765.5–MAP/3–451
Memorandum by the Assistant Secretary of State for European Affairs (Perkins) to the Under Secretary of State (Webb)1
Subject: Visit of the Italian Ambassador scheduled for April 4, 19512
Discussion:
The Italian defense production program, announced in December 1950, provides for the expenditure of 250 billion lire ($400 million). Contracts against the full amount are to be let within calendar year 1951, although actual payments will lag considerably.
Negotiations are now taking place in Rome as to the amount of U.S. assistance Italy will receive in Fiscal Year 1952, to support this production program and to support the underlying economy.
The Italian Government has been informed that the aid presentation to the United States Congress will include the sum of $275 million for Italy; but that Italy will only receive this full amount if a number of conditions are met, principally that the Italian Government agrees to a continuation of its defense production program at an expanded rate after the end of calendar year 1951.
The proposed aid figure of $275 million has been worked out by ECA on the basis of availability of scarce materials as well as on the basis of the level of essential imports Italy will have to maintain to support an expanded defense production program. ECA and the Department considers that this amount of aid is probably sufficient to preserve Italy’s dollar reserves, while her reserves of other currencies will decline. This decline in non-dollar reserves will represent part of Italy’s contribution to her own defense.
It is expected that the Italian Ambassador will inform you that for both political and economic reasons the Italian Government cannot now give any public commitment for the continuation of its defense production program after the expiration of calendar year 1951; that the $275 million aid figure for Fiscal Year 1952 is entirely inadequate; and that aid of at least $400–$450 million is required to insure Italy against serious economic difficulties. In this connection, [Page 578] the Ambassador may indicate that the proposed level of aid would leave Italy’s balance of payments with such a large uncovered deficit (almost $200 million, mostly with the dollar area) that her reserves will be drastically reduced, with resultant loss of confidence in the stability of the lira both within Italy and abroad. He may further point out that no commitment whatsoever can be made for the continuation of the defense production program beyond December 31, 1951, unless U.S. aid is forthcoming in the amount indicated above, and unless the Italian Government is allowed to utilize counterpart funds for general budgetary requirements.
Recommendations:
You may wish to indicate to the Italian Ambassador that:
- 1.
- You will pass to the appropriate officers of the Department the information given by the Ambassador for the most careful consideration, in consultation with the other agencies concerned;
- 2.
- This Government is gratified with the Italian Government’s decision to proceed with the letting of contracts for defense production, without waiting for the conclusion of the aid negotiations now in progress in Rome;
- 3.
- This Government appreciates the efforts of the Italian Government and the strain that the proposed program, and its continuation in 1952, will put upon the Italian economy. You may wish to indicate, however, that the necessity for rearmament for mutual protection necessarily involves similar sacrifices on the part of all the North Atlantic Treaty partners, and that the U.S. is assuming a tremendous burden in this connection. You may wish to point out in this relation that total U.S. assistance programmed for Fiscal Year 1951 (military end items and economic aid) is greater than the total Italian defense expenditure; and that under present tentative plans for Fiscal Year 1952 the U.S. expenditure to support the Italian defense effort will be approximately equal to Italy’s total defense budget.
- 4.
- As the Ambassador knows, we intend to include in the Congressional Presentation a figure of $275 million as the support likely to be required for a maximum Italian defense effort. In any event, we expect that foreign aid appropriations will be made, as in the past, not on a rigid country by country basis, but with sufficient flexibility to permit us to relieve, in part at least, strains which may later develop in individual countries. If completely unforeseen developments arise, they presumably would affect also the other NATO partners and would be the occasion for congressional action.