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SECRET is no present sign that the Army will withdraw its support. The future reliability of this support will depend a great deal, however, on economic trends. At best, in the foreseeable future, Franco will have to continue his practice of intrigue in order to maintain a balance among the three pillars of his power: namely, the Army, the Spanish Catholic hierarchy, and the fascist-type unitary "party" known as the Falange Es- pañola. Franco has skillfully used and coordinated these groups despite antagonisms among them, but his Government has not achieved national unity. It is strong be- cause it holds the population in subjugation and has kept alive mutual fears of reprisal between Spaniards who took opposite sides in the Civil War. A popular uprising against Franco is unlikely. A coalition of anti-Franco centrist forces, combining Monarchist, Socialist, and labor groups, in the interior and outside of Spain, is being sought by exiled leaders with the object of obtaining peaceful transition from Franco's anti-liberalism to a more moderate regime. Even if such a group demonstrates capacity for unified action, it will succeed against the entrenched power of the regime only if it obtains moral support from the Western Powers or is able to capitalize, possibly through pressure by Spanish bankers, on the government's financial weakness and vulnerable economic position. In any case, the backing of a strong group of the Spanish Army generals would be required to induce Franco to yield his power. The only serious threat to the regime at the present time thus lies in the pre- carious economic situation. Early relief through UN or similar channels appears doubt- ful. Credits sought from private sources abroad have been denied, principally be- cause of lack of confidence in the long-term stability of the regime and because of its restrictions on foreign investments and free enterprise. Bilateral trade agreements concluded during 1947 and 1948 plus indirect benefits from the European recovery program have begun to provide some relief and probably will continue to do so in the coming year. These benefits may avert, at least temporarily, the danger of economic collapse. So long as he feels able to keep the economic situation under control, Franco is unlikely to make important concessions toward democratic evolution, and there may be a prolongation of the Spanish totalitarian system under his rule. As a long-term prospect, this probably would lead eventually to a violent explosion of popular forces, in which the Communists would enjoy at least an initial advantage. The short-term outlook, however, is that the nation's economic situation will be critical during the fall and winter of 1948-49; if no striking development occurs to reverse this prospect, Franco will continue under domestic and foreign pressures which may oblige him either to make basic policy changes, radically altering the character of his regime, or abandon power. His ability to withstand these pressures will be impaired if there is marked contrast between the rate of Spanish economic rehabilitation under bilateral agreements and the rate of recovery in the other Western European countries under multilateral international arrangements. On the other hand, if he decides to make policy changes and revamp the Government in order to satisfy these pressures, he will have to run the risk of strong opposition and possible overthrow at the hands of the forces whose vested interests would be endangered by change. iii SECRET

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    "ocrText": "SECRET\nis no present sign that the Army will withdraw its support. The future reliability of\nthis support will depend a great deal, however, on economic trends. At best, in the\nforeseeable future, Franco will have to continue his practice of intrigue in order to\nmaintain a balance among the three pillars of his power: namely, the Army, the Spanish\nCatholic hierarchy, and the fascist-type unitary \"party\" known as the Falange Es-\npañola. Franco has skillfully used and coordinated these groups despite antagonisms\namong them, but his Government has not achieved national unity. It is strong be-\ncause it holds the population in subjugation and has kept alive mutual fears of reprisal\nbetween Spaniards who took opposite sides in the Civil War.\nA popular uprising against Franco is unlikely. A coalition of anti-Franco centrist\nforces, combining Monarchist, Socialist, and labor groups, in the interior and outside\nof Spain, is being sought by exiled leaders with the object of obtaining peaceful\ntransition from Franco's anti-liberalism to a more moderate regime. Even if such a\ngroup demonstrates capacity for unified action, it will succeed against the entrenched\npower of the regime only if it obtains moral support from the Western Powers or is able\nto capitalize, possibly through pressure by Spanish bankers, on the government's\nfinancial weakness and vulnerable economic position. In any case, the backing of a\nstrong group of the Spanish Army generals would be required to induce Franco to\nyield his power.\nThe only serious threat to the regime at the present time thus lies in the pre-\ncarious economic situation. Early relief through UN or similar channels appears doubt-\nful. Credits sought from private sources abroad have been denied, principally be-\ncause of lack of confidence in the long-term stability of the regime and because of its\nrestrictions on foreign investments and free enterprise. Bilateral trade agreements\nconcluded during 1947 and 1948 plus indirect benefits from the European recovery\nprogram have begun to provide some relief and probably will continue to do so in the\ncoming year. These benefits may avert, at least temporarily, the danger of economic\ncollapse.\nSo long as he feels able to keep the economic situation under control, Franco is\nunlikely to make important concessions toward democratic evolution, and there may\nbe a prolongation of the Spanish totalitarian system under his rule. As a long-term\nprospect, this probably would lead eventually to a violent explosion of popular forces,\nin which the Communists would enjoy at least an initial advantage. The short-term\noutlook, however, is that the nation's economic situation will be critical during the fall\nand winter of 1948-49; if no striking development occurs to reverse this prospect,\nFranco will continue under domestic and foreign pressures which may oblige him\neither to make basic policy changes, radically altering the character of his regime,\nor abandon power. His ability to withstand these pressures will be impaired if there\nis marked contrast between the rate of Spanish economic rehabilitation under bilateral\nagreements and the rate of recovery in the other Western European countries under\nmultilateral international arrangements. On the other hand, if he decides to make\npolicy changes and revamp the Government in order to satisfy these pressures, he\nwill have to run the risk of strong opposition and possible overthrow at the hands of\nthe forces whose vested interests would be endangered by change.\niii\nSECRET"
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