860S.5151/1–648: Telegram

The Secretary of State to the Embassy in Italy


26. Commander, UK–US Zone, FTT2 authorized in Fat 103 to seek assistance US and UK Embs Rome in negotiating agreements with Ital Govt for provision of currency and foreign exchange to FTT. Please render General Airey such assistance as deemed appropriate. General Airey authorized seek agreement with Ital Govt on basis of draft texts contained urtels 3599 and 3600 Nov 84 as modified by comments in this and immediately following cable.5

Re proposed draft agreement on provision of currency contained urtel 3599:

Text first sentence para 2A should be revised to indicate specifically that quarterly amounts to be advanced will be determined in consultation with Italian Government. Provision might also be made that question amount currency to be supplied be referred to government level for resolution at any time that AMG and Ital representatives fail to agree.

In this connection Commander, UK–US Zone, FTT informed that Peace Treaty obligates Italy only to extent furnishing currency “under conditions no less favorable than those applying in Italy.” Only means obtaining currency for FTT on more favorable basis appears to be persuasion Ital Govt that such more favorable treatment FTT in Ital interest and justified on grounds special FTT problems. Recognized such persuasion in fact involves obtaining Ital Govt approval proposed AMG local currency expenditures with resultant Italian influence FTT economic program. However, Ital Govt on basis of relevant treaty provisions would appear to be in position to refuse furnish currency in amounts exceeding, for example, outlays related to administration of Ital city of comparable size with consequent serious results for AMG operations in view urgent need for additional [Page 550] supplies of currency after mid-Jan and difficulty our making further economic assistance available FTT immediate future. Also recognized that Ital Govt properly concerned about amount of and procedure under which currency supplied UK–US zone in view possible Yugo demands and since, apart from question possible inflationary spillover into Ital economy from FTT, use by FTT of lira currency in payment for orders placed with Ital manufacturers, for example, might result in indirect drain on Ital foreign exchange resources insofar as Ital deliveries to FTT contain imported raw materials.

Agree with Gen. Airey’s suggestion that “reasonable economic needs” be substituted for “indispensable needs” para 2A draft text.
Possibility arrangement under which currency supplied to AMG directly by Ital Govt should be explored. Procurement necessary currency would then be matter internal arrangement between Ital Govt and Bank of Italy. FTT obligation toward Ital Govt would remain for future settlement. Such intergovernmental arrangement seems to have advantages of 1) offering possibility future settlement on more flexible basis than if FTT obligation to Bank of Italy through Trieste branch and 2) obviating necessity for issue of FTT interest bearing bonds. Also suggest that agreement reiterate provision of Annex 7 Art 11 Peace Treaty that any settlement for currency advanced shall be between Govt of Italy and Govt of FTT. Not intended that US or UK Govt undertake any obligation to settle for currency advanced.

  1. Maj. Gen. Terence Sydney Airey (British).
  2. Warx 93312, December 31, 1947, not printed.
  3. Neither printed.
  4. The Department’s telegraphic instruction 27 of January 6, not printed, made further comments on the proposed draft (860S.5151/1–648).