740.00119 EW/7–446: Telegram
The Chargé in Italy (Key) to the Acting Secretary of State
urgent
[Received July 5—5:28 p.m.]
3104. Embassy has not yet communicated to Italian Govt remarks as to bilateral settlement reparations contained Dept’s 1382, July 1, Secdel 38548 and will withhold action on basis Delsec 659, July 3, repeated Rome 175.49
In Embassy view there is great merit in solution envisaged by Secretary both from viewpoint reparations from current production, so long as limits are specified and USSR furnishes raw materials, and from viewpoint bilateral negotiation.
Prospect of plant removals has brought great dismay and uncertainty in Italian circles, which feel that damage to Italian economy, in terms of fixed installations rendered valueless until new machines obtainable, greater unemployment and in some cases ill effect on related industries, would far exceed actual value of equipment removed. Also it appears to Embassy that the need to determine in individual [Page 776] cases that the equipment to be removed was “designed” for war production and that it is not “readily susceptible of conversion to peacetime production” will lead only to lengthy dispute and ill-will in majority of cases.
Embassy is unable to comment further on adequacy of USDel formula for plant removals inasmuch as we cannot estimate whether strict adherence to formula would yield 5 or 25 million dollars value in machinery and equipment because (a) basis for valuation of equipment is unknown and (b) no list is available of plants which might be considered subject to formula. Embassy presumes that only list available is very extensive one (sent in Dept’s A–312, June 25)51 representing facilities thought to be removable “without endangering capacity of industrial economy to revive in next five to ten years”.
If reparations are to be paid it also seems entirely desirable that Italian Govt be consulted as to manner of payment as they have requested (Mytel 3092, July 2, repeated Paris 392).51 It would doubtless be to Italian advantage to have some purely military types of industrial equipment removed as reparations, thus reducing burden of reparations from current production, and it is believed some plant removals should therefore be envisaged along with current production provided unequivocable formula were drawn up.
Reparations from current production may have disadvantage that they should spread over several years but there may also be advantage if payments begin in near future that part of urgent Italian raw materials needs could be met by USSR at time when foreign exchange position weakest and when production for USSR of heavy machinery, ships and other capital items would least affect Italian domestic consumption needs and resumption normal exports. This assumes USSR would not be permitted take reparations in current consumer production needed in Italy.
Most important, Embassy believes, is favorable political effect to be gained from direct Italian participation in solution of this and other peace treaty problems. If Italian participation were also extended to other matters of substance, as Embassy strongly believes it should, much will have been done to assuage the current Italian fear that victors are dictating terms to conquered and undeserving enemy state. Furthermore, responsibility for reasonable and acceptable terms will rest, in cases where bilateral negotiations is prescribed, more directly with the other individual nation concerned.
Regarding Tenda-Briga, is cession of territory understood to cover French reparations claims partially or fully, and does guarantee of electric power to Italy nevertheless mean a new burden on Italian foreign [Page 777] exchange resources? If it is possible to give favorable assurances to Italy on these points, an early public statement to that effect might considerably offset bad impression the award has created.
Sent Dept 3104, repeated Paris for Secretary 396.