REVIEW OF THE WORLD SITUATION

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP78-01617A001300320001-1
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 13
• Document Creation Date: December 23, 2016
• Document Release Date: June 13, 2013
• Sequence Number: 1
• Publication Date: March 15, 1950
• Content Type: REPORT

Declassified in Part - Sanitized Copy Approved for Release 2013/06/13: CIA-RDP78-01617A001300320001-1
'~~
NFAC
ORE
29
DIRECTOR NATIONAL FOREIGN ASSESSMENT CENTER
DOCUMENT ID NUMBER
AGENCY
ORIGINATING OFFICE
DOCUMENT TITLE
REPORT 50-3
CIA
ORE
REVIEW OF THE WORLD SITUATION
DOCUMENT DATE 500315
NUMBER OF PAGES 9
ORIGINATING DIRECTORATE NFAC
ORIGINAL CLASSIFICATION S
TOP SECRET NUMBER
RELEASE ACTION
DEC
770324
~n ~~
c~, ate`, 3 i
STAT
Declassified in Part - Sanitized Copy Approved for Release 2013/06/13: CIA-RDP78-01617A001300320001-1
 Declassified in Part -Sanitized Copy Approved for Release 2013/06/13
CIA-RDP78-01617A001300320001-1 COPY N0. 14 7
REVIEW OF THE WORLD
SITUATION
CIA 3-50
Published 15 March 1950
Document No. Gp /
NO CHAP?GE in Class. ^
DECLASSIFIF,D
Class. CHANTED T0: TS S C
DDA Memo, 4 Air 77
Auth: DDA L' ~. 77 1763
Date: _ $y; Q~
~ENTRAL INTELLIGENCE
AGENCY
SE~2'RET
Declassified in Part -Sanitized Copy Approved for Release 2013/06/13
CIA-RDP78-01617A001300320001-1
 Declassified in Part -Sanitized Copy Approved for Release 2013/06/13
CIA-RDP78-01617A001300320001-1
WARNING
This document contains information affecting the na-
tional defense of the United States within the meaning
of the Espionage Act, 50 U:S:C.., '31 and 32, as amended.
:Its 'transmission or the revelation of its :contents in any
manner to an unauthorized person is pro~?ibited by law..
Declassified in Part -Sanitized Copy Approved for Release 2013/06/13
CIA-RDP78-01617A001300320001-1
 Declassified in Part -Sanitized Copy Approved for Release 2013/06/13
CIA-RDP78-01617A001300320001-1
1 SECRET
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.
DISTRIBUTION:
Office of the President
National Security Council
National Security Resources Board
Department of State
Office of Secretary of Defense
Department of the Army
Department of the Navy
Department of the Air Force
Joint Chiefs of Staff
Atomic Energy Commission
,.Research and Development Board
Declassified in Part -Sanitized Copy Approved for Release 2013/06/13
CIA-RDP78-01617A001300320001-1
 Declassified in Part -Sanitized Copy Approved for Release 2013/06/13
IA-RDP78-01617A001300320001-1 S E C R E T
REVIEW OF THE WORLD SITUATION AS IT RELATES
TO THE SECURITY OF THE UNITED STATES
1. Developments in the Far East, Europe,
and within the US have increased the Soviets'
confidence in the strength of their power po-
sition vis-a-vis the West. In continental West-
ern Europe growing public skepticism of the
adequacy of Western defense policies and a re-
vival ?of tendencies towa"rd neutrality have
advanced Soviet objectives.
2. Signing of the Sino-Soviet treaty denotes
the maintenance of a working arrangement
between the two greatest Communist powers.
The USSR probably will continue, both cau-
tiously and with determination, its planned
infiltration in Chinese political, military, and
economic affairs.
3. Communist control of Indochina, under
present conditions, can be prevented only if
the Vietnamese are convinced that real inde-
pendence will be achieved through Bao Dai
and not through Ho Chi Minh.
4. The constant possibility of hostilities be-
tween' India and Pakistan contributes to in-
stability in South Asia. In Iran, .the pro-
Soviet Tudeh Party has been .increasingly ac-
tive. Peace negotiations between Israel and
Jordan have encountered Jordanian resist-
ance.
5. The Greek election has not revealed a
more stable political situation in the country.
6. In Yugoslavia, Tito's improved status,
both- economically and politically, should en-
able him to resist successfully increased Rus-.
Sian pressures short of direct military attack.
7. In Germany, growing sentiment. for uni-
fication is sharpening the contest for eventual
control between the USSR and the West.
8. Although the security of the US will not
be directly affected by the stalemate resulting
from the British election, the outcome is un-
satisfactory from the point of view of both the
UK and the US. i
9. In Latin America,, there is an increased
possibility for an improvement in US-Argen-
tine relations.
Note: This review has not been coordinated with the intelligence organizations of the De-
partments of State, Army, Navy, and the Air Force. The information contained herein
Declassified in Part -Sanitized Copy Approved for Release 2013/06/13
CIA-RDP78-01617A001300320001-1
 ~ i
Declassified in Part -Sanitized Copy Approved for Release 2013/06/13
~ IA-RDP78-01617A001300320001-1 I S E C R E T
REVIEW OF THE
TO THE SEC
VORLD SITUATION AS IT RELATES
RITY OF THE UNITED STATES
1. Soviet Confidence and Western Un asiness.
Recent developments, particularly in the
Far East, Europe, and within the US have
increased the confidence of the Soviets in the
strength of their power position as compared
to that of the US and the West. The signing
of the Sino-Soviet defense alliance, the critical
status of the French in Indochina, internal
dissension in South Asia, the revival of neu-
trality sentiment in continental Western
Europe, and influential, though unofficial, de-
mands in the US for a renewed effort to seek
a modus vivendi with Moscow may cause the
USSR to conclude that current conditions
favor more aggressive pressure in all sensi-
tive areas. Moscow may well estimate that at
no time in the past two years has it been in
such a relatively strong position to extend its
influence by all means short of war.
The USSR may interpret the current un-
easiness in the US over a potential H-bomb
armaments race, added to the present atomic
weapons contest, as an indication of wavering
US determination to oppose Soviet expansion
in areas where definite US commitments
would not be challenged. Soviet propaganda
is already exploiting these indications of US
anxiety. In pursuit of its drive to divide the
West, the USSR is attempting to foster latent
fears among US allies that US public opinion
may force a shift in policy. At the same time,
the USSR is capitalizing on its improved
power position to encourage a policy of neu-
trality among all nations.
However, the USSR probably regards recent
defeatist tendencies among the free peoples of
the European continent as one of the West's
most vulnerable points. Although official
support for NAT and MDAP has not weak-
ened-in fact the French and Italians are
firmly dealing with Communist efforts to in-
terfere with US military aid shipments-yet a
public skepticism of the adequacy of Western
defense policies under present circumstances
is becoming evident in Northern and Western
Europe. Since the signing of NAT nearly a
year ago and its implementation through
MDAP-only commencing to become visible
now-important changes have occurred in the
relative military potentials of the US and the
USSR. Soviet acquisition of the atomic bomb
sooner than anticipated and particularly the
recent US H-bomb announcement have dram-
atized the horrors of such an arms race with
its catastrophic possibilities. Stirred by the
consequences of such a conflict between the
two great powers, Europeans have recently be-
gun to question whether the altered balance
of power has invalidated the security assump-
tions of a year ago. At that time, the US
monopoly of atomic weapons appeared to
counterbalance Soviet superiority in conven-
tional armaments. Europeans believed that
they had sufficient time to rebuild their mili-
tary strength before the USSR could offset the
US atomic capability. Now they are aware of
the rapidly developing Soviet war potential at
the same time that the US seems unlikely to
accelerate the building up of its own and West-
ern Europe's military power. Under these
circumstances, with Communists in control
from the Pacific to the Elbe, there is less con-
fidence in US ability to contain such a vast
expanse of Soviet power.
In addition, continental Europeans, reflect-
ing the psychological effects of two world
wars, are once again revealing a sense of hope-
lessness in their capacity to affect the out-
come of a struggle between the two great
world powers. Always conscious that their
countries have been the main battleground in
these global conflicts, they have been giving
expression to fears that, by increasing their
military strength, they may be placing their
countries in the forefront of the fight.
Despite these feelings of frustration and
despair, European governmental leaders
recognize the lack of realism in such neutral-
Declassified in Part -Sanitized Copy Approved for Release 2013/06/13
CIA-RDP78-01617A001300320001-1
 Declassified in Part -Sanitized Copy Approved for Release 2013/06/13
CIA-RDP78-01617A001300320001-1
^ SECRET
ity sentiments and fully understand that po-
litical and military ties with the US provide
the only alternative to their countries' becom-
ing Soviet Satellites. Nevertheless, this popu-
lar uneasiness and longing for a more reliable
form of security will remain close to the sur-
face in Europe. It can best be dispelled by
improvement of economic conditions and by
constant evidence of firm US determination
and ability to resist Soviet aggression.
2. Implications of the Sino-Soviet Treaty.
After two months of negotiation the sign-
ing of the Sino-Soviet treaty in Moscow on 14
February formally allied the two greatest
Communist powers. Whether the Peiping re-
gime will be content with its role as a j unior
partner, and whether the alliance will survive
whatever discontent may develop, can only
be revealed by the unfolding of events. At
present, prospects appear favorable for a
working arrangement to be maintained be-
tween the USSR and China, probably includ-
ing coordinated plans for further Communist
advances in Asia. The published terms of
agreement indicate that Moscow, smarting
under the deviation of Titoism and conscious
of the stakes in China, recognizes the neces-
sity of according the Chinese at least the out-
ward signs of a world power representing more
than four hundred million people.
Soviet sensitivity to Chinese nationalist sen-
timent is reflected in the treaty's published
provisions, but the crucial issue is the imple-
mentation not only of the treaty but also of
the unpublished agreements which were pre-
sumably concluded at the same time. In es-
sence, the question is whether Soviet doctrine
will permit the USSR to move slowly in its ef-
fort to transform Soviet influence into Soviet
control, and whether the USSR will be suc-
cessful in convincing the Peiping regime that
it is not being treated as a Satellite. If, as
Moscow's relations with all other Communist
states would strongly suggest, the USSR at-
tempts rapidly to establish its control over
China, it may provoke such serious resistance
as to threaten or even to destroy the present
alliance. However, if the USSR proceeds
gradually, it will probably be able to minimize
Chinese dissidence until such time as the Rus-
sians can deal with it effectively. In either
event, Moscow can be expected to encourage
the Chinese Communists to reduce and finally
to eliminate US influence in China. Under
present circumstances, the USSR will attempt
to utilize US status in Japan, US nonrecogni-
tion of Mao's government, and association
with the French in Indochina to propagan-
dize the idea that Communist China's destiny
lies with the USSR.
By reviving fears of Japanese conquest and
implying the association of US "imperialist"
aggression, the published treaty of mutual de-
fense, which merely formalized the previous
defense relationship of the two powers, is in-
tended to quiet Chinese distrust of Soviet in-
tentions. But, in preparation for the con-
tingency of war with the US, it is probable
that secret agreements will enable the USSR
to establish a closer working relationship with
the Chinese military establishment. Joint de-
velopment of Chinese naval and air bases as
well as Russian supervision of Chinese tech-
nical training especially in aeronautics would
appear to be mutually advantageous. Al-
though Chinese nationalist aspirations are
recognized in the publicized decision for the
return of Port Arthur, Dairen, and the Chang-
chun railway to Chinese control, these provi-
sions need not become effective until 1953, at
which time the USSR may invoke the military
clauses of the pact, and an alleged threat of
war, to retain these strategic assets.
The five-year $300-million credit for the
purchase of Soviet capital goods may culmi-
nate in the successful establishment by the
USSR of its influence over vital segments of
the Chinese economy. On the basis of prac-
tice adopted in satellite dealings, Soviet trad-
ing firms, as well as technicians and advisers
in Chinese industry, are expected to be intro-
duced. If the Soviet credit is entirely de-
voted to industrial and railway equipment, as
stated in the published agreement, it should
appreciably assist an economy that is not suf-
ficiently stabilized to absorb huge amounts of
capital investment. However, if the USSR
adopts the procedures followed in credits
granted the satellite countries, then the So-
viets will overrate the value of their goods,
will deduct the costs of their technical ad-
Declassified in Part -Sanitized Copy Approved for Release 2013/06/13
CIA-RDP78-01617A001300320001-1
 Declassified in Part -Sanitized Copy Approved for Release 2013/06/13
~ IA-RDP78-01617A001300320001-1 S E C R E T
visory service, and will levy exorbitant trans-
port charges. Thus the amount the Chinese
receive would be substantially reduced, and
the agreement would become a source of fric-
tion between the two governments. In addi-
tion to the Soviet credit, trade missions from
Poland, Czechoslovakia, and Eastern Germany
probably will arrange small barter deals ex-
changing Chinese agricultural products and
minerals for industrial goods.
In Manchuria the Soviets would seem to
have consolidated their present position. No
mention was made, however, of the price they
may expect when the time comes to turn over
their present holdings in Dairen and Port Ar-
thur. Although the published agreement did
not refer to Sinkiang, it would seem probable
that, since a Sinkiang delegation was present
in Moscow, the USSR has been granted rights
to develop, together with the Chinese, the nat-
ural resources of this area.
Because of its care to avoid indications of
territorial aggrandizement or Russian domi-
nation of Chinese territories, the USSR is
likely to disguise its penetration of the Peiping
administration as much as possible. The os-
tensibly benevolent terms of the treaty have
created an atmosphere favorable to the steady
extension of Soviet control over the Chinese
Communist Party apparatus, secret police,
armed forces, and other important ministries.
In addition, the Stalinist leadership of the
Peiping regime has gained increased prestige
from the new treaty, and may soon take ac-
tion against some anti-Soviet elements in the
Party.
On balance it would appear that the USSR,
mindful of previous failure in China and con-
scious of the importance of a Chinese Commu-
nist ally as a bulwark against US power in the
Pacific, will continue, both cautiously and
with determination, its planned infiltration in
Chinese political, military and economic af-
fairs.
3. Indochina.
While Communism increases its control over
China, Western efforts to contain its spread to
Southeast Asia have centered on Indochina.
The pressures there have now reached such
proportions that there is a question whether
any method of US aid can be devised, outside
of unlimited commitments of US resources,
that will enable Bao Dai, in view of his asso-
ciation with the French, to establish a firm
regime backed by nOn-Communist Vietnamese.
Communist control of Indochina can be pre-
vented only if the Vietnamese are convinced
that real independence can be achieved
through Bao Dai and not through Ho Chi
Minh. The opposite opinion now prevails in
Vietnam. French imperialism is familiar and
present. The elimination of French control
is obviously prerequisite to independence. It
is not so obvious to the Vietnamese that Ho's
victory would substitute Soviet or Chinese im-
perialism.
The crux of the matter is the position of
France in Indochina. So long as the Bao Dai
regime is dependent on French military pro-
tection and apparently subordinate to France,
it cannot carry conviction as the means of
achieving independence. A settlement be-
tween France and Vietnam comparable to that
between the Netherlands and Indonesia might
have succeeded if it could have been reached
several years ago. The present situation dif-
fers from that in Indonesia, in that Commu-
nism already has a firm lodgment in Vietnam
as the champion of independence. Even with
US aid, the Bao Dai regime could hardly sur-
vive an abrupt withdrawal of French forces.
It is still conceivable that the situation might
be saved by a grant of genuine independence
and an orderly phase-out of the French.
It is highly improbable, however, that the
French could be persuaded to act with suf-
ficient speed and decision. They have hereto-
fore resisted all demands for new concessions
to Vietnam on the basis that "unrealistic na-
tionalist appetites" in Indochina would be
stimulated and a severe political crisis would
be provoked within France where it is felt
national prestige is at stake. In addition the
French Government fears that such a prece-
dent would lead to similar demands through-
out other areas of the French empire.
Ho's recent request for Yugoslav recogni-
tion in addition to that of all other nations
may well have been dictated by internal po-
litical factors. To retain the adherence of
non-Communist nationalists, it is necessary
Declassified in Part -Sanitized Copy Approved for Release 2013/06/13
CIA-RDP78-01617A001300320001-1
 Declassified in Part -Sanitized Copy Approved for Release 2013/06/13
CIA-RDP78-01617A001300320001-1
^ SECRET
for him to demonstrate an apparent freedom
from Soviet control. Moreover, like other
Communist leaders who have fought for na-
tional independence, he may well be disposed
to resist any foreign domination while carry-
ing out a Communist program of internal re-
form.
4. Instability in South Asia.
The value of South Asia as a bulwark
against expanding Asiatic Communism con-
tinues to be impaired both by India's attitude
of detachment toward the problem and by in-
stability within the area. Even though the
Indian Government is strongly opposed to the
Communists and has been disturbed by the
approach of Communism to its borders, Nehru
has persisted in his policy of aloofness toward
the struggle between the Communist bloc and
the West. He views such Asiatic Communists
as Ho Chi Minh as opponents of colonialism
rather than as likely precursors of Soviet im-
perialism and consequently disapproves of
Western support for Bao Dai in Indochina.
So long as Nehru is not alienated by the truc-
ulence of the Chinese Communists, his deter-
mination to maintain good relations with
them probably will not be weakened mate-
rially unless India finds itself confronted with
major Communist pressures from Tibet, a
threat to the independence of Nepal, or a gov-
ernment in Burma which is not only Commu-
nist but clearly dominated by Peiping or Mos-
cow.
At the same time, tensions within the South
Asia area have become more intense. The
Kashmir dispute is still unresolved, and in-
tensive economic warfare between India and
Pakistan has persisted for nearly six months.
In addition, bitterness between the two states
has been recently inflamed by a series of
Hindu-Moslem outbreaks in the densely popu-
lated border provinces of East and West Ben-
gal-disturbances which if renewed under the
stress of mounting economic hardship might
conceivably touch off a wave of communal vio-
lence throughout the subcontinent. There is
little likelihood that India would actually send
troops across the Pakistan border into East
Bengal. However, India's violent expressions
of concern over the safety of its Hindu co-
religionists there serve at least to encourage
in Pakistan the strong undercurrent of belief
that war provides its only hope of preventing
dismemberment and eventual strangulation.
Thus a resort to open warfare, perhaps as
early as this spring, remains a constant pos-
sibility.
Pakistan has at the same time become more
deeply involved in its cold war with Afghanis-
tan, to the obvious advantage of India. In
reply to Afghanistan's persistent effort to stir
up sentiment for an independent "Pushtoonis-
tan" among Pakistan's frontier tribesmen, the
Karachi government has now launched a
counter-propaganda campaign addressed not
only to its own tribesmen but also to their ra-
cial brethren across the frontier, on whose
loyalty the stability of the Afghan Govern-
ment ultimately depends; in addition, the
Pakistanis have eyed with interest signs of
dissension in the Afghan ruling group. Thus,
though Pakistan and Afghanistan are unlikely
to engage in armed conflict, both are employ-
ing tactics which might be followed by out-
breaks among the tribesmen, particularly on
the Afghan side of the border.
In Iran, deteriorating economic conditions,
causing serious distress and unrest, have been
accompanied by increased activity on the part
of the outlawed, pro-Soviet Tudeh Party. Un-
less extraordinary relief measures are taken
promptly, general popular resentment could
become sufficiently widespread so that the
government's authority would be endangered.
Meanwhile the Tudeh Party, which has been
receiving financial and moral support from
the USSR, will continue to exploit any oppor-
tunity to undermine the present regime.
The prospects for stabilization of the Pales-
tine situation remain far from good. The
government of Israel and King Abdullah of
Jordan recently took a major step forward
by tentatively agreeing in principle on a five-
year non-aggression pact which would restore
normal commercial relations between the two
countries while avoiding the question of a ter-
ritorial settlement. But refusal of a Jorda-
nian Cabinet to accept responsibility for the
treaty has apparently blocked further prog-
ress, at least until after Jordan's April elec-
tions.
Declassified in Part -Sanitized Copy Approved for Release 2013/06/13
CIA-RDP78-01617A001300320001-1
 Declassified in Part -Sanitized Copy Approved for Release 2013/06/13
~ IA-RDP78-01617A001300320001-1 S E C R E T
5. The Greek Election.
The Greek election held at the beginning
of this month did little to promote the in-
creased stability toward which US efforts there
are directed. The Greek people, expressing
their political preferences for the first time
since the troubled days of 1946, rendered an
essentially divided verdict despite the strong
support accorded the left-center group under
Plastiras. The effectiveness and stability of
any coalition government which is formed will
be impaired by the difficulty, in the face of a
strong opposition, of reconciling the demands
of its several nearly equal components. In-
deed, it is quite possible that no viable com-
bination will emerge, thus necessitating the
calling of new elections in which the divisive
issue of the King's role in the government
might be revived.
6. Yugoslavia.
With the coming of spring weather, Yugo-
slavia probably will be subjected to increased
Cominform pressure of the kind resorted to
in the past. While Soviet leaders may not
expect such pressure to bring about the early
collapse of the Tito regime, they may well
hope thus to hamper the development of
Yugoslav stability and to neutralize the ef-
fects of Western aid. Moreover, the USSR
may believe that unless some action towards
these ends is taken in the near future, eco-
nomic assistance and moral support from the
West will soon render Tito a far more formid-
able problem than at present. While Soviet
pressure is most likely to be confined to guer-
rilla activity, sabotage, and subversion, direct
military action is a continuing possibility.
The USSR has sharpened its propaganda
line against the Tito government by empha-
sizing the theme that he has become a "Fas-
cist tool" of Western "imperialism." Al-
though probably confident of its ability to pre-
vent the spread of Titoist doctrine, the USSR
can never relax its vigilance and must con-
tinue to purge suspected .deviationists in the
world Communist movement. If Titoism ap-
pears likely to extend to areas where Soviet
control is still incomplete but vital to Soviet
power aims, the USSR might resort to more
aggressive methods.
The Yugoslav Government, for its part, is
making strenuous efforts to counter this Rus-
sian propaganda line by asserting its policy
of Communist orthodoxy and complete inde-
pendence of the West. Tito's boldest gesture
in this sense was his recent recognition of the
Asiatic Communist, Ho Chi Minh. Thus, Tito
is deliberately strengthening his ideological
position in what may well be a prolonged
doctrinal conflict.
Tito's status, both economically and politi-
cally, has improved. Continued Western aid,
of which the $20 million Export-Import loan
was the latest example, has made it possible
for the program of industrial expansion to be
developed. However, Yugoslavia's balance-of-
payments deficit still places a severe strain
on its foreign exchange resources and necessi-
tates an intensive drive for marketable ex-
ports, with consequent heavy demands on the
population. So far the intensely nationalist
Yugoslavs have shown a willingness to make
these sacrifices in the interest of survival. In
view of the fact that the Yugoslav economy
is basically sound, the gradual development of
economic stability should strengthen the gov-
ernment. Nevertheless, Yugoslavia is still
confronted by the serious problems posed by
the necessity for proper allocation of its for-
eign exchange earnings and for expert tech-
nical advice.
In preparation for the national elections on
26 March, Tito has sought to consolidate his
support among the mass of the people and is
placing greater emphasis on the People's
Front, which comprises over half the popu-
lation. Though a typical Communist control
instrument, it provides a mechanism which
might conceivably be used to allow non-party
elements a more active role in the adminis-
trative as well as the productive life of the
country. The Yugoslav leaders have made it
clear, however, that no opposition parties will
be tolerated.
7. German Unification.
The struggle between the USSR and the
West for the control of Germany is focusing
on the growing sentiment for unification. For
three years Moscow has been utilizing various
political devices in Eastern Germany to press
Declassified in Part -Sanitized Copy Approved for Release 2013/06/13
CIA-RDP78-01617A001300320001-1
 Declassified in Part -Sanitized Copy Approved for Release 2013/06/13
CIA-RDP78-01617A001300320001-1
^ SECRET
for a unified nation. More recently, the Na-
tional Front organization of the East German
Republic has been making contact with West
German politicians and organizations who re-
gard the uniting of the two Germanies as
essential in order to restore German influ-
ence in Europe. This desire, as yet unorgan-
ized in a coordinated movement, has recently
been gaining ground in West Germany in a
variety of circles.
The weak condition of the West German
economy has accelerated public demands for
some political action that may ease the serious
unemployment situation. Many industrial-
ists and businessmen in the Federal Republic
are increasingly inclined to look towards the
East for raw materials and markets. The
pressure for the lifting of the Federal Repub-
lic's embargo on steel deliveries to the East
Germans has clearly revealed this attitude.
In contemplating the termination of the ERP
two years hence, West German industrialists
believe that their future economic stability
can best be achieved through a revival of their
former trade ties with Eastern Europe. A
unified nation would, in their view, accom-
plish this aim.
Increasing cohesion can be anticipated
among the rightist-nationalist groups that
have been advocating unification under vari-
ous terms. In addition, organizations of in-
tellectuals advocating neutralization of a
united Germany in the East-West struggle
have been gaining strength. Many of the na-
tionalist groups, despite their anti-Communist
orientation, would not be averse in principle
to coming to an understanding with the USSR
or the East German Republic if they felt they
would strengthen their own power in a united
Germany. There is some danger that such
irresponsible groups may be able to enlist the
support of the ten million refugees and ex-
pellees in Western Germany who have not
been successfully assimilated into the major
parties and who tend to favor extremist solu-
tions to alleviate their apparently hopeless
situation.
The only effective means of countering Com-
munist and rightist-nationalist propaganda
for unification would appear to lie with the
present moderate west German parties and
would consist in these parties making clear
their positions with respect to German unity.
The Free Youth rally of the East German
Communists in Berlin on 28 May will be an
indication of the attraction which unity un-
der Communist leadership holds for Germans
under Western control. At a mass demon-
stration the East Germans hope to win visible
support for their form of German unification
from the people of West Berlin. The East
Germans and their Soviet sponsors are count-
ing on the deteriorating economic conditions
of the West Berlin workers to weaken their
allegiance to Western ideals. West Berliners
have had their confidence in the US shaken
by the drop in West German trade resulting
from the Soviets' continued interference with
barge and truck traffic. Although the Ade-
nauer government has subsidized the Berlin
economy for some time under US prodding, it
will now have a more important reason for
doing so. However, as long as the USSR-ap-
parently confident at this time that West Ger-
many will ultimately join the Eastern camp-
insists on unification under Communist direc-
tion, there will remain substantial resistance
in the Bonn Republic to the acceptance of any
such terms.
8. Consequences of British Election.
Although the security of the US will not be
directly affected by the stalemate resulting
from the British general election, the out-
come is unsatisfactory from the standpoint of
both the UK and the US. The period of politi-
cal maneuvering which preceded the election
and which hindered decisive action at home
and abroad is likely to continue; one or more
general elections may be required before Brit-
ain obtains a government with an adequate
parliamentary majority. No change in for-
eign or defense policies is to be expected, since
both the Conservative and Labor parties are in
essential agreement on them.
It is in the field of domestic policy that the
indecisive nature of the election result will
have the most adverse effects. In the present
parliamentary situation, neither party is in a
position to pursue unpopular policies, and a
middle-of-the-road program may not be ade-
quate to combat inflation, with its consequent
effects on the British international position.
Declassified in Part -Sanitized Copy Approved for Release 2013/06/13
CIA-RDP78-01617A001300320001-1
 Declassified in Part -Sanitized Copy Approved for Release 2013/06/13
~ IA-RDP78-01617A001300320001-1 S E C R E T
Anon-committal, "caretaker" policy is proba-
ble, especially since the Laborites need Liberal
support. The first major parliamentary test
of the new Labor Government's economic pro-
gram is likely to come when Sir Stafford
Cripps presents his budget in April.
Since there is no indication that either the
Conservatives or Labor will enter a 'coalition,
the probability is that a new election will be
held in the late summer or early autumn of
1950. Unless a new and overshadowing issue
should arise, there is considerable reason to
believe that Britain may be perplexed for some
time by governments with inadequate majori-
ties. The fact that 85 percent of the elec-
torate registered less than a three percent
shift from the 1945 division of votes between
the two major parties indicates that no sig-
nificant rightward movement in public opin-
ion has occurred. The decisive defeat of the
Communists and fellow travelers, however, as
well as the submergence of the left-wing Lab-
orites in the party's councils reveals that the
British voters oppose any extreme leftist direc-
tion of their affairs.
Distracted by domestic political considera-
tions and under the leadership of the same
personalities, the British Government will lack
that' fresh energy for the long pull which
would add considerable strength to the West-
ern Powers at the present time.
9. US-Argentine Relations.
There is an increased possibility for an im-
provement in US-Argentine relations that
would advance US interests both in Hemi-
sphere solidarity and in Argentine economic
stability. During past months, persistent
economic dislocations and the pressure of an
increasingly stringent financial situation,
caused by shortages not only of dollars but
also now of sterling, have intensified Peron's
appreciation of the necessity for at least lim-
ited economic collaboration with the US. Al-
though his political commitments in favor of
state control of industry and his dependence
on the support of anti-US nationalists will
make collaboration difficult for Peron, recent
events indicate some progress in this direc-
tion.
The head of Argentina's National Economic
Council,. for example, has suggested that a
US-Argentine Treaty of Friendship and Eco-
nomic Development might assist in solving
mutual problems and in attracting foreign
capital. More recently the Argentine Gov-
ernment, now believing financial assistance
from the US Government essential to im-
proved economic stability, has offered certain
assurances that it will revise its economic
policy so as to qualify for such US aid. Even
though present dollar earnings are so reduced
as to preclude any quick liquidation of Argen-
tine dollar arrears to US firms, regular pay-
ments were undertaken a few months ago.
Peron is now finally recognizing that he must
satisfy the legitimate needs of US business
operating in Argentina, particularly against
the danger of expropriation.
Declassified in Part -Sanitized Copy Approved for Release 2013/06/13
CIA-RDP78-01617A001300320001-1
 Declassified in Part -Sanitized Copy Approved for Release 2013/06/13
CIA-RDP78-01617A001300320001-1
Declassified in Part -Sanitized Copy Approved for Release 2013/06/13
CIA-RDP78-01617A001300320001-1