probable that a majority of the Jewish
community in Palestine would also prefer this solution to the present appalling prospect.
It would be resisted, however, by extremists of the Irgun and Stern Gang type (who
were not satisfied by partition either, for that matter).
12. IRAN.
The USSR has been subjecting the Iranian Government to intense pressure, accus-
ing it of conniving in the establishment of US military control of the country. Omin-
ously, the Soviet Government has likened the presence of US missions to the presence
of Germans in 1941 and has suggested that the Soviet-Iranian Treaty of 1921 is ap-
plicable to the situation. (This Treaty authorizes Soviet military intervention in Iran
to prevent the use of that country as a base of operations against the USSR. It was
invoked in 1941 on the ground that the presence of numerous Germans in Iran con-
SECRET 6
Approved For Release 1999/09/16 : CIA-RDP67-00059A000500070010-8
 Approved For Release 1999/09/16 : CIA-RDP67-00059AO00500070010-8
stituted a threat to Soviet security.) Iranian resistance to this pressure will be in
direct proportion to Iranian confidence in US support. The Government may refer
the matter to the UN Security Council, which is still seized of the Iranian case.
13. INDIA - PAKISTAN.
Relations between the two Dominions have generally improved, with responsible
leaders on both sides increasingly conciliatory. The Kashmir dispute, although still
unsettled, no longer involves imminent danger of open war. India has, at least
temporarily, the military advantage in Kashmir itself. Pakistan is now apparently
aware of India's overall military superiority.
THE FAR EAST
14. GENERAL.
A central mechanism to coordinate the policies and activities of the Far Eastern
Communist Parties is believed to have been established at a conference held at Harbin
in January. Although the Far Eastern Parties presumably retain a considerable de-
gree of local autonomy in comparison with their European comrades, the very exis-
tence of such a coordinating mechanism implies increased Kremlin direction and
control.
While the Far Eastern Communist Parties are likely to attach primary importance
to the pursuit of local objectives, there is evidence that, in the global view of the
Kremlin, their activities are essentially diversionary in relation to the decisive struggle
for control of Europe. It is also indicated, however, that the Kremlin has called
for an intensification of diversionary activity in the Far East as the struggle for Europe
approaches its climax.
15. CHINA.
Continuing deterioration in the military, economic, and political position of the
National Government is reflected in the spreading loss of morale in Nationalist China.
The Chinese presidential election may affect the course of political development
under the new constitutional regime. Although Chiang Kai-shek has recommended
the election of a scholar (supposedly Hu Shih) rather than a soldier to the presidency,
he may yet be drafted. In any event he is likely to remain the dominant figure in
the regime, and is committed to prosecution of the war against the Communists to
a military decision. Chiang's candidate for vice-president is the incumbent, Sun Fo.
General Li Tsung-jen, however, has persisted in his candidacy. Li's election over
Sun might initiate a chain of developments leading to Chiang's eventual displacement.
Renewal of aggressive Communist military operations during the coming weeks
may be complemented by a Soviet diplomatic offensive designed to bring about a
"compromise" settlement of the civil war on terms favorable to Communist and Soviet
purposes.
16. KOREA.
United Nations refusal to postpone the South Korean election from 9 to 24 May
is advantageous to well prepared arch-Rightist Rhee Syngman in that it restricts the
SECRET 7
Approved For Release 1999/09/16 : CIA-RDP67-00059AO00500070010-8
 Approved For Release 1999/09/16 : CIA-RDP67-00059AO00500070010-8
time available to Moderates and independent Rightists to organize and contest the
election.
The USSR, meanwhile, has arranged for a conference of North and South Korean
political leaders at Pyongyang on 14 April as a device to win South Korean acceptance
of the "Korean People's Republic" as the basis for a unified and "democratic" Korean
state regardless of the South Korean election. The conference may well succeed in
drawing into the Soviet camp all political elements in Korea except the following of
Rhee Syngman. Rhee's probable victory in the South Korean election would then be a
hollow one, the resulting regime manifestly unrepresentative. The USSR might then
withdraw from North Korea, demanding US withdrawal also and UN recognition of
the more representative Korean People's Republic as the government of all Korea.
The USSR is also manufacturing a Korean war scare based on the supposed ag-
gressive intentions of US "imperialists" and South Korean "reactionaries." This propa-
ganda would seem to be preparatory to "defensive" action by the "Korean People's
Army", if necessary, to overthrow an unrepresentative Rhee regime on the withdrawal
of US forces from South Korea.
17. JAPAN.
High Japanese officials have recently shown an increasing spirit of independence
apparently attributable to their appreciation of a US need for Japan as a strong point
in East Asia in view of the state of US-Soviet relations and of the deteriorating pros-
pects in China and Korea. It is to be expected that the Japanese will exert their bar-
gaining power to the utmost in relation to US aid in the rehabilitation of Japan.
18. INDOCHINA.
Pessimism is increasing among French officials as a result of the apparent impossi-
bility of achieving a military decision and the continuing stalemate in negotiations with
Bao Dai. The French may come to welcome any face-saving solution, including
mediation by the United Nations or the United States.
19. BURMA.
Newly independent Burma is beset by three critical problems, any one of which
could result in open civil conflict. They are: (a) dissension within the ruling party,
the Anti-Fascist League; (b) vigorous Communist activity in the form of strikes and
of the establishment of insubordinate Communist administrations in central Burma;
(c) continued agitation for a separate state on the part of a large portion of the Karen
ethnic minority. The Government's adoption of strong repressive measures may avert
an immediate crisis without relieving the basic causes of political instability.
LATIN AMERICA.
20. THE BOGOTA CONFERENCE.
The fundamental problem at the Bogota Conference is that of presenting the pro-
jected strengthening of the Pan American system in such terms as to win the support
of the larger Latin countries. The United States on one hand, and the smaller states
on the other, have much to gain and little to lose by such a development. Argentina,
Brazil, Chile, Peru, and Mexico, however, have some reason to fear a possible curtailment
Approved For Release 1999/09/16 : CIA-RDP67-00059AO00500070010-8
 Approved For Release 1999/09/16 : CIA-RDP67-00059AO00500070010-8
of their political freedom of action without compensatory advantage. Argentina and
Mexico have already indicated opposition. Some concessions may have to be made to
these countries to secure their adherence.
A related matter of considerable delicacy is that of persuading the Latin American
nations to accept the priority of Western Europe in the distribution of US economic
assistance.
The US desire to forestall prejudicial action in relation to territorial disputes be-
tween the United Kingdom and Argentina, Chile, and Guatemala respectively is likely
to receive sufficient support to prevent the matter from becoming a serious problem.
21. THE CARIBBEAN.
The civil conflict in Costa Rica is significant chiefly because of its bearing on
emergent balance of power alignments in the Caribbean. Nicaragua and Guatemala
are disposed to intervene in support of the opposing sides. Honduras, El Salvador, and
the Dominican Republic are loosely aligned with Nicaragua; Cuba, Haiti, and Vene-
zuela with Guatemala. The issue has ceased to be one of Costa Rican internal politics
and has become a matter of the future alignment of Costa Rica in this situation. The
existence of such antagonistic intraregional alignments is prejudicial to Hemisphere
solidarity.
SECRET 9
Approved For Release 1999/09/16 : CIA-RDP67-00059AO00500070010-8
 Approved For Release 1999/09/16 : CIA-RDP67-00059A000500070010-8
DEVELOPMENT OF THE WORLD ECONOMIC SITUATION
DURING THE FIRST QUARTER OF 1948
GENERAL
Economic conditions in most of the world showed moderate improvement during
the first quarter of 1948. Further gains are probable, but will come only slowly in
view of actual civil disorder in some areas and the prevailing apprehension of war
in others. In the aggregate, however, when viewed over a period of several months,
improvement in the economic situation is clearly evident.
Weather conditions continue to be favorable for good yields of agricultural crops
in all areas. The moderately upward trend in mining and manufacturing and in do-
mestic trade has continued in recent months, particularly in Western Europe. The
assurance of early United States economic assistance has already given courage to
friendly peoples. It will also probably release productive forces and some hoarded com-
modities and should further stimulate internal and foreign trade. It will probably
permit France, the United Kingdom, and other industrial countries to overcome with-
out serious interruption the effects of the shortages of raw materials which until
recently threatened industrial operations in these countries.
The rapid price increases which were widespread in 1947 appear to have been
arrested in recent months: in Italy in October; in the United Statcs in February; and
in France in March. The declines in France appeared first in food prices; more recently
the Government has reported an agreement with manufacturers for reductions up to
10 percent for important manufactured products such as shoes, woolen fabrics, and
agricultural equipment. Recent fiscal policies of the French Government, reflected
in a reduction in the volume of money in circulation, is an important influence in the
decline in prices. Temporary stability rather than marked increases or marked de-
clines appear to characterize world prices at the present time.
The conclusion of an agreement to set up a customs union between France and
Italy, although limited in its probable practical results, is symbolic of the increasing
appreciation that economic cooperation is essential to survival in Western Europe. The
celerity with which the countries of Western Europe appear to be reaching agreement
upon trade, financial clearing, and other matters of a common economic interest is
further evidence of the appreciation of the necessity of active cooperation on economic
matters.
Civil disorder which exists throughout nearly all of the Asiatic countries has in
some cases interrupted production and export of commodities and essential raw mate-
rials in which the United States and Western Europe are interested. This is particu-
larly true in China where low production of tungsten, antimony, and tin have greatly
restricted the export of such commodities. Exports of manganese, jute and mica, at
Approved For Release 1999/09/16 : CIA-RDP67-00059A000500070010-8
 Approved For Release 1999/09/16 : CIA-RDP67-00059A000500070010-8
present irregular and in reduced volume from India, appear somewhat uncertain for
the future. The production and export of tin and rubber from Malaya and the Nether-
lands East Indies has increased and is much more promising than exports of essential
materials from other parts of Asia.
The policies which appear to be developing in Czechoslovakia and other Satellite
countries indicate a possible reduction in east-west European trade. For the time be-
ing, however, exports of coal, some cereal grains, and lumber from the Soviet Union,
Poland and other Satellite countries to Western Europe appear to be continuing.
Somewhat greater improvement in economic conditions appears to have taken
place in Western European than in Eastern European countries. In Western Europe
(excluding Bizonia) only Italy has failed to surpass prewar production. Conversely, in
Eastern Europe, Poland has experienced substantial increases over prewar production.
The downward trend of production in Italy, begun in September 1947, appears to have
been arrested in February at about 60 percent of the 1938 level. A considerable portion
of Satellite production has been syphoned off to the USSR. A further spread between
the production levels of the two areas may be expected as a result of Western cooperation
and United States aid and lack of Soviet capability to provide the necessary and agreed
assistance in raw materials and capital facilities to the Satellite countries.
FOOD
It now seems probable that reduction of the bread ration in Western Europe during
the next few months will not be necessary. Some general improvement in rations may,
indeed, be expected tor esult from greater availabilities of other foods, especially vege-
tables. The outlook for cereal grain production in Western Europe (21 percent above
the 1947 harvest) given in CIA 5 (12 February 1948) continues probable as a result of
continued good weather.
COAL
If not unduly prolonged, the United States embargo of coal shipments occasioned
by the present strike is not likely to affect Western Europe seriously. United States
deliveries overseas are ahead of schedule, and the inventory position in nearly all coun-
tries is better than it was a year ago. Coal production in the United Kingdom, the
Ruhr, Poland and France also continues ahead of the rates necessary for the achieve-
ment of annual targets.
STEEL AND NONFERROUS METALS
Steel production outside the United States continues to increase, although ham-
pered by scrap shortages.World production, however, is far short of requirements. In
Europe collection of scrap from war-devastated countries has fallen short of expec-
tations.
Nonferrous metals have been in short world supply and there appears to be no
prospect of alleviation of this shortage in the near future. During the first quarter
of 1948 metal and other raw material stocks in some of the ERP countries declined to
dangerously low levels. Prospect of a possible serious development, however, is reduced
by the timely passage of the foreign aid legislation.
SECRET 11
Approved For Release 1999/09/16 : CIA-RDP67-00059A000500070010-8
 Approved For Release 1999/09/16 : CIA-RDP67-00059AO00500070010-8
CHEMICALS
Increasing coal and steel output in Europe gives promise of increases in production
of much needed nitrogen fertilizer and industrial compounds and alkalies, as well as
coal-tar crudes and industries dependent on them.
The slow, but definite, improvement in economic conditions in the Western Euro-
pean countries during the past two years and the prospects for further advances are
among the strong stabilizing influences in that part of the world. Economic recovery
cannot stand alone without reasonable military security and civic order, but in the West
it continues to be an element of strength in the total picture.
SECRET 12
Approved For Release 1999/09/16 : CIA-RDP67-00059AO00500070010-8
 Approved For Release 1999/09/16 : CIA-RDP67-00059AO00500070010-8
The President
Secretary of State
Chief of staff to commander in Chief
Secretary of Defense
Secretary of the Army
Secretary of the Navy
Secretary of the Air Force
Executive Secretary, National Security Council
Chairman, National Security Resources Board
Chief of Staff, US Army
Chief of Naval Operations
Chief of Staff, US Air Force
Director of Plans and Operations, General Staff, US Army
Deputy Chief of Naval Operations (Operations)
Director of Plans and Operations, US Air Force
Special Assistant to the Secretary of State, Research and Intelligence
Director of Intelligence, General Staff, US Army
Chief of Naval Intelligence
Director of Intelligence, US Air Force
Secretary, Joint Chiefs of Staff
Secretary, Joint Intelligence Group
Executive Secretary, Military Liaison Committee to the Atomic Energy Commission
Director of Security and Intelligence, Atomic Energy Commission
Chief, Acquisition and Distribution, OICD, Department of State
Approved For Release 1999/09/16 : CIA-RDP67-00059AO00500070010-8
 Approved For Release 1999/09/16 : CIA-RDP67-00059A000500070010-8
SECRET
U. S. GOVERNMENT PRINTING OF'F'ICE
2373-8--1948
Approved For Release 1999/09/16 : CIA-RDP67-00059A000500070010-8