Foreign Relations of the United States, 1946, The Near East and Africa, Volume VII

868.50/8–646

Memorandum Prepared in the Department of State²⁴

From information available to this Government it appears that tremendous efforts have been made in some segments of the Greek economy toward recovery from the devastation of war. The notable gains in agricultural production, both in crops which provide for the needs of the Greek people and in crops grown mainly or in part for export, bear witness to the degree to which the hard and sustained work of the farmers has overcome handicaps in lack of draft power, etc. However, many other steps must be taken to restore economic stability. There is a feeling in United States Government circles that Greece is not likely to have economic order and prosperity, at least for a long time to come, unless the Greek Government and the Greek people are prepared to take heroic measures of an economic nature which would compare with the heroic measures which Greece took in the military field when Greece was the victim of aggression. It appears necessary for the merchants and industrialists to make greater efforts and to direct these efforts toward production and distribution of goods essential to the Greek people. As there may be greater profit in the production of luxuries, it may be necessary, in these difficult years, for the Greek Government to pass and enforce measures which will direct production toward meeting the basic needs of the Greek economy. Finally, the Greek Government must take much more active responsibility for reconstruction; the apparent belief that foreign assistance can be effective without a much more vigorous internal policy is itself a major obstacle to recovery.

In order to expedite Greek recovery it appears most important that steps should be taken:

(A) to stimulate exports;

(B) to maximize domestic production of essential commodities;

(C) to reduce non-productive government expenditure in order to make funds available for reconstruction, and effect reforms in government administration and in taxation;

(D) to obtain control of and utilize effectively foreign exchange earned by the national economy; and

(E) to prepare a reconstruction program which puts first things first and is within the means of the Greek economy, and to carry out reconstruction up to the limits of the means available.

More specifically it appears that the Greek Government should address itself energetically toward carrying through a program such as the following:

(A) To stimulate exports:

1. Steps should be taken to bring export prices and domestic prices more into line with one another.

(a) The wide disparity, as compared with corresponding prewar figures, between foreign exchange rates on the one hand and internal prices and living costs on the other suggests the possible need for a revision of the foreign exchange rate.

(b) Measures should be taken to lower internal prices. Measures would include the expansion of production in Greece, increased imports of consumer goods, reduction in cost of distribution, and tax reform. These measures are also related to other aspects of the Greek economy and are listed under appropriate headings.

2. Essential goods should be made more easily available to all consumers under a system which would discourage the hoarding of export commodities. To accomplish this, there should be:

(a) distribution of goods now in warehouses;

(b) vigorous government action to effect expansion of production in domestic manufacturing plants and sale without excessive increases in price;

(c) preference, in use of such foreign exchange as is available for consumer goods, for purchase of goods essential to farmers and lower income groups in the community;

(d) where necessary, direct stimulation of exports to countries still exercising full control over their foreign trade by the negotiation of trade agreements under which needed imports could be obtained.

3. There should be energetic, far-reaching, and persistent efforts to reduce the cost of internal transport.

(a) Temporary program should be developed to effect immediate repair of the highways with minimum drain on the government budget. Such a program will require the concerted efforts of practically all able-bodied male citizens. (Note: Immediate road repair is extremely urgent: bad roads increase the cost of marketing of foodstuff and result in losses through spoilage; they increase the cost of distribution of consumer goods; they shorten the life of tires and trucks, and cause heavy expense in truck maintenance.)

(b) Reconstruction of key elements in vital railway lines and of port works should be initiated at once. The Export-Import loan and material obtained under the United States Surplus Property Credits could be utilized in carrying out the most important projects.

(c) Vessels recently purchased through a United States Surplus Property Credit should be utilized to provide coastal and inter-island transportation at moderate rates.

4. Taxes on the production, sale, movement or export of export commodities should be reduced or removed, at least for a period sufficient for a substantial amount of exports to be made and to permit revision of the system of taxation.

5. Assistance, including financial assistance if necessary to stimulate trade, should be given to processors and packers of export products.

6. Opportunities to develop exports should be sought persistently in pre-war markets and also in markets where few or no Greek products were sold before the war. The loss of pre-war markets in Central Europe makes this the more important.

(B) As foreign exchange is an extremely critical factor in the Greek economic position, the Government should endeavor to maximize the earnings in foreign exchange of the Greek economy. It should adopt drastic measures to obtain control of as much as possible of its foreign exchange and to use such exchange effectively. Measures to increase exports have been discussed; increased amounts of foreign exchange should be available from them. The earnings of merchant vessels under Greek ownership or control should be another substantial source of foreign exchange. In this connection, it may be noted that estimates by UNRRA of 1947 foreign exchange earnings of the Italian fleet (comparable very roughly in size to the 1947 Greek fleet) are $80 million. While this is merely an estimate, it suggests that energetic government action could substantially increase the $7 million estimated by the Mission as the 1947 foreign exchange earnings of the Greek Merchant Marine, and greatly improve the Greek balance of international payments. An obvious opportunity to save foreign exchange for the Greek economy would be in greater use of “freight aboard ship” terms in the purchase of imports combined with shipment in Greek vessels.

For effective utilization of foreign exchange it appears that the Government should adopt and enforce regulations to limit the use of exchange to the purchase of essential commodities or the payment for essential services. The Government should change its present regulations permitting the transfer of funds abroad, and limit transfers to those of advantage to the Greek economy, such as expenses of diplomatic representatives or of sales organizations. Provision should be made, of course, for those cases where denial would work a definite hardship.

Sales of gold constitute a wasteful, inefficient use of foreign exchange, but their continuance as a temporary expedient may be desirable until the economy has begun to function in more normal fashion.

(C) Realistic fiscal policy and reforms in taxation and government administration are essential.

Without discussing in detail reforms in government administration and in taxation, and speaking generally, it appears that the number of government employees should be cut to a minimum and that every effort should be made to re-establish pre-war civil service standards. It appears obvious that heavier taxation is necessary if the Greek Government is to be in a sound financial position, and that a system of taxation should be developed so that the burden of taxation is proportionately greater on the segments of the community best able to bear it—particularly the merchants and manufacturers. It would appear that such a system should include a graduated income tax, a revenue tariff on certain imports, and increased excise taxes on luxury and non-essential products. In spite of the need for greater tax revenue, it appears that the taxes on the transportation of commodities within the country should be abolished with a view toward lowering internal costs and prices and facilitating the distribution of goods.

It appears essential that the Government devote a substantially greater proportion of its efforts to reconstruction. Emergency measures for immediate highway improvement have been outlined. They are a temporary expedient. It is imperative that the direction of reconstruction by the government be carried out in an energetic and well organized manner. An essential element will be the programming of government and private reconstruction projects and expenditures with priorities for necessary materials. If the recently established reconstruction organization is given authority and continued support, it would appear to be such an agency as is needed to deal with these problems.

(D) Reconstruction should be pushed to the limits of the means available.

From information available it appears that there has been substantial restoration of agricultural production through tremendous efforts of individual Greek farmers using whatever aid was available. Similar utilization of available resources in reconstruction is necessary. The restoration of the highways has already been mentioned; it deserves further emphasis. In addition, reconstruction work should be prosecuted on the railways, irrigation and municipal water works, electric power plants, port works, and where necessary, industrial plants. To achieve this there should be effective utilization of all equipment and material which Greece has received or can obtain from abroad. This would include the following:

1. The materials brought in by UNRRA for industrial rehabilitation.

The amount scheduled under the industrial rehabilitation program aggregated $40.9 million. About half of this appears to consist of equipment, which should continue to provide the means for much reconstruction after the termination of UNRRA activities. Its importance can be realized by reviewing the more significant items of one category of supplies. The category selected is “General Reconstruction Equipment”, the principal items of which are as follows:

Number	Article	Value
46	Road rollers	$170,110
71	Rock crushing and screening plant	317,116
59	Concrete mixers	50,211
49	Air compressors	281,248
30	Tractors with dozers	251,779
48	Power shovels and cranes	505,084
12	Truck shovels	128,806
	Bridging material	2,230,000
	Miscellaneous	524,319
	Reserve	131,327
	Total	$4,590,000

While the bridging material has probably been used up, it is obvious that much highway and other reconstruction and maintenance work can be carried out with the remaining two and one-half million dollars worth of equipment.

2. Material to be obtained under FLC credits:

As many of the items selected under FLC credits will be obtained at a low percentage of their cost to the U. S. Government, the amount of supplies obtained thereunder will be substantially greater than the sums involved.

3. The Export-Import Bank loan of $25 million agreed upon January 11, 1946.

The effective use of the tremendous amount of materials obtainable under (1) and (2) above will require well thought out plans and coordinated engineering work. It appears possible to use part of the proceeds of the Export-Import loan for contracting services in connection with the material obtained under (1) and (2) and in planning this work of reconstruction. It appears essential that this be done.

Washington, October 29, 1946.

[Mr. Venizelos, at Athens, replied to Mr. Acheson on November 23. He set forth the Greek people’s full appreciation of and gratitude for Mr. Acheson’s kind words and American assistance already given to Greece, and then stated:

“I quite appreciate that, in order to achieve economic order and prosperity the Government and the people of Greece will have to devote themselves with the unrelentless task to develop all their resources and to take heroic measures in facing the present situation.

“However, you will admit that the extent of actual destruction is such and the available means of reconstruction are so meager that in spite of their best efforts, the Greek people will be bound to depend on foreign assistance and guidance in order to achieve economic recovery and social stability.

“Therefore, although I am quite convinced that the most earnest consideration will be given to the suggestions contained in the Memorandum enclosed in your letter, the Government and the people of Greece are looking forward to the early arrival in Greece of the small economic mission which Mr. Byrnes promised to send, upon request of the Greek Government.”

Mr. Venizelos’ letter was transmitted to Mr. Acheson by the Greek Chargé on December 31, 1946. (868.50/12–3146)]

24. This memorandum was enclosed in a letter of October 29 from Mr. Acheson to Mr. Venizelos (in care of the Greek Embassy) in reply to the latter’s communication of August 6 (see footnote 51, p. 190). The letter of October 29 stated in part: “At the request of your Mission, a memorandum has been prepared outlining steps which it is thought are essential before Greece can accomplish any degree of economic stability. This memorandum is enclosed for your consideration and for transmittal to the appropriate quarters of the Greek Government. The recommendations contained therein are necessarily stated in general terms; the methods by which the objectives should be accomplished must be decided largely by the Greek Government itself.” (868.50/8–646)