The Secretary of State to the Embassy in Italy
1849. 1) Relationship of proposals outlined Deptel 1747 June 251 to question general Trieste relations with Italy and specifically to Mar 9 foreign exchange and currency agreements exhaustively considered in Dept prior to their transmission to Brit.
2) Dept does not agree that general line of action envisaged in reference proposals constitutes step toward economic and financial separation of UK–US zone from Italy (urtel 2879 Jul 3) and that it is therefore contrary to the spirit of the tripartite declaration on Trieste. Dept moreover does not regard goal set by Triparite declaration as meaning that AMG should take no independent steps to foster economic recovery in Trieste.
3) As indicated Deptel 1748 June 25 (repeated Trieste as 320)2 Dept envisaged Points 2 a, g, and h as principal subjects AMG–Ital discussions. Proposals contained these points were developed precisely with an eye to further implementation of the foreign exchange and currency agreements along lines that would permit Trieste operation to progress from mere hand to mouth existence.
Re comments contained penultimate para urtel 2879 (a) true that Itals in for exchange agreement formally waived all claims to any direct foreign exchange grants or aid to FTT. However, since Ital Gov could hardly maintain case for surrender to it by FTT of such grants or aid to help cover Ital deficit difficult to see that Itals made any concession by such waiver, (b) Info available to Dept indicates that operation of foreign exchange agreement has resulted in relatively large net contribution of foreign exchange by FTT to Italy. Compromise of unsettled question of disposition of foreign exchange earnings from troop pay and services on basis 50–50 split would still leave Italy substantial for exchange income from Trieste, (c) Re Point 2 f and g Deptel 1747, estimate of 25 billion lire as basis for request to Ital Govt did in large part take account of availability of local currency counterpart of grant assistance to FTT. Stopford–Hawes report, copy of which has now been sent you, assumed that 4 billion lire [Page 569] annually would accrue AMG from sale of grant assistance valued at about $18 million and calculated that 25 billion deficit nevertheless had to be met in addition exclusive of lire for shipbuilding financing. Re Emb comment that Ital Govt required supply all local currency needs, ability AMG to reduce deficit financing to any substantial degree depends at least in part on willingness of Itals to agree to reforms justified on fiscal grounds but perhaps debatable owing political repercussions.
4) Emb therefore authorized in concert with Brit Emb to arrange with Ital authorities for necessary meetings with AMG officials as soon as possible and to extend to AMG all possible assistance during these discussions.
Sent Rome 1849 rptd Trieste 341.