Memorandum of Conversation, by Mr. George C. McGhee, Special Assistant to the Under Secretary of State for Economic Affairs ( Clayton )

Subject: Meeting between Mr. Clayton and the Italian Prime Minister, Alcide de Gasperi.

Participants: His Excellency Alcide de Gasperi, Prime Minister of Italy
Mr. Donato Menichella, Director General, Bank of Italy
Mr. Carli, Director, Office of Foreign Exchange, Italy
Signer Alberto Tarchiani, Italian Ambassador
Mr. Egidio Ortona, First Secretary, Italian Embassy
Mr. Vincenzo Vogliolo
UE—Mr. Clayton
American Ambassador to Italy, Mr. Dunn
A–T—Mr. Thorp
OFD—Mr. Ness
UE—Mr. McGhee
SE—Mr. Dowling
A–T—Mr. Wood
IR—Mr. Stillwell
CP—Mr. Moore
FN—Mr. Reinstein

After preliminary formalities, the following topics were discussed:

1.) Grain

The Prime Minister stated that the availability of grain in Italy had become a political issue of the first order. Italy urgently needed both an increase in grain allocations and better timing of shipments. With the present short stock position, any delay in arrivals creates a serious distribution problem.

Mr. Clayton explained to the Prime Minister that the availability of grain from this country is entirely a question of internal transport. There are adequate supplies of grain and adequate ships to take the grain to Italy, but there was an insufficiency of freight cars and handling equipment. Mr. Clayton pointed out that the United States is not normally a great grain exporting country and that the current rate of grain exports exceeds anything ever before attempted here. He then described measures which this country has taken to alleviate the transportation difficulties, explaining that priorities for grain shipments had been established on the railroads and that an expediter (Captain Conway) has been appointed by the President to coordinate [Page 846] all phases of the transportation problem. Since the same expediter moved 11 million tons of wheat from last year’s crop, the movement having been completed only 10 days later than its June 30 deadline, Mr. Clayton expected improvement in present rate of shipment. Mr. Clayton stated that Italy has an allocation of 200,000 tons for the month of January and that although he could not make any commitment, in his judgment this rate could be maintained through June. He advised that he was calling the Secretary of Agriculture by phone later in the day in the Mid-West, to explain the urgency of the situation and to urge that all necessary steps be taken.

The Italian Ambassador stated that Italy was desirous of obtaining an increase in its IEFC grain allocation for the current crop year from 1,450,000 to 1,600,000 tons. He pointed out that supplies available from sources other than the United States are meager. Italy expected only 40,000 tons from Turkey and a small amount from Canada. Supplies from Argentina were very uncertain, there being no assurance that there would be any arrivals from this source before June. The Ambassador pointed out that with elections in Italy coming in June, it would be embarrassing for the present government to cut the bread ration before this time. The ration is already reduced to 200 grams. The Ambassador further pointed out that February and March are expected to be the most difficult months for grain arrivals in Italy. He repeated that Secretary Anderson had advised that he hoped to ship 230,000 tons in February and 250,000 tons in March. The Ambassador said that although Italy would continue her efforts to buy grain in the Argentine and elsewhere, she could rely only on the United States.

Mr. Clayton repeated that he had every expectation that 200,000 tons a month would be shipped from the United States to Italy for the next six months, which, with shipments to date of 400,000 tons, should equal the 1,600,000-ton figure which the Ambassador had requested. He assured the Italians we will do the best we can.

2.) Coal

The Prime Minister advised that Italy was currently receiving approximately 600,000 tons of coal per month from this country, but needed an additional 100,000 tons a month in order to achieve a reasonable level of industrial output. He reported that Poland was now furnishing very little coal to Italy, and that both Germany and UK furnished some, although both had in the past been large suppliers.

Mr. Clayton agreed that the problem of coal was a serious one both for Italy and for other European countries. He predicted that this would be one of the most difficult of present problems to effect permanent solution. Mr. Clayton asked whether Italy would not prefer coal from other sources than the United States, in view of the high price of [Page 847] our coal. The Ambassador replied that US coal was now actually cheaper to Italy than European coal. Whereas US coal was delivered to Italy for $22.00 a ton, Belgian coal cost $24.00 a ton and Polish coal even more.

Mr. Stillwell advised that a temporary shortage of ships available for coal would make it difficult for the US to fulfill all commitments during the next two months. Mr. Clayton concluded that although he was not in complete possession of the facts and could make no commitments with regard to specific amounts of coal which can be furnished Italy, we understood the gravity of the Italian situation and will do the best we can.

3.) Additional Liberty Ships

The Ambassador stated that although Italy has not as yet made application to the Maritime Commission, they would like to have 50 Liberty ships in addition to the 50 already obtained. At the present, their merchant fleet aggregates only 900,000 tons, which is less than one-third of their pre-war fleet of 3 million tons. The 50 additional ships would still give them only 1,300,000 tons. The Ambassador said that the Italian government would purchase the additional ships, in the same way that they had purchased the original 50.

Mr. Clayton promised that he would take this matter up personally with the Maritime Commission on Friday, at which time he would support the Italian request for the 50 additional ships. He suggested that in the meantime applications for purchase of the ships be filed with the Commission. Mr. Clayton observed that he considered it desirable for the Italians to attain their pre-war shipping tonnage level as quickly as possible, in order to alleviate the drain on their foreign exchange.

4.) Post-UNRRA Relief

The Ambassador referred to the fact that Secretary Byrnes had indicated to the Prime Minister that the Department would request Congress to appropriate funds for post-UNRRA Relief for Italy and certain other countries. The Prime Minister understood that this represented the policy of the Executive Branch of the US Government only and hoped that the American people, through their Congress, would approve the granting of this relief, which was badly needed in Italy.

Mr. Clayton replied that the Department would give full support to the bill providing for this relief, which he hoped would go forward to the Congress within the next few days. He assured the Prime Minister that he personally and, he hoped, Secretary Byrnes, would appear before Congress in behalf of this bill.

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5.) Export-Import Bank Loan

The Ambassador stated that a loan from the Export-Import Bank was vitally needed to assure economic stability in Italy during the year 1947. The Prime Minister observed parenthetically that the loan had attained very great significance in Italy, because of the widespread discussion which had taken place concerning it. The Ambassador continued that the loan had become a political issue. Recent news that the loan would not be forthcoming had produced very serious repercussions in Italy. Particularly because of the large loans which the US has made to the UK and France, the Prime Minister’s position would be seriously jeopardized if he should return to Italy without a loan.

Mr. Menichella stated that although the Italian Government had not yet called on the Bank of Italy to issue additional currency to finance its expenditures, the Government may be forced to take this drastic measure at an early date. The Italian people were anxiously awaiting the decision as to whether or not the US would aid in the reconstruction of Italy in addition to their assistance in providing relief for Italy.

Mr. Menichella observed that the Italian people had made a great contribution to their own economic recovery through increased production and through foregoing consumption. He explained that almost everything Italy made was exported, that there was no buying power within Italy. In the opinion of his government, the Italian export prospects justified an Export-Import Bank loan. The loan was of such importance to Italy that he was willing to discuss it on any basis, whether for short, medium, or a long term, if this was necessary to obtain it. He pointed out that technical financial circles in Italy are convinced that Italy deserves the loan, and will be disappointed and puzzled if the loan is not forthcoming. Obtaining the loan is an absolute necessity for the success of the de Gasperi Mission.

Mr. Menichella continued that he had heard informally in Washington that the Export-Import Bank had taken the position that they could not loan money to a country that was at the same time receiving a relief grant. He offered his opinion that there was no relationship between the grant, which was intended to make up for the deficit in food supplies in Italy, and the loan, which could be guaranteed by existing export contracts now held by Italian firms.

Mr. Clayton explained some of the background of the Export-Import Bank, pointing out that although it was enacted under the law of 1934 it is currently operating under an amended charter enacted in 1945, when its capital was raised from $700 million to $3½ billion. As currently constituted, the Bank has five directors, four public directors and the Secretary of State, who is represented by Mr. Clayton. Mr. Clayton explained that the directors are governed by the provisions of [Page 849] law pertaining to the Bank. He stated that although a short-term loan in the order of eighteen months or two years would be easier to negotiate, he did not think such a loan would meet the Italian needs as he understood them. He questioned that the Italian balance of payments position would permit repayment of a short-term loan. Mr. Ness suggested the possibility of making a portion of the loan on a short-term basis, for commodities that could yield foreign exchange quickly, with the remainder of the loan on a longer term basis.

Mr. Menichella replied that he had attempted both to obtain a larger loan than that under discussion and a long-term loan, and that he is willing to discuss a short-term loan only as a matter of necessity. He would, he indicated, be glad to discuss the type of loan mentioned by Mr. Ness involving both long-term and short-term commitments. He pointed out the great psychological boost which would result in Italy, if the Italians could feel that an independent US Agency considered Italy worth a credit risk of $100 million.

Mr. Clayton repeated that he believed the loan must be related to the Italian future balance of payments position, and that he could not disassociate in his own mind any short- and long-term aspects. If short-term proceeds are derived they should probably be reinvested as a method of securing more long-term proceeds. He felt that the directors of the Bank in making their decision as to the loan should be realistic in their approach. He urged that the Italians bring to the attention of the Bank any information not in possession of the Bank which might facilitate a favorable decision on the loan application. It was pointed out that arrangements had already been made for the technicians in the Italian delegation to confer with the staff at the Bank.

Both the Prime Minister and Mr. Clayton agreed that it would be better for all concerned if an attempt were made to secure the loan on a long-term basis. Mr. Clayton, in conclusion, stated that he would do the best he could for the Italians, but that he represented only one of the five directors of the Bank. He added that in the event a long-term loan is secured for Italy, he saw no reason why short-term loans for cotton or other raw materials providing quick returns could not also be made. The Prime Minister expressed appreciation for the consideration which Mr. Clayton and other American officials had shown.

6.) “Hermitage” and “Monticello

In closing, the Ambassador raised the question of certain former Italian ships, the Hermitage and Monticello, which were currently subject to negotiation between the Italians and the Maritime Commission. These ships are to be operated by the Italians on agreed terms under the Panamanian flag. Mr. Clayton advised that he was not fully informed as to the status of these negotiations, but that he would take the matter up with the Maritime Commission on Friday.

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The Ambassador stated that there were two points still at issue between the Italians and the Maritime Commission to which he would appreciate Mr. Clayton’s giving special consideration. The Italians thought it extremely important from the standpoint of morale of the Italian people that the ships fly under the Italian flag. The Italians also felt that the split of earnings between the Maritime Commission and the Italians should be on a net and not on a gross basis as proposed by the Commission.

In closing, the Ambassador expressed appreciation to Mr. Clayton for the consideration he had shown the Italians in numerous instances, both in connection with his duties as Under Secretary of State and as a United States representative on UNRRA.