IMPACT OF RECENT DEVELOPMENTS UPON WESTERN EUROPE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79R01012A007200010001-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 14
• Document Creation Date: December 27, 2016
• Document Release Date: August 6, 2013
• Sequence Number: 1
• Publication Date: December 13, 1956
• Content Type: SNIE

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&EGRET
SNIE 20-56
rayS 13 December 1956
X? 216
FcC3
SPECIAL
NATIONAL INTELLIGENCE ESTIMATE
NUMBER 20-56
IMPACT OF RECENT DEVELOPMENTS
UPON WESTERN EUROPE
Submitted by the
DIRECTOR OF CENTRAL INTELLIGENCE
The following intelligence organizations participated in the
preparation of this estimate: The Central Intelligence Agency
and the intelligence organizations of the Departments of
State, the Army, the Navy, the Air Force, and The Joint Staff.
Concurred in by the
INTELLIGENCE ADVISORY COMMITTEE
on 13 December 1956. Concurring were the Special Assistant,
Intelligence, Department of State; the Assistant Chief of Staff,
Intelligence, Department of the Army; the Director of Naval
Intelligence; the Director of Intelligence, USAF; and the
Deputy Director for Intelligence, The Joint Staff. The Atomic
Energy Commission Representative to the IAC, and the Assist-
ant Director, Federal Bureau of Investigation, abstained, the
subject being outside of their jurisdiction.
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ry;
IMPACT OF RECENT DEVELOPMENTS
UPON WESTERN EUROPE
THE PROBLEM
To examine the effect upon Western Europe of recent developments, particularly
in the Middle East and Hungary; to estimate the immediate and longer-term eco-
nomic, political, and strategic results; and to indicate the manner in which these
might affect Soviet policy and the East-West conflict.
ASSUMPTIONS
a. That the Suez Canal and IPC pipelines will not be open to full-scale traffic
before 1 June 1957, although they could be open for limited traffic by 1 March 1957.
b. That TAPLINE remains open at full capacity.
c. That reallocation of transport and of increased Western Hemisphere petroleum
supplies will permit Western Europe to meet about 80 percent of its normal petrole-
um requirements.
CONCLUSIONS
1. As a result of the petroleum shortage
and the closure of the Suez Canal to all
shipping, Western Europe will suffer
from unemployment, and from declines
in industrial production, incomes, and
new investment. Its economic growth will
be interrupted. There will be at least
short-term inflationary effects, which are
likely to be more S' erious in France than
elsewhere. Serious strains on the dollar
balance of payments will occur in many
Western European countries, particularly
in the UK. (Paras. 12-23)
2. The military posture of NATO, already
weakened by the diversion of French and
British NATO forces outside Europe, is
being threatened by the petroleum short-
age. (Para. 36)
3. The internal politics and foreign pol-
icies of the Western European countries
will be influenced for many years to come
by the recent developments in Eastern
Europe and the Middle East. The Con-
servative Party in the UK is in serious
trouble; the perennial French political
problem has been aggravated. The Corn-
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munist movement in Western Europe has
been considerably weakened, but the
USSR has again demonstrated its capac-
ity for intimidation and blackmail. The
abortive intervention in Egypt by Britain
and France hs critically impaired their
positions in the Moslem world and indi-
rectly weakened colonialism everywhere.
NATO has suffered a further decline in
vitality and cohesion, and its members
are engaged in a reappraisal of the
alliance and of their national positions.
(Paras. 24-33)
4. The outcome of this reappraisal in the
short term is likely to be increasing pres-
sure upon the principal members to clar-
ify the extent to which they are prepared
to coordinate policy within the alliance.
There will also be strong pressure for
a re-examination of the military concepts
embodied in NATO and pressure upon the
US to integrate its over-all military plan-
ning, particularly with respect to the
availability and use of nuclear weapons,
with that of its NATO partners. Failure
to develop more effective arrangements
regarding these problems would be un-
likely to lead to an early collapse of NATO,
but it would accelerate the decline in its
vitality. In any case, there will be a
stronger trend toward broad intra-Euro-
2
pean cooperation. Over the longer run,
Europeans might show an increasing in-
terest in exploring new European security
arrangements possibly involving the dis-
solution or drastic modification of NATO,
although great obstacles to the realization
of such schemes remain. (Paras. 34 40)
5. Soviet standing in Western Europe
has suffered a setback as a consequence of
the Hungarian affair. On the other
hand, the divisions within NATO provide
an opportunity for Soviet exploitation.
We believe that the Soviet leaders will
continue to strive to maintain effective
political control in Eastern Europe and to
retain and exploit their foothold in the
Arab states, even though they probably
recognize that this will further reduce
their standing in Western Europe and
contribute a measure of solidarity to
NATO. For them to agree to a general
European settlement involving the mu-
tual withdrawal of US and Soviet forces
and thereby promote the dissolution or
drastic modification of NATO would, we
believe, require a fundamental reassess-
ment of their position. We think they
are unlikely to make any such reassess-
ment until at least the returns from
Eastern Europe and the Middle East have
been tallied. (Paras. 41-44)
DISCUSSION
I. ATTITUDES AND RESPONSES TO EVENTS
6. Even before the Anglo-French attack on
Egypt, the North Atlantic Alliance was losing
vitality and cohesion. The relaxation of ten-
sions following the Summit Conference of
1955 took some of the urgency out of the
alliance, and many of its European adherents
began to advance the view that this alliance
in its existing form and military composition
was out of step with the times. In their view,
the danger of Soviet military aggression had
greatly receded, and the shift in the arena
of conflict with the USSR to the undeveloped
and colonial areas required a closer coordina-
tion of policy among the NATO members to-
ward the areas in question. At the same time,
the reduced fear of war led to a declining pop-
ular and parliamentary enthusiasm for mili-
tary expenditures and the development of
forces for NATO purposes. Their own domes-
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tic and colonial concerns led some members
to reduce or openly to question the form and
nature of their force commitments to NATO.
7. During 1956 Western Europe enjoyed high
levels of economic activity highly dependent
on Middle Eastern oil. The emergence of
ultranationalist sentiment among the Arabs
both in the Middle East and North Africa,
Nasser's growing prestige, the increasing So-
viet interest in the Middle East, and the
mounting disorder along the Arab-Israeli
borders were visible reminders that European
well-being could easily be upset if existing
trends continued. Thus, when the Egyptian
government expropriated the Suez Canal
Company, the possibility that traffic through
the canal could be closed, controlled, or ren-
dered uneconomical became a focus for more
general fears about the economic future of
Europe and a symbol of its reduced power and
prestige in the world at large.
8. In particular the British and French lead-
ers felt that they were facing a direct chal-
lenge and that the failure to meet it squarely
would accelerate the deterioration of their
political and economic position in the Middle
East and North Africa. This, they believed,
would result in the eventual strangulation of
the Western European economy generally
through a series of moves to raise costs and
curtail existing trading arrangements. Other
Western European countries, while they did
not share the immediate and violent reaction
of the British and French, were deeply con-
cerned and associated themselves with moves
to establish international control of the canal.
At the same time, a growing feeling of inse-
curity and frustration spread in Western
Europe. There was criticism of the United
States for alleged vacillation in its policy
toward the canal and for a general failure
to exercise its leadership and authority on
behalf of its European allies. Western Europe,
it was felt, was gradually losing its freedom
of action, and the USSR and a new group of
Arab-Asian leaders were calling the tune.
9. The explosive impact of events beginning
at the end of October intensified Western
Europe's realization of its vulnerability. Pub-
lic opinion in Britain was split, in France rela-
tively united, regarding the use of force. Of-
ficial and public opinion in the other West-
ern European nations generally deplored ?
though sympathizing with ? the British and
French intervention in Egypt, and they con-
demned the failure to consult them and
the US. Except in the UK, however, popular
interest shifted to events in Hungary. The
brutal Soviet intervention in Hungary stim-
ulated a storm of indignation. Events in con-
nection with the Middle Eastern crisis, and
particularly the implied Soviet threat of force
against Britain and France, temporarily
crowded out concern over Hungary. This
threat, coming on top of US and UN pressure,
caused the British and French governments
to call a halt to military operations in Egypt
far short of their objectives and with only a
fraction of the canal within their control.
10. Subsequent developments have led to a
widespread acceptance of the idea that the
British and French have suffered a grave set-
back in Egypt. While the British and French
intervention is almost nowhere (except in
France) regarded as having been a wise policy
decision, much Western European resentment
has also been directed against the United
States. It is widely held that the US has
failed to exercise positive leadership in the
UN to restore the situation in Egypt in such
a manner as to curb Soviet influence and pro-
vide an honorable course of retreat for its
British and French allies. Expression of anti-
American sentiment has at least temporarily
reached unprecedented levels in Britain and
France and extended to some elements hither-
to strongly pro-American. Outside these two
countries there has also been criticism of the
US for failure to consult with its NATO allies
and to take the leadership in revitalizing the
North Atlantic Alliance at a time when it is
foundering.
11. Moreover, Western Europeans generally
have been frustrated by their inability to
assist the Hungarians, and the US has been
criticized in some quarters for not giving them
stronger support in view of its alleged prior
encouragement. On top of these criticisms,
the developing economic difficulties resulting
from the closure of the canal and the sabo-
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tage of the IPC pipelines have affected many
who were otherwise uninterested in placing
blame or were sympathetic to the US position.
Coming at a time when Europe is experiencing
its first cold weather of the winter, the imme-
diate effects of the shortage of fuel oil are
evident to nearly everyone and there is wide-
spread fear that the effects of the oil short-
age will spread so widely as seriously to dam-
age economic life as well.
II. ECONOMIC IMPACT
12. The economic effects of reduced ship-
ments of petroleum and dry cargo as a result
of the Suez crisis will complicate the economic
problems already plaguing a number of West-
ern European countries prior to the canal's
closure. In the United Kingdom and most of
the Scandinavian countries there were strong
inflationary pressures since domestic demand
and advancing wages were in danger of ex-
ceeding the declining rate of economic growth
and adversely affecting trade balances. These
countries had adopted anti-inflationary meas-
ures which in the United Kingdom assisted in
maintaining a precarious balance in external
payments largely through a decline in im-
ports. In France persistent inflationary pres-
sures as a result of rising wages, budgetary
deficits, crop failures, and diversion of man-
power for hostilities in Algeria were being
largely met by rapid increases in production
and by drawing down foreign exchange re-
serves. In any case, continuation of these
pressures even without the Suez crisis could
have led to an economic crisis by mid-1957.
13. The most immediate economic conse-
quence of the Suez crisis is the shortage
of crude petroleum. Petroleum represents
roughly 20 percent of the total energy sup-
plies of the Western European countries.
Eighty percent of their current petroleum
requirements of about 150 million tons a year
are normally obtained from the Middle East.
In 1955 Western Europe depended on petrole-
um to move over half of its inland freight.
Road, air, and water transport are almost
entirely dependent on petroleum products
and account for about 44 percent of European
petroleum consumption. Petroleum is of
small importance for rail transport and elec-
tricity generation but accounts for over 10
percent of energy consumed by industry. The
remaining principal use is for heating and
private gasoline consumption. There is an
extremely wide variation in the degree to
which individual Western European countries
are dependent on petroleum. 1 In West Ger-
many only nine percent of total energy is
derived from petroleum, whereas in Greece
petroleum accounts for 73 percent. Germany,
the United Kingdom, France, and Belgium
are less dependent on petroleum for the well-
being of their economies than the Scandina-
vian and Mediterranean countries.
14. The closure of the Suez Canal and IPC
pipelines and the rerouting of tankers around
the Cape cut off 40 percent of Western Euro-
pean petroleum supplies. Exports from the
Western Hemisphere, especially the US, and
reallocation of both petroleum supplies and
transport under present plans will reduce the
deficit in Western Europe to about 20 percent
of total requirements 2 in early 1957. The def-
icit will probably be reduced by a further
five percent through possible conversion of oil
facilities to coal. Any reduction beyond this
1 Western European dependence on petroleum was
rapidly increasing prior to the Suez crisis and the
proportion of oil to total energy was running at
a higher level in 1956. Petroleum as a percent
of total energy supplies to Western European
countries in 1955 follows:
All
Uses
Industrial
Uses
Greece
73%
45%
Portugal
47
23
Sweden
44
40
Ireland
39
n.a.
Denmark
37
43'
Italy
33
27
Switzerland
29
7-
Netherlands
26
26
Norway
25
18
France
20
13
Austria
20
n.a.
Belgium
16
17'
United Kingdom
13
4
Germany
9
3
Average for
Western Europe
18%
11%
Since bunkers for overseas transport cannot be
reduced, the total available for consumption
within Europe will be reduced by an additional
five percent.
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during the next six months seems unlikely
because of difficulties in an early conversion
of facilities and the over-all shortage of coal
in Europe. Western Europe is already im-
porting substantial quantities of US coal, and
substantial additional imports will be difficult
because of the shortage of dry cargo shipping.
Allocation of petroleum among Western Euro-
pean countries will probably be based on a
uniform reduction in relation to their pre-Suez
consumption, although presumably there will
be continuous negotiations to alleviate the
more glaring inequities.
15. An immediate consequence of the Suez
crisis is the shortage of shipping. Even with
the diversion of oil from the Western Hemi-
sphere and reactivation of 30 tankers from
the US reserve fleet, there will be a shortage
of tankers as long as the canal and important
pipelines remain blocked. Dry cargo vessels
are also affected since closure of the canal has
lengthened the voyage from Europe to most
points east of Suez. The dry cargo charter
market was already tight before the Suez crisis
because of the seasonally high demand for
bulk cargo shipments such as ,coal and wheat.
The shortage of dry cargo ships will be some-
what reduced in the next few months by the
US reactivation of 60 ships from the reserve
fleet, British release for commercial use of 60
ships requisitioned last summer for mobili-
zation in the Eastern Mediterranean, and
economies effected in shipping schedules.
However, a continuing tight shipping market
will raise freight rates substantially above
the pre-Suez level and along with more ir-
regular deliveries of raw material imports
will tend to increase commodity prices in
Western Europe.
16. By drastically curtailing private motoring
and residential and commercial heating and
substituting coal where immediate conversion
is possible, petroleum product supplies to Eu-
ropean industry could be maintained at an
estimated 85 percent of normal petroleum
consumption, representing somewhat less
than two percent reduction in total energy
to industry. The reduction in different
countries will vary from very small in Western
Germany to perhaps four to six percent in
Italy and Sweden. Not only will the increase
in industrial production be halted but, for a
variety of reasons, present levels of industrial
production will be reduced at least as much
as reductions of fuel to industry. The effect
is likely to spread cumulatively throughout
the economies of these countries, leading
gradually to a greater fall in industrial pro-
duction. For example, the industries relying
most heavily on oil, such as steel, cement,
glass, and pulp, supply components and ma-
terials to a wider group of industries. The
automotive and related industries are severe-
ly affected by gasoline rationing. After the
running down of available civilian stocks, dis-
locations resulting from direct shortages, less
efficient inland transport, and delays in cer-
tain raw materials imports could reduce over-
all industrial production in Western Europe
by more significant amounts. Even greater
curtailment may result from the psychological
impact on entrepreneurs and from difficul-
ties arising because of dislocations in trade
and balance of payments positions.
17. Employment levels will be reduced though
probably to a lesser degree than production.
However, there will be decreases in the work
week and lower take-home pay. In countries
where unemployment is substantial, notably
Italy, Ireland, Denmark, and Belgium, the
drop in employment would have more serious
effects than elsewhere.
18. Despite some increases in unemployment
and a probable reduction in new investment,
the short-term effect of the crisis will be in-
flationary. Petroleum costs will rise as a re-
sult of higher tanker rates and more expensive
Western Hemisphere supplies, which in turn
will raise manufacturing costs somewhat.
Increased freight rates for dry cargo imports
will have a further effect in raising industrial
costs. These cost increases will tend to have
cumulative and spiralling effects, particularly
as shortages of materials tend to occur and
purchasers bid for stocks. On the demand
side, there is likely to be an inflationary im-
petus since employment is expected to decline
less than production. Inflationary pressures
will vary considerably from country to coun-
try, and the outcome will depend in part on
measures adopted by the respective govern-
ments. The effect will probably be most
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marked in France, where the budget deficit
will be increased in particular through losses
of tax revenues. Since the wage structure is
linked to the price index, even a slight in-
crease in prices could set off a wage-price
spiral and cause serious economic and social
instability.
19. In many European countries the infla-
tionary spurt may be short-lived. Accumula-
tion of inventories may come to an end quick-
ly, the revival of postponed investment may
lag, and certain industries, for example auto-
mobiles, may be slow in returning to full pro-
duction. However, such a deflationary after-
math will probably not be severe.
20. Serious strains may be expected on the
balance of payments of many Western Euro-
pean countries. The additional dollar cost
arising from the new pattern of petroleum
distribution will probably amount to $300
million for Europe as a whole over a six month
period, assuming a moderate increase in the
price of crude. These higher dollar costs
arise primarily from increased imports of
high-priced Western Hemisphere petroleum
and loss of British sales of Middle Eastern
petroleum to the US. The UK will bear a
disproportionately high share, estimated at
60 percent, because British companies will sell
dollar petroleum to regular customers in West-
ern Europe for sterling, and the UK also will
lose hard currency credits in the EPU as its
petroleum sales on the continent decline. The
relatively weak pre-Suez position of sterling
has been intensified. British gold and dol-
lar reserves fell by $230 million in the 12
months ending October 1956, 3 and by an ad-
ditional $259 million in November alone; on
4 December the reserves were down to $1,965
million.
21. On the other hand, the British have sub-
stantial additional dollar resources, including
about $1 billion in US securities and drawing
rights with the International Monetary Fund
up to $1.3 billion. They have indicated a
determination to use these resources to sup-
port the present exchange rate for sterling.
3 The capital windfall from the sale of the Trini-
dad Oil Company to US interests in September
1956 for $177 million has been excluded.
6
Moreover, they have already approached the
US and Canada for a cancellation of interest
payments aggregating over $100 million on
outstanding government loans. The UK faces
a serious financial crisis in the defense of its
sterling position which probably will mean
restrictions on imports and domestic con-
sumption for a considerable period after the
Suez Canal is reopened. The general balance
of payments for Western Europe, aside from
dollars, probably will not be greatly affected
since reduced exports will tend to be offset
by lower imports and higher earnings for its
large merchant fleet.
22. Western Europe's foreign trade will be
adversely affected by the rising costs and
weakened competitive position in world mar-
kets vis-a-vis the US and probably Japan.
Also, disparities among Western European
countries are likely to be accentuated. Ger-
many, in particular, which has been earning
large surpluses in the European Payments
Union, is likely to be competitively strength-
ened. Petroleum is not so important in its to-
tal energy supplies, and Germany is not as
heavily dependent upon overseas supplies of
raw materials as other European countries.
23. The Soviet Bloc now supplies almost two
percent of Western Europe's petroleum sup-
plies. If the USSR were willing, it could about
double its export of oil to Western Europe,
permitting a reduction of the estimated West-
ern European current deficit from 25 percent
of total requirements to about 23 percent.
III. THE POLITICAL IMPACT
24. In addition to their effect upon public
attitudes and upon the economy of Western
Europe, recent events have had a significant
effect upon the power and prestige of Britain
and France, and consequently upon the politi-
cal situation in Europe. Although the in-
ternal position of the other Western European
governments has not been greatly affected,
all of them are deepry disturbed and to some
extent divided over the international reper-
cussions of the Suez situation. In one -way
or another internal developments and foreign
policy will be influenced for many years to
come.
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25. The United Kingdom. After five years of
power the Conservative Party is in serious
trouble and the country is deeply divided.
The cumulative effects of events during the
past several months have resulted in a sub-
stantial loss of confidence in the present lead-
ership. Anthony Eden's position as Prime
Minister is so shaky that he probably cannot
long survive. Even if a Conservative govern-
ment continues in office, it might find it in-
creasingly difficult to govern. An early gen-
eral election appears unlikely, although events
consequent to the present crisis will probably
lead to an election well before 1960. Labor's
determined opposition to the intervention in
Egypt initially won widespread support in the
country, but a wave of national feeling has
produced some new rallying to the govern-
ment's cause. However, the cumulative effect
of post-Suez developments probably will pro-
duce a further swing toward Labor. Much
will depend upon the circumstances existing
at the time when elections actually occur.
26. France. Except for the Communists and
minority elements of certain political groups,
the country has supported the government's
policy. However, the government's problems,
which it hoped could be surmounted by a
victory in Egypt, have been increased rather
than reduced by the outcome. A solution in
North Africa deemed favorable by the French
has been rendered more remote. The usual
budgetary and inflationary problems have
been aggravated by the continuing drain in
North Africa, the new drain in Egypt, and
the forthcoming financial and economic costs
of the petroleum shortage. So far, the gov-
ernment has not been made the scapegoat,
but sooner or later this will occur, and again
the constitutional machinery of France will
be challenged with the problem of finding a
new government which is able to find the nec-
essary support to deal with the major issues
confronting France. A critical phase will be
entered in the forthcoming UN General As-
sembly debate on Algeria.
27. Domestic Communism. Events particu-
larly in Hungary have considerably weakened
the Communist movement in Western Europe
generally. With the reassertion of the iron
fist in Hungary, considerable tumult and
much outright defection have occurred. Some
of the smaller parties, and especially that in
the UK, have been very seriously damaged.
In Italy, we estimate that the party has suf-
fered a decline in national voting strength
as high as 25 percent. More significantly, the
leadership and the cadres are in turmoil, and
serious differences in the party have developed
over the official line, which has supported the
Soviet intervention. In France, where the
party has always been better disciplined, there
is less discernible disorder in the hard core,
although a number of prominent intellectuals
and fellow travellers have broken with the
party line. In present circumstances, there
is little likelihood of substantial desertions
of the party membership. However, in both
Italy and France, the Communist parties have
been forced back into political isolation. In
Italy, the Communist isolation is the more
severe blow because of the pace at which
Pietro Nenni, leader of the Italian Socialist
Party, is separating himself from the Com-
munist leadership.
28. Soviet Influence. Although the moral and
political position of Communism has been
weakened, Western European governments
have come to a renewed appreciation of their
inability to counter the power of the USSR
without US support. After the victory of
Gomulka in Poland and the early gains of
the revolutionists in Hungary, there was grow-
ing hope that the USSR would find itself com-
pelled gradually to retire from its position in
Eastern Europe. However, the application of
brute force in Hungary, the threat of volun?
teers in Egypt, and above all the implied
threat of force directly against Britain and
France dissipated this optimism. The fear
which was stimulated has demonstrated the
USSR's capacity for blackmail and intimi-
dation. Moreover, continuation of Soviet
maneuvers in Egypt and Syria have made it
obvious that the USSR intends to play an in-
creased role in the Middle East, where West-
ern Europe's economic interests and security
are already in jeopardy.
29. European Influence. The abortive in-
tervention in Egypt by Britain and France
has critically impaired their already weak
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position in the Moslem world and indirectly
weakened the European colonial position ev-
erywhere. The UK's political influence has
been seriously undermined in Iraq and its
position in the sheikdoms and minor states
is jeopardized. The French position in Al-
geria has further deteriorated. The French
Union never had very, good prospects for vi-
tality, but the British Commonwealth, which
had shown promise for building new and mu-
tually satisfactory relations between Britain
and its erstwhile colonial empire, has been
seriously strained. The roll-back in the British
and French positions from the Middle East,
and particularly the moral and political vic-
tory won by the powers emerging from colo-
nial status and by Nasser, cannot help but
have important effects in all of Africa.
30. The severe setback for Britain and France
was also one for the other colonial powers,
notably Belgium and Portugal. All of the
European powers, because of the close inter-
relations of their economies and because of
their inescapable political and military inter-
dependence, recognize that they confront a
critical situation: their alliances weakened,
the USSR championing the emergent peoples,
and over the longer run their living standards
and employment threatened by an inability to
control ready markets and sources of supply.
31. NATO: The Present Situation. With the
withdrawal of the British and French from
the canal zone in process and with emergency
measures for alleviating the petroleum short-
age underway, concern is turning toward
binding up the Western alliance in the face
of renewed Soviet threats. Despite some
strain between Britain and France over the
phasing of the withdrawal, the two powers
at present remain in close association; they
are bound by a common interest to salvage
what they can from the blow they have suf-
fered; they share a common grievance against
the US and a common interest in trying to
minimize the effects of the resentment which
their action generated among other nations
of the world. The most important problems
for the alliance are the tripartite relationships
among the US, the UK, and France. The
decline in mutual confidence, particularly
between the US and UK, has reached serious
proportions. There are suggestions of far-
reaching changes in British and French for-
eign policy. While these suggestions may be
in part designed to frighten the US, they also
represent a genuine disappointment with US
policy and almost certainly reflect some re-
examination of the basic considerations upon
which various policies have hitherto been
based.
32. There are other divisive factors within
NATO. As noted above (para. 6) , there has
been increasing pressure for wider foreign
policy coordination and a re-examination of
military plans. The highly adverse economic
impact of the curtailment of Middle Eastern
petroleum supplies, and particularly the pos-
sible longer-term effects on balance of pay-
ments, employment, and living standards,
must already be obvious to governmental lead-
ers and will probably induce them to with-
hold commitments on military expenditures
and on maintenance of NATO force levels and
military posture.
33. On the other hand, there are compensat-
ing factors. The present German and Italian
governments, backed by some of the smaller
powers, are pressing hard for a restoration of
unity and are urging the US to assume lead-
ership in rebuilding NATO's vitality. The
menacing new posture of the USSR has re-
minded them of their defenselessness without
US support, particularly nuclear capability.
Even Iceland has reconsidered its demands
for US evacuation in light of the develop-
ments in Eastern Europe and the Middle East.
Nevertheless, the NATO powers are individu-
ally and collectively engaged in a fundamental
reappraisal of NATO and of their respective
national positions.
34. NATO: The Short-Term. The outcome of
this reappraisal in the short-term is likely to
be increasing pressure upon the principal
members to clarify the extent to which they
are prepared to coordinate policy within the
alliance. There will also be strong pressure
for a re-examination of the military concepts
embodied in NATO and pressure upon the US
to integrate its over-all military planning, par-
ticularly with respect to the availability and
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use of nuclear weapons, with that of its NATO
partners. The West German government in
particular will probably press strongly for a
strategic plan which recognizes the need for
an effective military force with modern tac-
tical weapons to supplement the deterrent of
massive nuclear retaliation. On the part of
some of the European members, there will
probably be an effort to bring about collective
NATO action on intra-NATO and intra-Euro-
pean problems such as Cyprus.
35. Should it prove impossible to develop more
effective arrangements for consultation and
coordination of policy within NATO, this
would be unlikely to lead to the early collapse
or destruction of the alliance. Despite the
recent emotional reactions in France and the
UK, responsible leaders recognize that they
can have little security unless they remain
tied to the US. They also recognize that they
can no longer rely upon their own power and
prestige to rebuff Soviet advances into the
colonial and underdeveloped areas or to pro-
mote the stability in those areas so necessary
to their economic well-being. Nevertheless, a
failure to develop more effective consultation
and satisfactorily to recast NATO's strategic
concepts would accelerate the decline in the
vitality of the alliance. However, the Euro-
pean powers would probably continue to go
along with NATO, while carping at US leader-
ship. They would be even less willing to subor-
dinate their own national interests to over-all
NATO military requirements. Barring a reso-
lution of the nuclear weapons problem in
EURATOM, France would probably make
greater efforts independently to develop nu-
clear weapons, and the West Germans would
strain at the limitations imposed by the West-
ern European Union charter upon the devel-
opment of a nuclear capability of their own.
36. Military Posture. Meanwhile the military
posture of NATO, already weakened by the
diversion of French and British NATO forces
outside Europe, has continued to deteriorate.
Military stocks of petroleum, even before the
closure of the Suez Canal, were considerably
below NATO requirements. Acute shortages
already exist in Italy, Greece, and Turkey.
NATO stocks are unlikely to be augmented
9
and in some cases may be further depleted
until normal supply is resumed. There will
be considerable pressure for the release of
stocks for civilian use.
37. European Cooperative Efforts. In any
case, there will be a continuing trend toward
greater cooperation among the Western Euro-
pean countries. The UK for some months
has been edging closer to the continent on
matters of economic cooperation. Despite
some reticence in both France and Germany,
strong elements in both countries have been
pushing toward solutions of their differences
and toward the realization of such cooperative
schemes as EURATOM and the Common Mar-
ket. The economic repercussions of the Suez
crisis are likely to complicate the technical
problems involved in creating the Common
Market, but both the political and economic
motivations for closer general cooperation
have been substantially strengthened.
38. The Longer Term in Western Europe.
Over the longer run, the individual reapprais-
als of NATO and of the European power posi-
tion which are now in process could lead to
the dissolution or the drastic modification of
NATO itself. For example, there has been
discussion of replacing NATO by or subordi-
nating it to a broad European security ar-
rangement involving Eastern Europe and the
USSR. According to this line of thought,
both Eastern Europe and Western Europe
could in effect be neutralized by the with-
drawal of foreign (i. e., US and Soviet) forces
and bases. Should the USSR demonstrate a
receptivity to such an arrangement, it would
probably become increasingly attractive to
many who now regard such an arrangement
as either dangerous or illusory. Thus, even
if the US should attempt to restore vitality
to NATO by moving to develop a wider area
of consultation and cooperation' on European
and non-European problems, there is no as-
surance -that-this would prevent a search for
new security arrangements.
39. In the backing and filling of European
reaction and policy which will continue for
some time, there nevertheless will remain
great obstacles to the realization of such new
security arrangements. Both parties in the
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UK contain dominant elements wedded to the
US alliance and unmitigatedly distrustful of
the USSR. France, if for no other reasons
than its likely further losses in world power
position and the inherent difficulty of it mak-
ing sharp reversals of policy, seems unlikely
to withdraw completely into itself and cast
itself unprotected by American backing and
support into a purely European community
in which the Germans probably would seize
effective leadership. In West Germany, Ade-
nauer remains firmly committed to the West-
ern alliance.
40. We cannot at this time estimate the
longer-term outcome of Western Europe's re-
appraisal of its position. We believe that the
potential for developing new security arrange-
ments, which has always been present, has
been given new impetus by recent develop-
ments. How likely such arrangements are to
come about will depend greatly upon the
strength and nature of the European political
forces supporting them, and upon the poli-
cies which the US and USSR develop in the
months to come.
IV. SOVIET POLICY
41. The USSR's attempts during 1955 and
1956 to convince Western Europeans of its
peaceful posture have been undermined by
recent developments. Beginning in the spring
of 1955, the Soviet leaders attempted to nur-
ture the belief that there had been a funda-
mental change of atmosphere within the
USSR and in its foreign policy. With the
objective of delaying West German rearma-
ment and generally undermining the strength
of NATO ties and the NATO defense effort,
they carried on a diplomatic and propaganda
campaign for a European security pact to
supersede NATO and the Warsaw Pact. They
cultivated Socialist parties and encouraged
the local Communist parties to promote pop-
ular front alignments. In general, they tried
to narrow the base of support for pro-NATO
policies and to encourage the growth of inde-
pendent national interests in the hope of
bringing about changes in the policies of the
NATO members in Europe. At the same time,
the Soviet leaders attempted to replace West-
em -influence in the Middle East and to de-
prive the Western allies of the economic ad-
vantages they enjoyed there. This latter line
of policy was inconsistent with their tactics
in Western Europe.
42. As noted above (para. 27) , the Hungarian
affair has weakened the position of the Com-
munist parties in Western Europe and aroused
an intense anti-Soviet reaction. Moreover,
the role of the USSR in the Egyptian affair
and subsequent developments in Syria have
made obvious to Western European leaders,
including the Socialists, both the extent of
Soviet infiltration into the Middle East and
the serious effects upon Western Europe
which this entailed. Thus, the USSR, if it
wished to re-establish its earlier standing in
Western Europe, would have to soft-pedal its
role in the Middle East and foreswear the use
of naked force in the Satellites. The Franco-
British intervention in Egypt and the conse-
quent strains in the Western alliance have
eased the USSR's problem, but even so the
USSR is far from regaining either its pre-
Hungary standing or potential for appease-
ment and propaganda.
43. The Soviet leaders almost certainly recog-
nize that, on the one hand, their prestige in
Western Europe has been impaired, but that
on the other hand, the divisions in NATO pro-
vide an opportunity for exploitation. The
immediate desires of the Soviet leaders are
to maintain effective political control in East-
ern Europe and to retain and exploit their
foothold in the Arab states. While they are
cognizant that their actions in Eastern Europe
and the Middle East may further reduce their
standing in Western Europe and contribute
a measure of solidarity to NATO, we believe
that they will continue to pursue their pres-
ent objectives in Eastern Europe and the Mid-
dle East. Nevertheless, insofar as it would
be consistent With Soviet security considera-
tions and in an effort to prevent a coalescence
in NATO, the Soviet leaders will probably at-
tempt to restore a facade of national commu-
nism in Hungary and seek to avoid repeating
the Hungarian episode in Poland. They might
likewise proceed with caution in the Middle
East.
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t,
44. For the Soviet leaders to agree to a gen-
eral European settlement and thereby pro-
mote the dissolution or drastic modification
of NATO would, we believe, require a funda-
mental reassessment of the Soviet political
and strategic position in the world at large.
They would probably not make such a reas-
sessment at least until the returns from East-
ern Europe and the Middle East have been
tallied. We believe that it is still their policy
to prevent the evolution of the Satellites into
non-Communist or neutralist regimes. At the
?11
same time, they almost certainly believe that
developments in the Middle East have helped
to disrupt the NATO alliance and served to
weaken Western Europe economically. How-
ever, we cannot exclude the possibility that the
Soviet leaders might come to a decision seri-
ously to attempt to negotiate new European
security arrangements based upon a mutual
withdrawal of US and Soviet forces, particu-
larly if they concluded that the policy of force
in the Satellites had become bankrupt.
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