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Sunday, February 20, 2011


Strategic Importune* ojHoly.
Jt Is of vital strategic Importance to prevent Italy from falling under CommunUt control.evelopment would have demoraliilng effect throughout Western Europe, the Mediterranean, and the Middle East, In particular, It would greatlyCommunist penetration In France, Spain, and North Africa. Militarily, the avalla-blllty to the tj. S.f bases In Sicily and southern Italy wouldirect threat to the security of communications through the Mediterranean. Italy, however,f relatively little direct value to the United States. The present and prospectiveeconomic, and military weakness of the country is such as to rendertrategic liability rather than an asset, except insofar as its territoryotential base of operations.

Economic Situation.
Italy is normally dependent on Imports for substantial amounts of foodstuffs, most of Its industrial raw materials, and aboutercent of its coal and petroleum.Italy can become self-sustaining onlyeneral European economic recovery which would permit the resumption of normal International trade. Mean-while Italy can look only to the United States for the provision of Imports Imperatively necessary to prevent an Impending economic (and political) collapse. For such aid to be effective, however, It Is essential that the Italian Government adopt andore realistic and vigorous economic program.
At present Italian agricultural and Industrial production have leveled off at someer cent of the prewar volume. land transportation also has been restored to approximately the same relative level as Industrial production. The merchant marine, normally an Important source of foreign exchange, has been restored to abouter cent of its prewar tonnage. This measure of recovery has been possible, however, only by reason of very substantial financial and material aid from the Vni ted States. Given the necessary materials and competent economicurther restortlon of Industrial production Is possible. Without sustained Importation, however, the existingwill collapse.
Despite the need for products which Italy might supply, no group of European countries Is presentlyosition to provide in exchange adequate amounts of the materials which Italy requires to sustain production or the dollar exchange required to obtain such materials elsewhere. Great Britain, for example. Imports Italian fruits and vegetables, but cannot pay for them with either coal or dollars. The Italiandollar resources are now exhausted. To maintain essential Imports of wheat, coal, and other materials In short world supply, the Italian Government must call upon the United States for both dollar credits and favorable allocations.
Note: This paper has been coordinated with the Intelligence agencies of theState, Aur.y, Navy and AirI
Evm at Ihe pn-stnt level ot economic recovery, the |reat majority of tha Italian people are enduring privations comparable to those eaperlenced during the war. Some two million remain unemployed. Those employed are generally unable to satisfy their wants by reason of great inequalities of Income distribution. Iht scarcity of goods, and the rampant Inflation of prices. The Government has failed to curb either the Inflation or the flourishing black market whereby those hating the means are able to enjoy plenty In the midst of general want. Itudgetary deficitillion lire, despite an extraordinary capital levy and the abandonment of subsidies Intended to hold down the price of bread.
Thlisltuatlon, already conducive to agitation and unrest, would beessation of essential Imports. The ensuing unemployment and hunger would be politically explosive. Even If essential Imports are assured. It will itlll be Imperative that the Government lake effective action to halt Inflation, curb the black market, discourage hoarding, and husband dollar exchange.
S. The Potilkal Situation.
The present Italian Government is essentially Christian Democratic, although It Includes also certain Independent moderates. It lacks working-class representation. It Is generally supported by the Rightist parties In the Constituent Assembly, but has been severely ciitklrcd by the moderate as well as the extreme Left
In the election of6 the Christian Democratic Party receivedsupport,arge plurality of seats In the Assembly, although notIts strength was derived from Its mlddle-of-the road position, free ofMarxist taint, the Implielt support of the Catholic Church, and Its evident
ability to deal on favorable terms with the Allied authorities. Subsequently It lost public confidence through the Ineffectiveness of Its eftorls to eope with acute economicand through Its coalition with the Communists. Since Its break with the Socialists and Communists the Party has regained prestige. Its leadership still dots not Inspire great confidence, but Is nevertheless regarded by mostasto the alternatives. Its strengths are essentially the sameear ago: Its centrist position, the support of the Church, and above all the presumption that through ' It there Is best hope of obtainingid for Italy
The principal opposition consists of the Communist Party and Its satellite, the Krnnl (kft-alng) Socialists. Their combined popular strength ts probably somewhat less than, but approximately comparable to, that of the Christian Democrats. After6 election the Communists, by astute snd aggressive tactics, gained greatly Inand Influence at the expense of the Christian Democrats. Since their expulsion from the Government they have lost ground, essentially because of new hope of economic betterment through the European recovery program and of Increasing reahratlon that the Communists' primary loyalty Is to.ather than to the Italian people. Recently the Communists have sought to exert pressure, through their control ofunions, but thus far this effort has failed In Its effect for lack of sustained labor support.
Between the principal political antagonists are the Saragat (rlghbwlng) Socialists, who withdrew from the Nennl-controlkd Socialist Party rather than follow theParly line. The admittance of this group to the Government would tend to
mitigate Its Rightist orientation and to relieve it ol the TtUd charge that It lacks anyepresentation.
The primorgunlied political force lo the right o! the Christian Democrats' consists of twoneo-Fasdsl groups, the Common Men Front snd its more radical oft shoot, the National Movement for Social Democracy. Although the aggregate itrength of these groups hsj Increased considerably during the put year, their effectiveness has recently been Impaired by the Indicated spilt. Both groups arcommunist and disposed toestern orientation.
Thusisting Government Is sustafned lesa by public conf.der.ee than by the absence of any presently acceptable alternative. For th* time being, hope of eventual betterment weighs more heavily In the scales than does existing dissatisfaction Should hope dwindle and despair Increase, the balance would shift.
af flrfory Sifiwrton.
The U.nd British forces remaining In Italy must be withdrawn If mid December.
The Italian armed forces are limited by treaty to an over-all strengthen. For economic reasons, their actual strength has been maintained at no mors. They are loyal to the Government, and generally anU-Communist in sentiment Their training is generally good, and their morale has recently improved. Their weapons and equipment, however, are generally obsolescent, poorly maintained, and Insufficient tn quantity, particularly with respect to heavy weapons snd aire rait. Without the support of an armaments Industry, they are dependent upon U.nd British surplus stocks.
The Italian armed forces are Incapable of major military operations. They are considered to be generally capab'e of maintaining internal order, but would be hard pressed If required simultaneously to defend the frontier and to suppress Interna]
The stability of the existing Government depends primarily on Its ability to obtain adequate economic support from the United States. Olven Interim aid sufficient to avert acute distress during the winter, It should be able to maintain IU position until the general elections In April
The Communists snd Kennl Socialists will continue their vigorous effort to Intensify existing difficulties snd dissatisfaction with the purpose of thoroughly discrediting the existing Government or compelling It to readmit them to membership If economic collapse should occur lo default of adequate Interim aid, an extremist government vould probaMy accede to power.t present no sound basis for prediction as to whether this government would be Communist or Rightist, but the eurrtnl trend appears to bo away from the CommunlsU and favorable to the Right
Assuming that the present Government survives the wiqter, the outcome of the April elections will depend not only on the results of Interim ajd. but also on thefor the success of the Kuropean recovery program. Favorable developments In this regard would operate to the decided advantage of the GovcrumcnL Adversesnd the consequent disillusionment would enhance the SSSfsBtj of aelectoral victory.
-"' 'isi:"
Aimed insurrectionontinuing Comi/.urust capability; the threat ofwUI be exploited to the lull to intimidate both the Government and the electorate. It Is probable, however, that the Communists' overriding mission Is to preserve and develop their organization for use In creating andrevolutionarynsurrection, while thereair chance of accession to power by legal or quasi-legal means, or in circumstances which gave no promise of early decisive auccess, would be prejudicial to this mission and is therefore unlikely.
If the Communists were to resort to force, their effort would be general throughout Italy,iew to taking over the entire country. Their capabilities are greatest in the north, however, where theyajor role In partisan resistance during the war and still maintain an effective partisan organisation. There, too, the proximity of Yugoslavia affords them some prospect of support and would facilitate the maintenance of guerrilla operations s'miiar to those in northern Oreece. The opportunity is by no means so favorable as that In Oreece, however, for the frontier Is much narrower In proportion to the depth of the area concerned and the Interior Is for the most part open country, tending to prevent the consolidation of guerrilla control.
The Italian armed forces could probably cope successfully with any Communist Insurrection which lacked generalpport, provided that the threat of Yugoslav interventionajor scale were effectively neutralised.
6. The Situation tn Trtette.
Older has been restored In the Free Territory of Trieste, but the underlying tensions remain. Awkward as the existing situation may be,oint VA-BriUshof the northern part of the Territory, Including the city,nilateral Yugoslav occupation ot the remainder, greater political ferment must be expected onnited Nations governor, when elections must be held and the struggle of Italian and Yugoslav citizens for control will find expression in open political conflict.
Trieste can prosper only if It can regain its former position as the principal Adriatic port for the Danube Basin. It is probable, however, that Insofar as this commerce is Communist controlled. It will be diverted to Flume. At present traffic through Trieste is negligible and unemployment Is high. The clash of nationalisms within the Territory is likely to he aggravated by the consequences of economic stagnation.
Yugoslavia Is determined upon the ultimate acquisition of Trieste, and to this end will exert every effort to keep the area in constant turmoil, to prevent its economic recovery, and generally to render Ineffectual its International tuirtunlstratlon, looking toward the creationituation favorableugoslav-Communist assumption of de Jacto control.
Triesteymbolic significance for Italians which causes them to regard its fate with great Intensity of feeling. Although the Italian Government is likely toess aggressive part than that of Yugoslavia In the struggle for control of the city, tba Italian people will regard the resistance of their compatriots to Yugoslav absorption with great sympathy and the Government will be compelled to act to defend Italian rights thers.
Constant tension In Trieste will not only embitter ltalo-Yugoslav relations, but will also tend to direct the resentment of patriotic Italians toward the Italian Communist Party.


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