740.00119 EW/7–2145: Telegram

No. 1098
The Washington Liaison Officer for the Delegation to the Allied Commission on Reparations (Kindleberger) to the Representative on the Allied Commission on Reparations (Pauley)1

secret

87. (For Pauley from Kindleberger. Repeat to Collado from Reinstein.)

Reference Victory–51, July 17.2

1. Italian reparations.

Following is summary of proposals on Italian reparations and restitution being prepared by Reinstein. Proposals have not been fully discussed and do not have Department approval.

a.
From American policy viewpoint, highly undesirable that Italy be compelled to pay reparations. Economic security considerations not present which would call for plant removals, although some minor possibilities in armament and related fields might exist. Italy will require large external financial assistance for some time, most of which will have to come directly or indirectly from U. S. In view of Italian economic situation, any current reparations program would be paid largely by U. S.
b.
It may not be practical from political viewpoint to insist on complete exclusion of reparations. Greece, Yugoslavia and Ethiopia have suffered from Italian aggression and will press claims strongly probably with backing by USSR of Yugo claim and by British of Greeks. UK, France, and probably USSR all will also press claims.
c.
It will probably be necessary to consider token reparations to Greece, Yugo and possibly Ethiopia. US should seek to hold these to a minimum. Any reparations made by Italy should assume form which will involve no direct foreign exchange outlay, and lowest possible indirect exchange costs. Labor services and processing of imported raw materials furnished by reparations recipients offer some limited possibilities. If labor services used, some form of international supervision essential. Removal of plant for armament or related purposes such as aircraft manufacturing depends on decisions regarding Italian disarmament on which US position undetermined. Italian [Page 1091]merchant shipping should not be taken for reparation purposes as it is important source foreign exchange earnings.
d.
US should resist strongly anything beyond foregoing and particularly payments to larger powers, except to extent payment can be made from Italian assets in claimant countries.
e.
US war claims not available but claims are principally for shipping losses. Some are for US government account, others for insurance companies which covered by premiums. These claims should not be pressed. Claims for war damage to American owned companies in Italy should be paid in lire, companies to be provided with foreign exchange cover for import needs within limits Italian reconstruction program. Settlement for minor claims, such as personal property losses, ship losses not covered by insurance, can be made directly between Italy and US possibly within limits of some agreed sum.
f.
Italian prewar debts to US more important than war claims. Consist principally of dollar bonds, which Italian Government already informally indicated desire to refund and service after period of grace, with Italian Government assuming obligations of private debtors and municipalities. Solution of debt problem along these lines highly desirable. US should not object to full settlement of pre-war debts to other countries but should press for period of grace, possibly three to five years, during which payments would not be made out of current earnings in foreign exchange. This necessary to prevent immediate siphoning off of external financial aid and would also discourage full use of Italian assets to meet war claims. Similar arrangements should be made with neutrals on pre-war debt. Swiss and other neutral credits extended during Italian belligerency against us should be wiped out.
g.
Treatment of Italian assets abroad. Allied countries would be allowed to seize and liquidate Italian assets in their territories to pay claims and debts. Possible exception of right of seizure should be made of $140 million in gold held by British as collateral for World War I debts, to be subject separate negotiation whenever these debts settled. Assets in US $75 million of which $15 million vested by Alien Property Custodian. Further vesting, already suspended, not desirable. Italian assets not vested should be left under direct control of Italian Government, subject to freezing control of US Treasury. Mobilization of private cash and portfolio security holdings should be required, but liquidation small Italian real estate for example should not be forced. If satisfactory settlement of financial questions along lines of foregoing is worked out, Italian assets in US should be released from Treasury control and assets vested by Alien Property Custodian (except patents) should be returned to owners. Patents require further consideration. Italian assets in neutral countries should not be used to pay reparations.
h.
Restitution. Only known restitution claim against Italy of significance is for $10 million gold of Yugoslav National Bank. This is presumably with gold carried away by Germans and reported captured by American forces in North Italy. Subject to review of facts, recommend restoration of this gold to Italy with requirement full reimbursement to Yugoslavia. Gold claims by Albania may also [Page 1092]exist and should, if proved, be satisfied. Restitution of art works should also be required. Restitution of plant equipment, rolling stock, etc. where identifiable recommended if no reparations policy agreed to. May be desirable if reparations can be held to genuine token amounts.

2. Italian claims against Germany.

Italy should be given no share in German reparations unless admitted to the United Nations prior to determination of shares. If this should occur, further consideration necessary. Italy should be allowed restitution of art works. Whether admitted as restitutions claimant for other property depends on (a) political decisions on Italy’s status, (b) general restitutions policy. No specific recommendation made, but suggest consideration restoration on limited basis of property removed by Germans after recognition of Italian co-belligerency, particularly rolling stock.

German holdings in Italy should be liquidated. Italy should be allowed to retain German assets in Italy except gold and foreign currency. (On this point there has been disagreement in discussions within the Department.)

3. Italian import requirements.

In view lack of detailed information on conditions in Northern Italy, satisfactory estimate Italian requirements coming year not available. Best estimate present information is $700 to $800 million, which would provide basic food, raw materials and modest amount reconstruction. Estimate deficit in Italian balance of payments next twelve months which must be covered by foreign financial assistance $500 million. Substantial amount required next twelve months with continuing aid at reduced level for several years at least.

  1. Sent to the Secretary of State at Babelsberg over the signature of Grew.
  2. Document No. 1094.