840.50 Recovery/7–348: Telegram

The Ambassador in Italy (Dunn) to the Secretary of State


2879. Following are specific comments with respect proposals contained urtel 1747 dated June 25,1 transmitted to British:

Proposal to divide foreign exchange proceeds lira expenditures of US–UK military equally between AMG and Italian Government might be useful compromise in view probability Italian Government likely to oppose strongly any proposal decreasing flow of current foreign exchange earnings from Anglo-American zone FTT. In view of obligation to supply local currency and foreign exchange requirements Italian Government likely to find proposal somewhat inconsistent.
Proposal regarding blocked assets held by Triestini does not take into account varying nature of such assets, particularly those in form of real estate holdings and participation in income from estates. Desirability of liquidating income-earning assets not clear. Perhaps same program adopted by Italian Government might be put into effect in Anglo-American zone FTT. This would make possible pooling [Page 567] liquid assets and also provide flexibility regarding handling less liquid forms of assets held in US otherwise, incentive would exist to evade AMG control and to enter under Italian program.
Proposal in Paragraph 2 (c) for period July 1 to September 3, 1948 not entirely clear since it would appear tint while Anglo-American zone FTT would be operating outside the commodity allocations “recommended by OEEC or established by”, financing of allocations recommended might take place after FTT admission to OEEC. Time sequence not clear.
Subparagraphs (f) and (g) should be integrated since it is provided for use of local currency proceeds for investment or working capital for “ERP industries” on one hand, and on other hand an expenditure of 25 billion lire under currency agreement of March 1948 which it is apparently recognized may be excessive. Moreover, provision of lire for shipbuilding is treated separately. Net effect of such apparently uncoordinated lire expenditures may be to increase substantially deficit financing in Anglo-American zone and considerably beyond any level which would be acceptable to Italian Government on basis of its obligations and undertakings.

Embassy feels that approach indicated in Deptel 1747 may not be consistent with premises underlying foreign exchange and currency agreements, and appears to constitute a step towards the economic and financial separation of the Anglo-American zone from the remaider of Italy. The broad language of the foreign exchange and currency agreements would appear to provide the basis for a viable economic and financial policy of the zone. Department will appreciate that Italian Government has every interest in promoting prosperity of the zone from political point of view.

Type of program proposed in Deptel 1747 will not be convincing to Italian Government. On basis of outstanding agreements Italian Government waives all claims to any benefits from direct grants or aid to FTT. Under proposed plan it would (a) waive 50% of current foreign exchange earnings deriving from troop pay and services, (b) agree to separate programming of import requirements within framework of independent economic policy premised upon ultimate autonomy from Italy, and (c) force liquidation of blocked assets in US held by Triestini, with accrual to FTT pool perhaps for immediate expenditures of proceeds. At same time Italian Government is required to supply (a) current foreign exchange requirements on terms no-less-favorable than in Italy, and (b) all local currency requirements which, incidentally, are spendable in Italy for essential imports. Program appears to lack inner consistency and generally understates the possibility of solving economic and financial problems of Anglo-American zone through close cooperation with Italian Government in the spirit of foreign exchange and currency agreements, as well as the tripartite declaration.

[Page 568]

Incidentally, Embassy has never received copy of Stopford–Hawes report.

Inform Treasury from Tasca.

  1. Supra.