740.00119 Control (Italy)/2–145: Telegram

The Secretary of State to Mr. Alexander C. Kirk, Political Adviser to the Supreme Allied Commander, Mediterranean Theater, at Caserta

84. Deptel 137 January 25 to Rome. When the British members of CCAC informed us of the rejection of the United States proposal for a financial section of the Italian directive, they stated that the British were willing to discuss the subject further with us and that, in fact, the British Government was sympathetically inclined to giving the Italians a greater measure of responsibility in financial matters. They based their unwillingness to include anything of substance in the directive upon the necessity for consulting with the field and stated that they had sent our proposal to Macmillan for comments. They suggested that the American proposal be submitted on a combined basis to SACMED49 for comments.

A cable is being sent to SACMED from CCAC setting forth the American proposal and requesting SACMED’s views on the general approach which we proposed and on the desirability of taking the matter up with the Italian Government at this time. Telegram requests urgent reply. Text of American proposal is that paraphrased in Deptel 20 to Rome January 5 with slight expansion to include specific provision for lira account. (Reference Mat 353 from SACMED to CCAC, Deptel 396, November 17 to Rome50 and Rome 759 November 19 to Department.50)
In the meantime, the British have asked that we not give the Quintieri–Mattioli mission the statement referred to in Department’s 66 to Rome January 13 in view of the fact that the financial question is under discussion on a combined basis. We have informed them [Page 1233] that we would hold up giving the statement to the mission for a matter of 10 days to two weeks, in order to give them an opportunity to present their views on our proposal for a financial directive, but that the mission is leaving shortly and that we must make a statement.
We are anxious that a reply be made by SACMED to cable referred to in paragraph 2 as soon as possible so that the fact of an inquiry to the theater can not be urged by the British as a reason why we should not give a statement on financial matters to the Italian mission. Please do all you can to expedite a reply to this message. We are particularly anxious that attention be focused on the two major points involved in our proposal, namely the granting of autonomy to the Italian Government with respect to internal fiscal matters and to the control of its external resources, and that we not become bogged down in a discussion over the details as to how this result might be accomplished.
Although the British have not submitted any views, as yet on our proposals, we gather from informal conversation that they are likely to raise the following points:
The British suggest that determination of the currency issue functions of AFA and the acknowledgment by the Italian Government of responsibility for the Allied military lire will affect public confidence in the lira, by disclosing the extent to which military currency has been issued and the burden which Italy has assumed under the armistice. It is our view that such action is essential if the Italian Government is to have internal fiscal autonomy and that postponement of action merely aggravates the situation, since the deficit represented by the issuance of military lire naturally mounts each month. We have been impressed by the argument of the Quintieri–Mattioli mission that the Italian Government must assume responsibility for meeting the economic problems of Italy now, and that nothing but harm can come from allowing matters of this kind to drag along until the Allies give up their responsibility in Italy, when the Italians will be completely unprepared. We agree with the mission that it is better for the Italian Government and the Italian people to know now what they are up against, and that no useful purpose is served by insulating them from knowledge and responsibility for what is their problem.
The British question whether the Italian Government should be allowed to assume control over Italian external financial transactions until they are certain that there is an adequate Italian exchange control. It is our view that the Italians are entirely capable of establishing a reasonably effective control, since they have had a control in the past and in fact were one of the pioneers in the field of exchange control. We doubt whether any effective control will be established until the Italian Government is given something to control, which it does not now have. At present, the only financial relations which the Italian Government is permitted to have are with the United States and Britain, which have effective controls which could be used to check the effectiveness of the Italian control. We are concerned over [Page 1234] the failure thus far to permit the extension of commercial and financial relations to countries other than Britain and the United States and feel that the present situation involves a vicious circle from which we must emerge.
While the British have not openly admitted it, they undoubtedly feel that the opening of discussions on financial matters will give the Italians an opportunity to make demands, particularly a demand that the British pay sterling for British troop pay and that payment be made in foreign currency for Allied foreign military expenditures other than troop gay. As we see it, the British must face this program eventually. Again, we see little to be gained from postponing these issues and feel that relations between our two Governments and Italy would be clarified and put on a much healthier basis if they were discussed openly and frankly with the Italian Government.
We regard the manner in which the financial problems are handled as a practical test of the sincerity of the statement of the two Governments that they propose to hand over to the Italian Government an increasing measure of control. We feel that the Italians will view the matter in the same light, and we attach the greatest importance to the adoption of measures along the lines we have proposed.
  1. Supreme Allied Commander, Mediterranean (Field Marshal Sir Harold Alexander).
  2. Not printed.
  3. Not printed.