The Chargé in Greece (Shantz) to the Secretary of State

No. 1876

Sir: I have the honor to confirm the Legation’s telegram No. 55 of July 19, 1937,7 informing the Department that Minister MacVeagh presented to Prime Minister Metaxas the note and draft Modus Vivendi8 enclosed with the Department’s Instruction No. 392 of May 24th, the draft having been amended in accordance with the second and third paragraphs of the Legation’s telegram No. 49 of June 22, 1937.9

The Prime Minister’s reply to the Legation’s note has just been received and is enclosed, together with a translation. In this reply the Greek Government expresses its perfect accord with the principles set forth in the Legation’s note, explains how its present situation [Page 417] arose, and states that it is ready to undertake the necessary negotiations for the conclusion of an agreement to replace the exchange of notes of December 9, 1924. The reply does not, however, make any comment on the specific provisions of the draft Modus Vivendi.

A possibly significant statement in the reply is that “it would not be possible, in the opinion of the Greek Government, to consider solely the free exchange of the results of production, that is to say, of merchandise, while neglecting the factors of production, namely labor and capital.” It appears from this that the Greek Government, in its negotiations, may bring in the subject of American immigration restriction and the opening of American financial markets to Greek loans. The question of immigration quota restrictions is apparently one which weighs heavily on the Prime Minister’s mind as he has made more than one reference to it in his public speeches.

I have not had an opportunity to discuss the reply with Mr. A. Argyropoulos, Director of Conventions and Commerce at the Foreign Ministry, who drafted the note prior to his departure for Berlin to take part in trade negotiations with the German Government.

Respectfully yours,

Harold Shantz

The Greek Minister for Foreign Affairs (Metaxas) to the American Chargé (Shantz)

No. 15815

Mr. Chargé d’affaires: I have not failed to receive the letter, under No. 220, that His Excellency Mr. Lincoln MacVeagh kindly addressed to me on July 19, last, concerning the commercial relations between the United States and Greece and including a proposal for an agreement to serve as a basis of negotiations between our two countries.

I have not failed to take into serious consideration the contents of this note and in reply I have the honor to bring to the attention of Your Excellency that which follows:

The Greek Government appreciates the considerations contained in the statement that the Legation of the United States was good enough to present to it in the name of its Government, the more since it is in perfect accord with the principles therein set forth as concerns the necessity for a more liberal regulation of international trade, with a view to the recovery of economic activity in the world.

In fact, Greece, because of its economic structure, has always felt the need for such freedom of trade to safeguard her interests, which were the first to be injured, following the economic crisis of 1931, by [Page 418] the introduction of restrictive systems in various countries. Thus it is only in self-defense that she was led in turn to pursue the line of restrictions of trade and means of payment at the moment when, the majority of the countries having adopted restrictive measures, she saw her export trade and invisible resources which in the past permitted her to cover her commercial deficit, strongly compromised by the measures under consideration. For a long time she struggled to avoid introducing into her economic relations with the countries in question anti-economic regulations restraining trade. But the results of this struggle proved particularly deceptive for her. In fact, she found herself, in the spring of 1932, driven into the position of being unable to maintain the payment of the value of the merchandise imported into the country, and in order to bring an end to the accumulation of overdue commercial obligations which dangerously compromised the value of her national currency and her credit abroad, she was forced to proceed resolutely to the establishment of import quotas and to the adoption of measures for the protection of her money.

Law No. 5422 of April 26, 1932, established the foundation of this policy, which has since developed on the basis laid down by this law. It provided for the introduction of a control of foreign exchange and the regulation of the importation of foreign merchandise within the limits of the means of payment available to the country. It provided for the settlement in free foreign exchange of the entire value of merchandise having to be imported from abroad within the framework of the general import quotas, authorized by the law and subsequently imposed by Ministerial decision No. 29624 of May 7, 1932. It provided further for the transfer in free foreign exchange of semiannual instalments on overdue commercial debts which had not been settled up to the date of its promulgation, as well as on the moratorium interests connected therewith; thanks to which, these debts toward foreign countries can already be considered as practically liquidated. It authorized, finally, the settlement in free foreign exchange of certain non-commercial obligations contracted abroad.

That is to say, that while imposing on import trade certain general quantitative limitations in conformity with the diminished purchasing power of the impoverished country, this law assured on the one hand the full payment in free foreign exchange for merchandise imported within the above-indicated limits, and on the other, a complete freedom, within the same limits, of international activity and competition. In this way an improvement was shown in the internal market.

But unfortunately, countries with economic power incomparably superior to that of Greece and which had always constituted the principal [Page 419] outlets for her products, subsequently began to block the value of Greek merchandise exported to them. This is notably the case with Germany, which represented one of the principal countries where Greece normally possessed a highly favorable export trade. Thereafter the situation became considerably more complicated and the new and important gap in the means of payment of Greece which resulted, compelled her to take defensive measures, which had become unavoidable, and forcibly brought about her adoption of the method of clearings and of measures intended to control even the origin of imported merchandise.

This policy has never constituted for Greece anything but a means of defense against a situation that she was the last to cause or even to encourage. Thus the Greek Government is entirely in accord with the Government of the United States in its declaration that it is only by a return to more liberal principles of trade and by a progressive removal of the obstacles which are now strangling international economic life, that the world economy can be restored to health and directed toward the desired recovery. For this purpose it is incontestably highly desirable to bring about a freer play of economic factors. Nevertheless, in envisaging this problem it is important not to lose sight of the ensemble of these factors in considering only a certain number of them. Thus, if one wishes to arrive at lasting practical results in the domain of world economy, it would not be possible, in the opinion of the Greek Government, to consider solely the free exchange of the results of production, that is to say of merchandise, while neglecting the factors of production, namely, labor and capital; It is in the play of all these factors together that the Royal Government sees the means of overcoming the economic difficulties which now weigh upon international life. Thus, so long as the problem is not attacked in all of its aspects, the results sought could only be partial and precarious.

In these circumstances and so long as the majority of the countries continue to practice the policy of restrictions, Greece, despite her earnest desire to see a normalization of the situation brought about by a return to more liberal principles which, it is well understood, would correspond to her interests, is not in a position to return alone to freedom of trade. Her restricted means would allow her to do so only within the framework of an international movement, intended to re-establish in its ensemble the free play of the factors which govern the economic life of the world.

Nevertheless, the Greek Government, appreciating particularly the importance which the market of the United States holds for Greek products, and attaching a special value to the development of the economic relations between the two countries, has exerted every effort to [Page 420] the end that the system of control, often troublesome, which it has been forced to apply to trade, should be applied in such a manner as to avoid, as much as was practicably possible, its resulting in a disadvantageous treatment of American trade; and the more because it recognizes that the relations of close friendship which have always existed between the great American Nation and Greece have always been, for the latter, a source of profit.

The Greek Government is consequently moved by a desire to see that the system of quotas in force in Greece should not operate in a discriminatory manner with respect to American interests. The Royal Government would even be happy to see American imports into Greece increase to the full extent that the Government of the United States should find the means, on its part, to assure an outlet for a number of Greek products which are at present directed toward countries practicing a policy of restriction of payments and which compel it, by that very fact, to have recourse to their markets to a greater extent than it would have wished, in order to guard against an accumulation of blocked credits.

Thus the Hellenic Government is disposed to consider all means which in the actual circumstances would be of a nature to eliminate as much as possible the inconveniences resulting from the exceptional conditions to which trade is subjected and to favor its development between the United States and Greece. Therefore, it is ready to undertake the necessary negotiations for the conclusion of an agreement to replace the provisional agreement resulting from the exchange of notes dated December 9, 1924, at present in force.

Please accept [etc.]

J. Metaxas
  1. Not printed.
  2. Dated July 19, 1937.
  3. Not printed. Changes are indicated in text of draft printed supra.