860S.00/7–549: Telegram

The United States Political Adviser at Trieste (Baldwin) to the Secretary of State


465. Castellani head of Italian delegation Trieste claims Italian Government greatly disturbed over dinar–Yugoslav lire exchange arrangement for Yugoslav Zone. Confirms that Italian Government was on verge offering Italian lire to Yugoslav Zone and admits such offer might have forestalled Yugoslav move. From other source I learn that Italian official has expressed uncertainty as to how Italy can protest as Italian Government was responsible for delay in furnishing Italian lire to Yugoslav Zone. Impression here is that Italian officials very confused; consider Italian position vulnerable and deplore delay in implementing “De Gasperi project” to furnish lire to Yugoslav Zone.

Text of letter to Security Council from Military Government Yugoslav Zone1 as reported local press contains statement that in agreement with Yugoslav Government Yugoslav Military Government obligates itself to refund loan “as soon as Italy will offer substitution on basis of Article 76, paragraph 4 of peace treaty.” Letter concludes with following sentence: “Yugoslav Military Government is convinced this accord will guarantee undisturbed development and improvement of Yugoslav Zone economy and therefore its action is within spirit of peace treaty and in agreement with Article 2, annex VII of treaty.” This wording presumably intended justify legality of currency move by leaving door open for Italy to offer redeem Yugoslav Zone currency and by attempting justify Yugoslav loan to Yugoslav Zone on grounds of economic necessity. Latter is significant point as Zone B economy has deteriorated and Yugoslavs can make plausible case that [Page 512] deterioration largely attributable to effects of economic agreements between Zone A and Italy and unexpected prolongation of military government zones which forced Zone B turn to Yugoslavia for complete economic support.2

Paris telegram to Department 2752 July 13 gives French Foreign Office comments on “present and prospective” Italian-Yugoslav negotiations reference Territory Trieste. Would appreciate Department’s interpretation French reference to “present” negotiations concerning which I have heard only rumors.

Sent Department 465; repeated Belgrade 47, Rome 80.

  1. The text of this letter, dated July 2, 1949, was forwarded to Mr. Trygve Lie, Secretary-General of the United Nations, under cover of a letter dated July 5 from Mr. Joza Vilfan, Permanent Representative of Yugoslavia at the United Nations. (U.N. document S/1348, July 5, 1949)
  2. An aíde-mémoire of the Italian Embassy, No. 5800, of July 5, not printed, protested the Yugoslav action as violating the provisions of the Treaty of Peace with Italy (860S.00/7–549).

    Ambassador Dunn’s telegram 2060 of July 7, not printed, forwarded the text of the memorandum of protest delivered to him by Count Sforza on July 6 (860S.00/7–749).

  3. In this telegram, not printed, Ambassador Bruce reported that the French Foreign Ministry considered the situation was evolving steadily in a direction favorable to fulfillment of the declaration of March 20. He added that the Foreign Office:

    “Believes therefore best policy in general interest would be let Italians proceed at own pace in present and prospective negotiations and leave matter already developing well to direct contact between parties without interference from outside which might not be welcomed by parties and might inopportunely embarrass them.” (860S.00/7–149)