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The Chargé in Italy (Kirk) to the Secretary of State

176. In spite of the optimism to official statements of Italy’s present financial and economic situation the damage that is being done to Italian economy by the operation of sanctions is being frankly admitted. For a country like Italy which has reached an important [Page 140]stage of industrialization a reduction of foreign trade in the aggregate by 43% such as has occurred as a result of sanctions cannot be looked upon with equanimity by those responsible for the welfare of the country. The possibility that the temporary loss by Italy of markets abroad might become permanent with the passage of time is also a major preoccupation. It is natural, therefore, that from the economic and financial point of view the Italian Government should be eager to have sanctions terminated as soon as possible, either through the crumbling of the sanctionist front or through concerted action at Geneva. There is reason to believe that Italy would prefer the former method of getting rid of sanctions since the possibility of her being asked by the League to [apparent omission] humiliation would not then arise as it might if she were faced by a solid front in Geneva ready to lift sanctions but in return for a quid pro quo.

Furthermore, it is not only because of financial and economic considerations that Italy desires the elimination of sanctions but for moral reasons as well. And the last might conceivably be the most impelling of the three. Mussolini, in spite of public declarations to the contrary, undoubtedly feels keenly the stigma attached to Italy’s position of a virtual outlaw in Europe and the disability under which he now labors in taking an active role in European affairs. Not only is this feeling shared by the people themselves but they are certain to interpret the continuation of sanctions after the original avowed objective thereof has failed as a manifestation of malice and vengeance directed against them. It is believed here at the present time that Italy might still hold out against sanctions for another 6 months or even a year before the economic financial situation became acute enough to cause Mussolini to weaken in his resolution to carry through to the end the political policies he has resolved upon. In the meantime, however, there would be a very real danger that the moral factors mentioned above might cause the people under Mussolini’s direction to react much more violently than they did at the time when sanctions were applied and that the outcome of this reaction might develop into a further element of complication in the already confused European scene. Even in circles where wholehearted disapproval of Italy’s action as regards Ethiopia is manifested this danger is recognized and taking the long view the opinion prevails in these circles at the present time that everything should be done to avoid exasperating Mussolini and the Italians to the point where they might break forth in further excesses as a protest against what is now regarded as an insult to their national pride and an injury to their economic life.