Foreign Relations of the United States, 1948, Western Europe, Volume III

860S.51/12–248: Telegram

The Chargé in Italy (Byington) to the Secretary of State

confidential

Rome, December 2, 1948—7 p. m.

4520. British proposals as stated Embtel 4224 November 4¹ regarding supply lira currency Yugoslav Zone, FTT not for mere purpose embarrassing Yugoslavia (reurtel 2739 November 8)² but for purpose exploring issue since it was felt Yugoslavs might raise issue again in near future, possibly at Bled. British Embassy now points out that Yugoslavs have raised currency issue in report to Security Council on administration Yugoslav Zone, FTT³ pointing out that:

(1) In response Yugoslav Zone, FTT request for supply currency in accordance annex 7 article 11 peace treaty, Italian Government replied since currency other than Italian lira circulating Yugoslav Zone contrary annex 7 article 11, pre-condition for implementation article 11 nonexistent;

(2) Yugoslavs replied on January 7 along following lines:

a. No change effected in Yugoslav Zone currency system subsequent to coming into force of peace treaty;

b. Italian lira not deprived legal tender Yugoslav Zone;

c. So-called “B lira” circulates in Yugoslav Zone. Nothing can be done to change this until Italian government carries out peace treaty obligations (annex 7 article 11);

d. Italian Government, under article 76, assumes full responsibility for “B lira”.

In view of above, British Embassy here under instruction requests that Embassy join them in approach to Italian Government suggesting Italians reply unanswered Yugoslav note (see (2) above), indicating Italian Government prepared negotiate supply currency Yugoslav Zone on terms to be agreed.

Reference British proposal Embassy inclined favor policy of “letting well enough alone”. In this connection Embassy feels that distinction should be made between Yugoslav charges against AMG, UK–US Zone as contained in Yugoslav memo to SC dated October 24,⁴ and accusations contained in Yugoslav report on administration of Yugoslav Zone. SC debate might best be limited to charges contained in Yugoslav memo to SC. Furthermore, US and UK need not undertake responsibility answering charges made against Italian Government.

With respect Yugoslav charges against Italian Government, indicated in first paragraph above, Embassy comments as follows:

(1) As indicated Embtel 4223 November 4, Embassy in agreement with UK view that there is some merit in Yugoslav position stated 2 (a, b, and c) above, i.e., that retention “B lira” can be justified on ground it is made necessary by Italian Government refusal supply currency as required by article 11.

(2) As for 2 (d) above, Embassy not convinced this article 76, paragraph 4 applies to allied military currency circulating in FTT. “Allied military currency issued in Italy” evidently does not apply to currency issued in ceded territories since responsibility for this currency lies with successor power. Furthermore, in other parts of peace treaty, when “Italy” used in broad sense to include territorial limits of Italy before coming into force of peace treaty, specific reference made to this point (see article 78, paragraph 7. Also as used in article 76, “Italy” appears to refer to territorial limits after coming into force of peace treaty). Peace treaty makes no mention of responsibility for lira in circulation in FTT when separate monetary system is established other than article 11, annex 7, which states currency supplied during provisional regime shall be subject such settlement as required between Italy and FTT.

Please instruct position to be taken regarding British request stated paragraph (2) above.

Inform Treasury.

Sent Department, repeated Paris for Gadel 712, Trieste 189.

Byington

1. In this telegram, not printed, Ambassador Dunn explained the British view that the Italian argument was a weak one, that is the argument that Italy could not supply lire to the Yugoslav Zone because Yugoslav lire were already circulating there. Furthermore the British urged that an Italian offer to supply lire to the Yugoslav Zone on the same conditions as to the UK–US Zone would be declined by Yugoslavia thereby undermining the Yugoslav position at the United Nations. (860S.51/11–448)
2. In this telegram, not printed, the Department indicated that it was not clear why the issue of supplying Italian lire to the Yugoslav Zone had arisen at this time, and stated that the Department preferred not to have the matter brought up at the Italo-Yugoslav conference of November 10. The Department suggested certain tactics in case the matter should be brought up by the Yugoslavs. (860D.51/11–448)
3. The report, not printed, was transmitted under cover of a letter dated November 1, 1948, addressed to the President of the Security Council, S/1066.
4. Memorandum from the Ministry of Foreign Affairs of Yugoslavia to the President of the Security Council by telegram on October 24, 1948, S/1054, not printed. With corrections it was re-issued as S/1054/Corr. 1, November 2, 1948.