860S.51/12–248: Telegram

The Acting Secretary of State to the Embassy in Italy


3018. Dept believes US, UK Ital interests Trieste better served by Ital offer supply currency Yugo Zone than by refusal tender such offer [Page 580] on grounds dubious merit so far been maintained by Ital FonOff in response Yugo notes (re Embtel 4520 Dec 2). Ital position would appear more defensible should demand withdrawal circulation currency other than metropolitan lira be accompanied by offer negotiate mutually satisfactory agreement supply lira.

2. Dept believes position Itals either forestall or refute possible Yugo charge failure implement Art 11 Annex VII Peace Treaty enhanced if offer made Yugos along lines provisions Peace Treaty. UK and US on record that Art 11 Annex VII involves arrangements along lines Mar 91 and July 312 agreements US–UK Zone. Further, Depts legal opinion supports contention Art 76 para 4 does not oblige Ital assume responsibility Yugo lira. Either of foregoing could cause sufficient disagreement between Itals and Yugos to render most difficult if not impossible agreement on execution Art 11 Annex VI. [VII?] Should such disagreement result in Yugo charges that conditions attached by Itals to offer of currency violate intent Peace Treaty, US would support Itals against such charge. Should, on other hand, Yugos be willing accept integration financial system Zone B with that of Ital, Dept believes resulting advantages such as Ital inspection and measure control financial policy would outweigh burden on Italy. Likely contingencies that would follow Ital offer to Yugos suggest such offer should be made.

3. We agree with Brit view that in absence Ital offer supply lira Yugos can argue with considerable validity that retention Yugo lira Zone B after 15 Sept 1947, although inconsistent with Art 11 of Annex VII made necessary by Ital refusal supply currency as required by that Art.

4. To avoid interpretation Ital offer during Paris SC meetings as response Yugo complaint against Yugo report SC Dept believes delay in approach by Ital FonOff to Yugos along lines set forth paras 1–3 above until some weeks after close Paris sessions SC is in order. Brit here being so advised. Note received BrEmb 1 Dec contains apparently same points made by UK Emb to you and indicates desire for quick approach FonOff. After agreement here with BrEmb on substance approach to FonOff we will authorize you forthwith join UK Emb necessary representations to FonOff.3

  1. See editorial note, p. 559.
  2. See telegram 3246, July 31, p. 569.
  3. In telegram 663 to Trieste, repeated to Rome as 3079, December 21, 1948, not printed, the Department of State explained that authorization to approach the Italian Government awaited clarification between the Department and the British Foreign Office regarding certain relevant wording of the Peace Treaty (860S.51/12–2148).