740.00119 Control (Italy)/10–2346

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

restricted
No. 4188

Sir: I have the honor to report that the Italian Ministry of Foreign Affairs on October 19 delivered an undated Aide-Mémoire to Admiral Stone, Chief Commissioner of the Allied Commission, for transmittal to the Commanding General of American armed forces in Italy, wherein the views of the Italian Government are expressed concerning the draft of a new Military and Civil Affairs Agreement, and the related Financial Agreement. Those documents were delivered to the Government for its consideration and comment on June 14 and on September 3, 1946, respectively.

A copy of the original Aide-Mémoire in Italian, and a translation which was made in the Embassy and concurred in by Admiral Stone, are attached hereto. A summary of the Italian reaction was reported to the Department by telegram no. 4058 dated October 23, 1946.63

The Aide-Mémoire, doubtless because it was drafted earlier, contains no reference to the decision of the United States to grant to Italy the “suspense account” dollars in reimbursement for non-troop-pay expenditures in A.M. lire by our armed forces. In view of that action on our part and of the Italian negative reaction to the negotiation of a new Civil Affairs Agreement, it would no longer appear to be untimely or in any way damaging to our position to withdraw both the [Page 866]Civil Affairs and Financial Agreements, should the Department so desire, and possibly to substitute therefor a proposal to modify the situation with respect to requisitions.

In the light of such a possibility, the Embassy wishes to record its impression that the objections of United States military authorities to the retroactive feature in the Financial Agreement, referred to in the Department’s memorandum of conversations dated September 18 and in the Embassy’s telegram 3900 of September 26,64 appear to arise very largely out of the undoubted difficulties involved in obtaining accurate and acceptable figures on the value of requisitions since July 1, 1946 and on the value of public services, including transportation and communications, which have neither been paid for in lire nor formally requisitioned. It would also appear that the army authorities may foresee some difficulty in obtaining appropriations to cover the repayment in dollars for requisitions after July 1, the value of which is unknown but thought to be of considerable importance.

In view of these objections, the Embassy is of the opinion that if the War Department so desires, in its reply concerning the financial aspects of the Italian Aide-Mémoire, it would appear reasonable and practical to emphasize to the Italian Government the extent to which the suspense account and troop pay dollars already cover the bulk of the direct cost to Italy of our forces during the entire occupation, to reaffirm our willingness to recognize any additional expenditures not already covered by dollar payment, such as requisitions, as credits to the Italian Government which may be offset against its recognized debt to us for civilian supplies, and to assure the Government, while requesting its cooperation, that every effort will be made by our armed forces to place all outstanding requisitions on a current cash payment basis at the earliest possible moment.

If it is true that dollar transfers now being made from the “suspense account” will cover the occupation expenditures other than requisitions in Venezia-Giulia and the Province of Udine, assurance in that sense might be added to the foregoing. Reference to the matter might simply be omitted if, on the contrary, a division of occupation costs as between Venezia-Giulia and the rest of Italy is in fact being established unilaterally by the United States.

The foregoing comments have not been discussed with the military in this theatre and are submitted only for the Department’s background information.

Respectfully yours,

For the Chargé d’Affaires, a.i.:
Charles A. Livengood

Counselor for Economic Affairs
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[Enclosure—Translation]

The Italian Ministry of Foreign Affairs to the Chief Commissioner of the Allied Commission (Stone)

Aide-Mémoire

The Italian Government has duly examined the Draft Civil and Military Affairs Agreement between the United States and Italy, annexed to the Draft Modification of the Armistice regime.

That examination has led to the conclusion that the specifically military and political proposals of the agreement itself pose graver problems of a domestic and international character destined to give rise to serious apprehensions and opposition (contrasti) in the country.

The total effect of the dispositions referred to in articles 1 to 7 in fact only confirms and consolidates in substance, as regards the matters treated in those articles, the actual situation which has come into being under the Long Armistice regime.

On the other hand, in view of the imminence of the Peace Conference and the hope that it may within a short time bring about the conclusion of a definitive Peace Treaty, the Italian Government believes it unnecessary and in any case not urgent to initiate discussions which might very probably become unnecessary before they were concluded.

Still, in compliance with the courteous requests of the Department of State, the Italian Government nevertheless submits to the Government of the United States its principal observations regarding the economic-financial clauses proposed for the new Armistice.

The system proposed by the Government of the United States for the regulation of financial relations, forthcoming from the new Armistice, may apparently be summarized as follows:

a)
To set aside (accantonare) the system of financial relations initiated on the basis of the Armistice of September 29, 1943 and carried out from its entry into effect up to June 30, 1946;
b)
To charge to the Italian Government the occupation expenditures, exclusive of net troop pay, for the direct maintenance of American military forces in Venezia-Giulia and the Province of Udine;
c)
To charge to the Government of the United States for payment in dollars currently all services and all supplies (prestazioni) rendered to the American armed forces.

The Italian Government believes that the proposed system is in general acceptable and that it constitutes an appreciable improvement in the financial situation which had been imposed on Italy with the preceding Armistice.

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The cessation of the arrangement of financial relations carried out up to June 30, 1946 is reasonable and opportune. Such an arrangement would have complicated the negotiation of the new Armistice.

The Italian Government hopes that, when it may be appropriate, the United States Government will wish to take into account the considerations set forth by the Italian Government in its memorandum of January 7, 1945 in the sense that all supplies, all services and all payments made by the Italian Government for the account of the American armed forces during the long period of co-belligerency, may be recognized as dollar credits of the Italian Government to be applied against its debts for the civilian supplies.

Notable relief will thus derive to the Italian economy from the payment in dollars which the American Government declares itself disposed to make for all supplies, services, requisitions, etc., which the Italian Government will place at the disposition of the American armed forces beginning from July 1, 1946 and for the full duration of the new Armistice.

Encouraged by such good dispositions, the Italian Government permits itself to request that it be exempt from the occupation expenditures for the direct maintenance of troops which it is desired to charge against it. It is true that this concerns only the troops stationed in Venezia-Giulia and in the Province of Udine, and it is further true that troop pay would be excluded, but that a part of the burden for occupation expenditures would nevertheless continue to bear upon the exhausted Italian economy, notwithstanding that the Armistice regime has continued by this time almost three years, and that Italy has continued to bear, through no fault of its own, burdens from which it should have been freed for some time.

The Italian Government, which is grateful to the Government of the United States for the favorable arrangements, which have enlivened the regard of the Italian Government and people, hopes that its request will be granted and that the burdens of occupation expenses will thereby cease completely to exist.

In that spirit the Italian Government has also examined the text of the separate draft agreement provided for by paragraph 9 of the Armistice Draft transmitted last September.

Accordingly, the observations which it advances below with regard to the last mentioned document are presented without implying any denial of the point of view expressed above.

Such observations are the following:

1.
The Italian Government requests at the least exemption from the transportation expenditures, not only in order to eliminate the need for laborious calculations for the division of the expenditures [Page 869]themselves between the two Governments, as is provided in Section 1, paragraph 2, but also in order to relieve Italian finances from a burden of which a not unimportant part consists of disbursements in foreign exchange for supplies of fuels, lubricants, etc.;
2.
The amount of the current account in lire which, by the terms of paragraph 3(a), the Italian Government must place at the disposition of the Commanding General of the American armed forces might conveniently be established in agreement with the Minister of the Treasury;
3.
The second section of the Draft does not appear entirely clear: it is thought possible to deduce, barring errors of interpretation, that the supplying of lire to the American armed forces for troop pay and for other expenditures reimbursable in dollars should take place by utilizing the balance in lire already in possession of the American armed forces or through the acceptance and payment of the counter-value in lire by the Bank of Italy of United States Treasury checks. The payment in dollars for lire received in advance would occur immediately, with the undertaking on our part however to repurchase lire not utilized and to exempt the American forces from any loss deriving from devaluation of the lira.

With regard to this last request it is considered that the providing of funds in lire to the American armed forces assumes in this case practically the character of a normal foreign exchange operation. Therefore, an eventual exchange guarantee—enacted in a public document—would certainly be invoked by third countries in similar cases, without Italy being able to advance serious arguments to resist such a demand.

Not only [that],65 but this [request] also may not be granted for technical-economic reasons connected with foreign exchange operations and deriving especially from the present situation in which the Italian Government, far from being able to save the available foreign exchange must employ it immediately for reconstruction purposes. In fact, whereas the dollars received may actually be utilized immediately or very soon by Italy, which means under present exchange conditions, the restitution [of dollars] for the repurchase of lire not used by the American armed forces might come about much later under different exchange conditions and with a considerable loss to the Italian economy.

That inconvenience which would be serious enough even if the advances in lire were not limited to a pre-established figure, remains equally serious even within the limits of the amounts proposed in paragraphs b (1) and (2).

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It is pointed out, anyhow, that the exchange guarantee could be applied in any case only to official funds, and possibly to those which are semi-official, but not also to those personal funds of individual members of the American armed forces.

  1. Not printed.
  2. Neither printed.
  3. Brackets in this paragraph appear in the file translation.