The Ambassador in Greece ( MacVeagh ) to the Secretary of State
[Received February 24.]
Sir: I have the honor to transmit herewith copies of three recent documents1 bearing on the precarious monetary situation now existing in Greece which, it is believed, the Department will find enlightening.
Enclosure No. 1 is a statement dated January 18, 1947 addressed to the Prime Minister (then Mr. Tsaldaris), the Ministers of Coordination and Finance, the Governor of the Bank of Greece, and General Clark (chief of British Economic Mission), by the two foreign members of the Currency Committee (Gregory and Patterson2) recommending “immediate” cessation of gold sales by the Bank of Greece. Enclosure 2, dated January 28, is to Prime Minister Maximos (who succeeded Tsaldaris on January 24), likewise from Gregory and Patterson, in which they justify their “utter inability” to approve the Government’s proposal for meeting the higher pay demands of the striking government employees by payment of two monthly bonuses involving an aggregate additional expenditure upward of 50 billion drachmas, this money presumably to originate with the printing press for advance to the Government by the Bank of Greece.
It should be recalled that, under the London Agreement of January, 1946, involving a loan to Greece for currency cover, all advances by the Bank of Greece to the Government explicitly require the approval of the Currency Committee which the Agreement established.
Enclosure 3 presents the record of the Currency Committee meeting on January 31, in which the committee, confronted by a fait accompli in the Government’s earlier decision to make the bonus payments to employees (see Embassy’s telegrams 116 and 136 of January 28 and February 1, 19471) records its strong protest against that decision [Page 15] “without their previous approval”, but—due to the “very serious political repercussions” which probably would follow a committee rejection—it accepts the decision “leaving to the Government the entire responsibility for any consequences resulting from the adoption of this measure”.
Thus the committee’s hand was forced, and the door is now open for the issuance of some 50 billions of additional uncovered currency, with no indication whatever as to where the process may stop, or what remedial measures may be devised to correct the situation. Following these bonus payments in February and March, the Government has promised its employees to review their demands at the start of the new fiscal year beginning April 1. Certainly a decrease in their compensation can hardly be expected at that time under existing high-cost conditions in the country. And in the next fiscal year, the Government’s revenue prospects will be seriously impaired by a rapid elimination of receipts derived from the sale of UNRRA supplies.
Counselor of Embassy for Economic Affairs