868.51/12–1047: Telegram
Mr. John B. Howard 1 to the Secretary of State
secret
Amag 643. Reference Gama 540.2 1. Authorization for conversion napoleons transmitted to Greek Government on December 5. Napoleons dispatched by air to FRBNY Dec 9.
2. Despite market anticipation of conversion authorization, continuance of strong buying pressure on gold carried rate to 200,000 drachmae on December 5. Government strongly pressed for heavy sales despite depleted stocks in order to prevent rate from exceeding 200,000. Mission communicated your statement of impossibility of using new Greek or AMAG funds for purchase of further gold and took firm position that it would be futile to try to maintain either fixed gold rate or stable price level over any substantial period of time and that intervention could be directed only to limited objective of retarding rate of inflation.
3. Government expressed keen disappointment with mission refusal to stabilize rate and regarded our assertion that procurement of new gold impossible to be tantamount to nullification of conversion privilege. Helmis on night of December 5 privately informed Mission that if no more gold were to be made available and rising price and wage levels therefore inevitable, he could take no further responsibility for maintaining budgetary equilibrium and would consequently have to resign.
4. Mission has so far prevailed upon Government to accept present position of Department regarding gold sales pending developments over next few weeks. Government announced on December 6 not only conversion of napoleons but also a series of economic and financial measures (refer Amag 5703) designed to buttress basic economic reforms introduced over the past three months. Government determined to hold wage line in face of threatened strikes. Salary demands of bank [Page 450] employees flatly rejected and legislation providing severe sanctions against both employees and employers for interruption of work and production and prohibiting payment for time lost on strikes rushed through Parliament without consultation Mission. Budget submitted to Parliament on December 9. Agreement to accelerated dismissal of surplus Government employees secured.
5. Major immediate problem that of determining volume of gold sales on a daily basis. Since inauguration gold sales, political anxiety of Government in constant conflict with economic approach of foreign members Currency Committee. After reaching impasse three weeks ago, foreign members Currency Committee refused to accept further responsibility for gold sales. Subsequent daily sales in heavy volume by Government order. In order to implement your directive regarding gold sales policy, Mission therefore forced to participate as from December 8 in supervising intermittent intervention through representation on new gold sales committee with Helmis, Mantzavinos, Patterson and Gregory. Mission will limit gold sales to minimum considered feasible.
6. While Mission will seek to reconcile Government to gradual rise in gold rate as adjustment to basic inflationary forces, demand for gold will most probably grow stronger as stocks approach exhaustion. Prospective availability of supplies of gold a vital factor in market confidence. Even if military situation does not deteriorate further, most probable that sovereign stocks presently on hand and to be received against napoleons will be insufficient to last beyond January–February. Inevitable that new economic and political crisis will again develop in anticipation of such prospective exhaustion of sovereign stocks.
7. All agencies US Government concerned with aid program should understand that basic objective of Greek aid program is political, viz, to prevent Soviet domination Greece while helping Greece get back on feet. This political objective is so fundamental that should action essential to achievement US political aims in Greece conflict with some aspect of general US economic policy, an exception to that general policy would in my view be entirely justified. It is obvious that desired reforms cannot be realized overnight and that we must buy time through palliatives such as gold sale pending improvement of military situation and manifestation of full benefits of reform measures recently introduced. It must be recognized that we are dealing with a free government responsive to public opinion and cognizance must be taken of their judgment of Greek political and psychological realities. Significant that all parties united on gold sales policy.
8. While conversion of napoleons has temporarily stabilized situation, [Page 451] I cannot concur in general policy set forth in third paragraph Gama 540 and request reconsideration. If at any undetermined future time, protection of US political interests in Greece should require gold sales, should it be decided now that absolutely no gold will be made available?
9. In presenting counter-inflation program (Amag 570) Government requested Mission assistance in securing release of gold pledged as security for FRBNY loan as important feature of their program. Loan 10.8 million dollars secured 100 percent by gold originally granted on September 24, 1946 for three months. Subsequently renewed for three month periods on December 24, 1946, March 24, June 24, and September 24, 1947. Mission persuaded Government November 29 to defer request regarding release of gold security pending decision on exchange napoleons. Therefore no reference to FRBNY loan in Amag 570 altho included weekly report. See also Tsaldaris’ conversation with Keeley reported Embtel 2060 November 29.
10. I consider it of great importance Department agree in principle to repayment this loan and release of gold security for ultimate conversion into sovereigns if necessary. Public knowledge that no more sovereigns will be made available when present stock exhausted would obviously intensify buying pressure whereas public knowledge of availability of ample reserves would substantially reduce this pressure. Critically important to avoid any new political and economic crisis until after spring military offensive.
11. Additional imports unless in very substantial amount not an adequate substitute for gold sales as a counter-inflationary device. Under present conditions, availability to Greek Government of ten million dollars in gold would be of far greater effectiveness in controlling inflation than consumption import grant of equivalent amount. Dollar for dollar, carefully supervised gold sales provide far more favorable psychological effect and absorb far more drachmae than sales of any other commodity. Thus, additional appropriations for importation of wheat much less effective than gold sales as counter-inflationary measure, owing to political impossibility of sufficiently increasing bread price and of abruptly curtailing free distributions to indigents, refugees, etc. Altho additional imports of consumer goods would effect much needed improvement in standard of life, such improvement would be generally regarded as long overdue and consequently already discounted in public psychology. Similarly, additional imports of industrial and agricultural supplies altho highly essential would not exert immediate counter-inflationary effect but on the contrary would require still further credit expansion to insure their effective utilization.
[Page 452]12. Repayment of Greek loan from FRBNY could be made out of current dollar exchange earnings or possibly even by direct grant to Greek Government for repayment loan, thereby releasing gold security. Foreclosure of gold security to liquidate loan would be anomalous while US giving much larger aid to Greece and would have disastrous psychological effect. On the other hand, renewal of this loan would further weaken financial repsonsibility of Greek Government. Necessity of obtaining US permission for converting gold security into sovereigns should provide sufficient measure of control to prevent abuse of privilege.
Urgently request favorable decision regarding this suggestion prior to maturity date of FRBNY loan December 24.
Griswold approved this telegram prior departure Turkey today.
- Acting Chief of the American Mission for Aid to Greece.↩
- Dated December 1, p. 427.↩
- Dated December 2, not printed; it listed seven proposed measures including drastic reduction of bank loans to large industrialists and merchants and acceleration of imports. Parallel with these measures, the Greek Government asserted it must be able to sell sovereigns to keep the sovereign rate and prices more or less stabilized. Governor Griswold concluded that he could not “stress too emphatically the urgency of immediate approval exchange napoleons and official public announcement by Greek Government of exchange in conjunction with call of bank loans.” (868.51/12–247)↩