The Ambassador in Italy (Dunn) to the Secretary of State 1
2324. When I saw Count Sforza just before his departure for Strasbourg, I took occasion to speak to him about Italy’s rearmament program. I pointed out that Italy appeared to be lagging behind other countries and said that although the Italian military authorities were now giving us some information about their plans for building up Italian Armed Forces and for the expenditure of the additional fifty billion lire, Italian Government had still not come forward with comprehensive production program which would enable us to discuss American aid. I pointed out that we could not usefully examine the part we could play in assisting production until we had a program to discuss. I emphasized that in addition to importance to Italy of a rapid buildup in armed strength, this appeared to be opportunity to put idle Italian factories and manpower to work, and I suggested that Italy should undertake an aggressive selling campaign with her other NATO partners.
Sforza said he would do anything he could to further the program and I understand that he has since discussed the matter with Prime Minister and that Italian Government is now preparing specific production plan.
An important obstacle to progress in this field has been the political situation within Italian Government. As Department is aware, the conflict within government over financial and economic policy has recently become more acute. As I understand it the position now is that Minister of Defense is pressing for more funds but so far has not submitted details of his plan for examination of the Economic Ministers on basis that this would constitute the abandonment of his responsibilities. Minister of Treasury Pella,2 on other hand, insists that country is already threatened with inflation and refuses to consider further expenditures unless he is informed of details in order that he may judge their effects on the economy. I understand that Pella recently again submitted his resignation over this issue but was persuaded to remain by Prime Minister. I hope that Prime Minister will now succeed in breaking deadlock.
I had occasion today to tell Pacciardi the US had no intention of urging Italy to expand military production to a point endangering its internal economy but we did feel there was something which could be done without reaching that point. What we were urging was the [Page 1501] drawing up of a comprehensive plan which could be examined and discussed.
While Pella may not be fully alive to the urgency of the military program, it must be remembered that he has courageously held out against wasteful expenditures and deserves much credit for his defense of the lira. It would be particularly unfortunate if he left the Cabinet under circumstances which suggested the abandonment of a sound economic policy under American pressure. Our problem therefore is a delicate one and will require great care if we are to achieve our rearmament objectives without bringing on a political crisis in the Italian Government which would cause serious damage to our interests.