Foreign Relations of the United States, 1958–1960, Western Europe, Volume VII, Part 2

309. Intelligence Report⁰

No. 7772

August 7, 1958.

[Here follow sections I and II.]

III. Present and Future Spanish Foreign Policy

A. Introduction

Spain’s relations with other Western European powers have improved markedly since the early postwar years. Spain was then excluded from the OEEC and NATO, and the Franco regime was condemned by the UN and barred from membership therein. The UN also recommended that Spain be barred from membership in international agencies associated with the UN and that UN members withdraw their chiefs of mission from Madrid. A number of countries recommended stronger measures, such as economic sanctions and severance of diplomatic relations to effect a change of government in Spain. Opposition to Franco in the immediate postwar period and the lingering hostility to his regime today stem largely from the popular identification of his regime, particularly among western European leftist groups, with those of Fascist Italy and Nazi Germany. The decline in hostility toward Franco, which would probably have occurred to some extent with the mere passage of time, has been due more fundamentally to growing tensions between the Soviet orbit and the free world. Also, more moderate European domestic politics have reduced the antagonisms.

Since the early postwar years, Spain has concluded economic and cultural treaties with many nations. In August 1953, Spain and the Holy See concluded a Concordat, which incorporated mutually satisfactory accords reached in 1941 and 1946. The single most important foreign policy achievement of Franco was the signing in September 1953 of bilateral economic and defense arrangements with the US. After Spain was admitted to the UN and acquired observer status at the OEEC in 1955, and associate membership in January 1958, the major remaining obstacle to Spain’s full reintegration into the Western European community was its exclusion from NATO. In view of the lingering hostility of several NATO members, an invitation to Spain to join NATO seems unlikely in the immediate future, but quite possible within a year or two.

A key element in Spanish foreign policy has been the “indication” theme, according to which Spain was the first country to fight Communism successfully during its Civil War, and it thereby incurred the lasting enmity of Communist-dominated governments. Following World War II, so the doctrine holds. Spain was ostracized chiefly because it was anti-Communist. Since that time, according to the doctrine, Spain has not changed its foreign or domestic policies, but other countries have come to realize the justice of Spain’s stand and have admitted this by normalizing relations. Spain is constantly looking for propaganda material to back up this position, and, occasionally, the direction of Spanish foreign policy is clear only if related to this position. A favorable statement from a foreign statesman that can be quoted by the press and radio is sometimes worth more to the Spanish Government than a real achievement that cannot be translated into propaganda terms.

Another basic feature of Spanish foreign policy has been the need to demonstrate an external threat in order to justify continued controls over the country’s political and economic life. Now that Franco has been generally accepted outside the Soviet orbit, this type of justification for some features of the regime is no longer valid unless Franco can demonstrate that the threat continues. Vehement Falange demands for the return of Gibraltar constitute in part an attempt to keep this menace alive. The Soviet Union and Communism continue to be external enemies and the regime, despite its boasts of having exterminated Communism within Spain, attributes disorders such as the 1951 strike wave, the 1956 student demonstrations, and the attacks in 1957 by Moroccan natives on Ifni and Spanish Sahara to Communist machinations. Actually, however, neither the USSR nor Communism is an immediate threat in the eyes of most Spaniards.

Another aspect of Spanish foreign policy that influences its direction is the fact that, because the major groups supporting Franco do not entirely agree on what course Spanish foreign policy should take, it is often a compromise between them. In the last analysis, Franco decides what policy is to be followed. Falangist militants have advocated a dynamic and aggressive foreign policy, particularly in North Africa, where, prior to the establishment of the Kingdom of Morocco in 1956, they demanded a larger share of Morocco and exclusive Spanish control over Tangier. The more moderate and internationalist spokesmen for Catholic organizations, such as Martin Artajo, would like to see Spain incorporated more fully into the Western European community, in line with Vatican policy. The ultraconservative wing of the church would prefer that Spain be as aloof as possible from international commitments and influences. Oatalan and Basque Provinces businessmen favor friendly relations with France and the UK, and would prefer that all US economic assistance go to private business rather than to Spanish Government economic agencies. The army, while distressed at the loss of Morocco and the threats to Spanish presidios and colonial territory in North Africa, realistically wants to keep Spain’s commitments within its power limitations and to avoid foreign commitment of more than a token force of Spanish troops.

If the Franco regime continues in power during the next few years. Spain’s over-all foreign policy is likely to change with respect to Western Europe, France in particular, and with the Arab nations. Spain’s entry into NATO, which the US favors, is politically impossible at present because of the opposition of several Western European members, but may well occur in this period. Attacks by Moroccan “liberators” on Ifni, Spanish Sahara, and Mauritania in late 1957 resulted in 1) an improvement in French-Spanish relations, and 2) less cordial relations between Spain and the Arab nations—Morocco in particular. A reversal of the previous policy of cultivating rapprochements with Arab nations and of periodic outbursts of hostility toward the French would mean that Spanish foreign policy would be less flexible in the future. Other foreign policy lines are expected to remain the same. Implementation of the US-Spanish bilateral arrangements will probably continue. The occasional polemic against the presence of US forces will continue to be heard, but will not be permitted to assume serious proportions. It is virtually certain that Spain will continue to maintain its close ties with Portugal, the Vatican, and the Latin American Republics, and its firm anti-Soviet position.

If Franco departed from the scene, it is probable that Spanish policy would be altered drastically only 1) if a long period of civil disorders ensued, causing Spain to be incapable of playing any role in international affairs, or 2) in the unlikely event that anti-American extremist Falangists gained control of the government. If the left should return to power under a democratic Socialist-Republican government it would probably be pro-West; only a government dominated by Communists or extreme Anarchists—a very unlikely prospect—would sever US ties. The US-Spanish bilateral arrangements would be worth little if prolonged civil war paralyzed Spain and might well be undermined or even terminated by a Falangist government. Assuming the continuation in power of the present ruling conservative coalition (either under a monarchy or not), or the less likely possibility of a return to parliamentary government, Spain would probably become more closely integrated with Western Europe and its regional political and economic arrangements and US-Spanish ties would be firmly maintained. Even another military dictator would be more acceptable to the Western European democracies than Franco, as long as he had no direct connection with Hitler and Mussolini.

A weakening or collapse of the North Atlantic alliance, due, for example, to the neutralization of France or Italy or to a resounding Labor victory in the UK accompanied by the adoption of an extreme Bevanite foreign policy, would be exploited by the Spanish. In such an eventuality, Spain would probably gloat over the confirmation of its frequently reiterated mistrust of major European powers (except for West Germany), and the opportunity to present itself as strategically indispensable to the US. If, in the unlikely event that the US should propose to alter, to Spain’s disadvantage, the nature and level of its dollar aid and expenditures or its contract arrangements, this act would almost certainly disappoint Spanish officials to such an extent that they would slacken their efforts in implementing the bilateral arrangements. In view of the position long maintained by Spanish officials that the US should compensate Spain for the years it received no aid—while nations that were ‘less reliable” as bulwarks against Communism received vast sums—it can be expected that the Spanish will intensify their campaign to have American economic assistance increased and continued indefinitely.

B. Spanish Relations with the US

Spain’s most important foreign ties are with the US. Since 1947, a key Spanish foreign policy goal has been to seek economic assistance and diplomatic support through official channels and through contact with influential persons and organizations in the US. Efforts to achieve these goals culminated in the conclusion of three bilateral arrangements in September 1953 concerning economic and defense matters. Since 1953, relations have been more cordial than they were at any previous time. The controversy surrounding the origin and nature of the Franco regime has ceased to be a live issue in the US, and supporters of close relations with Spain have become increasingly powerful and vocal.

Despite several difficult problems, and, as in other countries that receive US aid, a certain decline in enthusiasm as time goes on, US-Spanish relations should, on balance, continue to be generally satisfactory during the next few years. Spain’s pressing need for additional US aid should, at least in the immediate future, assure continuing cooperation to carry out the 1953 bilateral arrangements. Nevertheless, Spanish reactions in 1957–1958 to an influx of American military personnel, attempts to attribute inflation in living costs largely to this influx, and the longstanding problem concerning the situation of Protestants in Spain are factors in US-Spanish relations that periodically demand the attention of diplomats of both countries. Despite the generally good conduct of American military personnel in Spain, a certain number of minor incidents have inevitably occurred. They were given exaggerated coverage in the Spanish press. There was one suggestion that the US garrison its foreign bases with local troops. Increased demands for servants in cities near the bases, and price increases and local shortages in various commodities have been attributed in some press statements and other quarters to the “American invasion.” On top of these allegations, the Spanish press in early 1956 gave very little publicity to the sales of P.L. 480 commodities, although later in the year more recognition was given to this program. Because of the general hostility of the Spanish Catholic Church toward Protestantism and the political influence of the church, representations by US diplomats in behalf of US Protestant missionaries and the small Protestant minority in Spain have been largely ineffective. At the time the bilateral arrangements were signed, a large segment of the Catholic hierarchy was apprehensive concerning increased contacts in the future between Spaniards and American, particularly non-Catholics. This attitude may well increase as the American military community in Spain reaches its maximum size. Another potential problem in US-Spanish relations is the growing fear among Spaniards of nuclear war; with the completion of the oil pipeline and the major runways at the bases in 1956, and the missile developments in 1957 and 1958, Spaniards have become more aware of the possibility of war. Nevertheless, José Maria de Areilza (Spanish Ambassador to the US) lavishly praised the US aid program in September 1957 upon the occasion of the fourth anniversary of the signing of the 1953 agreements. Cooperation between Spanish and American officers is reported to have been excellent with the major exception of a period in early 1956 when some Spanish naval officers imposed certain difficulties in the implementation of the agreements. The three defense ministers installed in February 1957 are reportedly pro-American; the present Minister of the Navy is more cooperative than was his predecessor.

Several incidents of the past four years also serve to symbolize the improvement in US-Spanish relations. In July 1954, while traveling in the US, Franco’s daughter and son-in-law were received unofficially at the White House. When Secretary Dulles called on Franco and former Foreign Minister Martin Artajo on November 1, 1955—between sessions of the Geneva conference—it marked the first time that a US Secretary of State had visited Madrid. The return visit to Washington of Artajo in April 1956 was similarly unprecedented. Secretary Dulles conferred with Franco again in Madrid on December 20, 1957 to inform him of the discussions of the NATO conference that had just taken place at Paris. Both visits were given extensive front-page coverage in Spanish newspapers.

[Here follows additional reporting on Spain’s foreign policy.]

8. NATO. From 1949 to 1956, Spanish officials publicly indicated that Spain was not interested in joining NATO; during the first few years of NATO’s existence they frequently expressed disdain for the organization. Throughout this period, nevertheless, periodic official statements by Portuguese leaders, doubtless made with Spain’s approval, indicated that Spain actually desired an invitation.

In an interview of January 1956, Martin Artajo, then Foreign Minister, made the first official Spanish declaration to the effect that Spain would accept an invitation to join NATO. To guard against official and popular disappointment if such an invitation was not extended in the immediate future, he hastened to add that, in view of Spain’s ties with the US and Portugal, NATO was more important to its present members than it would be to Spain.

As of mid–1958, an invitation to Spain to join NATO, which the US advocates and which Spain would accept, probably depends, in the last analysis, on the support of France and the UK. It is unlikely that Belgium, the Netherlands, and Norway would continue to oppose Spain’s entry into NATO, despite their dislike of Franco, if France and the UK joined the US in advocating Spain’s membership. The Federal Republic of Germany would not oppose Spain’s entry, but leaders of the Adenauer government would probably prefer not to be put in the position of sponsoring Spain’s candidacy, on account of the domestic political situation and the strong anti-Franco sentiment among anti-Nazi groups in Germany. The present Christian Democratic government in Italy would favor Spain’s entry even though certain elements in the left wing of the party and some leaders of the other center parties (Liberal, Republican, and Democratic Socialist) are still hostile to Franco. Luxembourg’s Prime Minister declared in April 1957 that he would favor admitting Spain to NATO, although he realized that Luxembourg’s Socialists would be displeased. Spain’s entry into NATO would probably revive Portugal’s enthusiasm for NATO in some measure. Since 1947 Portugal, doubtless with Franco’s acquiescence, has periodically contended that Spain’s exclusion severely limited NATO’s value.

[Here follows the remainder of section III]

IV. Economic Trends

[Here follow parts A–E.]

F. The Question of US Culpability for Inflation

Some Spanish officials have alleged that one of the main causes of the inflationary pressure has been increased spending by the US on the construction of military bases. Actually, US operations in Spain have been anti-inflationary since 1951 when they began.

As of December 31, 1957, the US had supplied Spain with $538,000,000 in goods and services, excluding the commodities that Spain was able to import as a result of $94,000,000 in loans by the Export-Import bank. The US obtained for its use, mostly for base construction, Spanish goods and services valued at $175,000,000. There is thus no question but that the direct net impact of US operations in Spain was anti-inflationary. In spite of this it might be argued that, in some particular period, US operations in Spain may have had an inflationary impact, or that, for the entire period 1955–1957 when the base construction program was in high gear, US expenditures for Spanish resources out of peseta funds generated by US aid may have had secondary effects that could have created a consumption demand that exceeded the value of the goods supplied by the US.

In order to estimate the maximum possible inflationary impact, let it be assumed that the total amount of goods made available to the US by Spain has all been employed for strictly military and hence nonproductive purposes. In the period 1951 through 1954 inclusive, the US used for its purposes only $6,000,000 of Spanish resources in return for which the Spanish received $14,000,000 in grant aid, and $35,000,000 of surplus agricultural commodities for pesetas. In addition, the US provided Spain with net credits of $66,000,000 against which Spain imported commodities. The impact of US operations in this period was certainly anti-inflationary. In 1955 the US spent $21,000,000 in pesetas in Spain. The US actually supplied $123,000,000 in all kinds of commodities, the bulk of which were agricultural products and industrial raw materials. The US supplied more than 6 times the resources that it obtained from the Spanish economy. In 1956 the US spent $56,000,000 in pesetas in Spain and supplied $196,000,000 of commodities. In 1957 the US spent $90,000,000 in pesetas in Spain and supplied it with $170,000,000 of goods and services. Since it is unlikely that the total direct and indirect effects of US aid should have increased Spanish incomes by more than twice the amount the US spent for Spanish goods and services, the net impact of US operations has been greatly anti-inflationary through 1956 and, at the worst, neutral in 1957.

G. Spanish Policy and the Imperative for Economic Growth

The principal aim of Spanish policy is to develop the economy as rapidly as possible, and the Spanish have from the first looked upon defense support assistance given them by the US as a source of developmental funds, rather than as a means of offsetting the inflationary impact of increased mutual defense spending by them and by the US.

There is no question about the need for rapid economic development. After seven years of boom, Spain has per capita income of only $308. The only Western European country with a lower standard of living is Portugal. Moreover, Spain’s population is increasing at a rate of 0.8 percent per year. The US and Spanish Governments both agree on the need for rapid development, but differ as to the best method of achieving it. Under the influence of authoritarian models and the autarchic ideas of the Falange, the Spanish emphasize government investment and controlled inflation.

US officials believe that, if financial stability were achieved and private enterprise encouraged, as Germany and Italy have done, Spain’s economic development could proceed faster and on a sounder basis. The Spanish authorities profess to be taking some steps in this direction. They appear to be relaxing their rigid limitation on foreign investment. The law to encourage foreign companies to exploit Spanish petroleum, recently approved by the Cabinet, suggests that Spain may, in time, permit foreign companies to hold majority rights in Spanish companies. It is also probable that some other types of liberalization may be adopted. However, it is very doubtful that they will seriously attempt to follow the German or Italian pattern of economic development. Indeed, it would be impossible for Spain’s economy to expand rapidly along German or Italian lines unless Spain were to receive economic aid on a scale proportionate to that received by Italy and Germany.

H. Prospects for Preventing a Runaway Inflation

The Spanish inflation can perhaps better be characterized as a wage-price “ratchet” rather than a wage-price “spiral”. What has prevented the situation from getting out of control in the past and is likely to prevent a runaway inflation is the government’s control over wages. Since the end of the Civil War, the government has periodically adjusted wages upward, but only after a considerable period of rising prices and at the stage where popular unrest was evidenced by strikes and demonstrations and where the prospects of increased supplies of consumers goods were favorable.

The breathing spells afforded workers and persons with more or less fixed incomes have generally not lasted very long. Yet per capita incomes in constant prices have shown a continued upward trend since 1949, as seen in the following tabulation:

Change in Per Capita GNP over previous year
Year	%
1950	6.8
1951	18.3
1952	5.9
1953	-2.1
1954	8.0
1955	1.0
1956	3.6
1957	3.8

Because there is no prospect of free organization of labor and collective bargaining, wage adjustments by the government may be expected to continue to lag well behind prices. Sooner or later another general round of wage increases will become imperative, but, as long as the per capita real income of urban workers continues to increase and full employment continues, the ratcheting process in itself is not likely to become intolerable to them. The Spanish have lived with the inflationary problem since the Civil War. There is no reason to expect that they can not continue to live with it, providing per capita real gross national product continues to grow by, say, 3 percent a year.

That it will do so does not seem unlikely, so long as the US continues to subsidize the economy as it has been doing since 1953. At the present stage of Spain’s economic evolution, it is clear that, without US aid, the Spanish would have to reduce imports drastically, thereby forcing industry to curtail operations and creating large-scale urban unemployment with explosive implications for political stability. ICA estimates that to achieve financial stability, build up gold and dollar reserves from their present low of about $120,000,000, and achieve a rate of growth of Gross National Product of around 4 percent a year by 1963, Spain will need about $600,000,000 of aid, or about $120,000,000 annually. ICA has based its projections on the assumption that investment will decline by 5 percent from its present rate of 18.9 percent of GNP between now and the end of 1958 and by 15 percent during 1959 and 1960 and will rise gradually thereafter until it reaches 17 percent of GNP in 1963 where it will remain, and that price increases will be relatively modest for Spain between now and 1963.

I. Spanish Economic Prospects Over the Long Run

The ICA estimates appear rather optimistic, for they are based on two questionable assumptions: (1) there will be no major crop failure over the next five years due to drought or freeze (because of bad weather, there have been eight or nine poor crop years since 1940 and four very serious crop failures since 1945); and (2) the Spanish authorities will subordinate their development schemes to the imperatives of achieving fiscal and monetary stability and a sound balance of payments position.

Although the Spanish authorities will probably endeavor to do some of the things that American officials have been urging upon them, and although they may be forced by economic necessity to relax certain controls, they are likely to stop short of carrying out many of the major recommended reforms. For these would require a fundamental reorientation of Spanish economic policy and philosophy, involving a radical change in the psychology of the Spanish business community as well as Spanish officialdom.

The following obstacles appear to stand in the way of a soundly based economic development:

(1) There is inadequate investment in Spanish agriculture, which supplies more than 50 percent of the country’s exports and employs almost half the labor force. The agricultural economy suffers from soil exhaustion, lack of consolidation of farm holdings, lack of irrigation and antiquated methods, and irrational price and production controls by the state that reduce incentives to more efficient production. Except for rice and maize, there has been no significant increase in agricultural production since before the Civil War, despite the fact that population as grown by almost 5,000,000 since 1935.

(2) There are too many middlemen between the farmer and the ultimate consumer, with the latter paying seven to eight times what the farmer receives for his product. Also the spread between what the farmer gets for his products and what he must pay for industrial commodities is too great.

(3) Private investment is retarded by the monopolistic operations of Spanish industrialists, who are reluctant to invest in any project that does not permit rapid amortization and very high profits.

(4) Although Spain from time to time devalues the peseta for commercial purposes when inflation makes this necessary, the rate is still insufficient to provide incentive to export.

(5) There is gross waste in the allocation of labor resources; feather-bedding is widespread; incentives for greater labor productivity are poor.

(6) There is widespread tax evasion.

(7) Insufficient investment is made in the exploration and exploitation of Spain’s untapped mineral resources.

(8) Paternalism, protectionism, and hostility to private capital, foreign and domestic, on the part of the government discourage private investment and lead to the diversion of resources to dubious public undertakings such as the construction by the state of uneconomic plants for the manufacture and assembly of automobiles. Some change of attitude is visible, however, in the recent Cabinet approval of a bill to make possible petroleum development by foreign private capital.

(9) Despite the fact that the state dominates the Spanish economy and the basic philosophy of the administrators is corporativist, government agencies do not have adequate statistical information to do their jobs properly. In addition, the interministerial committees that are supposed to coordinate the efforts of the various governmental economic agencies appear to function poorly. Moreover, there is no general long-range plan or program by which priorities in investment can be set and operational performance judged.

US aid for the next five years on the scale proposed by ICA will probably enable the Spanish to prevent a runaway inflation, but it is doubtful that Spain will be able to stand on its own by 1963, unless there is a fundamental reorientation of Spanish economic policy. With its agriculture no longer able to keep up with the requirements of its growing population, with its export static, and with its investment resources being inefficiently allocated, the Spanish Government has become highly and dangerously dependent upon the United States. In the difficult period from 1939 to 1950, the Spanish people were more or less resigned to a low level of living. Since 1950, their level of living has increased substantially and, since 1953, largely as a result of US aid. With this amelioration has come a growing and general demand for an even greater improvement in housing, diet, clothing, health, and recreation that seems impossible for Spain to provide out of its own resources as these are now being managed. When the United States ceases to subsidize the Spanish economy, the real troubles of the regime will probably begin.

[Here follows the remainder of the report.]

0. Source: National Archives and Records Administration, RG 59, OSS–State Intelligence Reports. Secret; Noforn. The report, prepared in the Division of Research for Western Europe, comprised a cover sheet; table of contents; abstract; sections on the present internal political situation, probable political trends, Spanish foreign policy, economic trends; and four tables.